The buzz surrounding Target Corporation's move into Canada could quickly turn into a backlash if the U.S. retailing giant can’t deliver quality goods at prices similar to what it charges south of the border, experts say.
On Thursday, a year ahead of the official launch of its 135 stores across Canada, Target opened a temporary store on King Street West in Toronto to give consumers a taste of what to expect. The pop-up store featured clothing by Vancouver designer Jason Wu, with 100 per cent of sales going to United Way Toronto.
Thursday's soft launch was greeted with a long line of eager customers and much fanfare, a reaction that wouldn't surprise Detlev Zwick, a professor of marketing at York University. Many Canadians know the brand from U.S. shopping trips, and many expat Americans long for it. Target also fills a gap in this country, Zwick says.
"It’s going to be greeted with a lot of enthusiasm, especially by middle-class consumers in urban areas, where there is a gap in the retail landscape between the high end, with Harry Rosen and Holt Renfrew, and the low end, with Zellers and Wal-Mart," he said.
"The prices are excellent and the quality of the stuff you can buy in Target would cost 30 to 40 per cent more in other stores, if you can even find those brands."
Zwick moved to Canada 10 years ago from the U.S., where the Minneapolis-based Target has 1,763 stores. The lack of Target stores in Canada has been a constant lament among fellow expats, he said.
However, Target will run up against the same challenge as other U.S. retailers that have made a foray north – significantly higher operating costs, which are typically passed on to consumers through higher prices.
Higher taxes and retail labour costs that are about 20 per cent more in Canada are among the factors that affect pricing here, along with a smaller population, higher transportation costs and economies of scale that allow U.S. retailers to reduce costs.
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The price differential issue resurfaced last month after popular U.S. fashion retailer J.Crew opened its first Canadian store and first Canadian website, charging more here than in the U.S. and causing an uproar among consumers. Last November, Bank of Canada governor Mark Carney told a Senate committee that Canadians pay on average 11 to 20 per cent more than Americans for the same goods.
It’s not a question of whether Target will charge more in Canada but of how much more it will charge.
"Target will be an interesting case study for what they do in terms of their pricing strategy – how far they go before they piss off consumers," Zwick said. "Consumers can quickly turn against them if they feel they’re being gouged. Canadian nationalist sentiment might be flared up with feelings of U.S. retailers coming to fleece us."
But Zwick suggests Target might still get away with charging prices about 10 per cent higher in Canada than in the U.S., as consumers factor in savings from not having to drive across the border to shop.
"If Target is willing to replicate the value proposition they offer in the U.S., it will be a very successful move for them and for consumers, who will flock to them."
For retailers, Target’s move into Canada will ratchet up the pressure in an already competitive retail marketplace, said Kenric Tyghe, a consumer and retail analyst with Raymond James Capital in Toronto.
"It marks the beginning of the next wave of U.S. entrants to the mass Canadian retailing landscape. It's the single largest change to the retail environment since the entry of Wal-Mart."
Because the majority of Target's Canadian stores will be based in Ontario initially, its main competitors will be Wal-Mart, Shoppers Drug Mart, Loblaws and the Bay, Tyghe said.
Consumers stand to gain from potential price wars.
"Target can afford to compete on price to take market share because they are starting from zero, where the Canadian guys have to defend their market share."