Yesterday the official announcement came on a deal that has been rumored for the last little while, Target is acquiring Zellers from Hudson’s Bay Company (HBC). The deal values the chain at $1.8B, and Target won’t actually open a store in Canada until 2013. Since Zellers leases all their retail space, the deal is just for the right to take over the leases if Target chooses. There are currently 220 Zellers stores, Target will close some stores to lower the number to 100-150 stores. The Zellers brand will remain until Target rebrands the stores.
As a Canadian consumer, let me just say one thing: YESSSSSSSSSS!
Have you been to a Zellers lately? I have never seen a nice Zellers. They are all dumps. What a horrible shopping experience. You know your stores are crap when Walmart and No Frills seem like palaces in comparison. Nobody buys clothes there, their food section is beyond horrible and everything is just grungy and dirty. They clearly don’t spend more that $1.25 a year maintaining their stores.
The restaurant is pretty solid though. I like the milkshakes.
Zellers was always HBC’s forgotten little brother. Things were going along great, then Walmart showed up in 1994. Zellers promptly got their ass kicked by real competition. It’s clear to anyone with a set of eyes and a functioning brain that Zellers needs some sort of change. The stores languished and the stock price of HBC sank right along with them.
The company was purchased by Jerry Zucker in 2006 for $15.25 per share after a long fight between him and HBC’s board of directors. Jerry’s wife sold the company to Richard Baker’s NRDC Equity Partners in 2008 after Jerry passed away from brain cancer. The final price for that deal was $1.1B. Baker has already made a profit from the deal. Zellers represents about half of the company, the other half are HBC stores, as well as Home Outfitters and Fields. Baker plans an IPO for the rest of the company at some point in the future.
It’ll be interesting how another player in the Canadian retail market affects Sears Canada or the existing HBC stores. While Target is a discounter, they do a nice job being trendy and cool. When people look for cheap stuff they go to Walmart. When they go shopping for stuff a little nicer, they go to Target- hence the nickname Tarjay. Walmart isn’t really scared of any competition, but Target is a threat to Sears.
What always happens when a new chain opens is people flock to the new guy. Over time, they settle down and get their share of the market. They take a little from store A, a little from store B, harming everyone a little but no one critically.
Then there’s Fields.
If you live in a small town in western Canada, chances are there’s a Fields in your community. The stores are small, (less than 30,000 square feet) crowded, ran down and only benefited by being the only choice in town for children’s clothes and certain household essentials. They make Zellers’ stores look like Banana Republic. For some reason, there are still 150 of these dumps still open. They are everything that’s wrong with retailing and I want them dead.
As a consumer, I’m excited for Target to get to Canada. I want to go check out their stores. They’re famous for having nice clothes at decent prices, so I’ll probably buy something nice so I don’t look like a hobo anymore. Maybe Target paid a little too much for the space, but at least they’ll gain a foothold immediately and they’ll have some high traffic mall locations.