Beating Target: Kohl's Stealthy Push Into Canada
Kohl's (KSS) is apparently scouting retail space in Canada in what may be a preemptive strike against Target (TGT) -- one that's well worth making.
The Toronto Globe & Mail first reported that the retailer has been looking at potential store sites in Canada. While denying any imminent move, Kohl's responded to the news report by saying that it was only checking out Canadian real estate as part of its routine real estate-related practices. Of course, that routine requires passports, airfare, expense reports and an actual interest in the market, no matter how casual Kohl's makes it sound.
Target has publicly expressed interest in developing Canadian operations, which would complicate any plans of Kohl's to move into the market. Walmart (WMT) and Zellers are more stylish in Canada than their counterparts in the U.S. and are more directly competitive with Kohl's. Sears (SHLD) and rival Hudson's Bay (HBC) have both luxury and lower-end department stores, the latter similar to the U.S. Sears operations that already contend with Kohl's. TJX is in the market, too, with its Winners chain. Kohl's would have to deal with the whole bunch even without Target.
Yet Kohl's could be a hit in Canada, in part because it has such a wide range of brands aimed at specific demographics and tastes. Kohl's could position itself as a cosmopolitan alternative to sophisticated but less diverse rivals and a unique addition in the market. Also, Kohl's presents its product line as comparable to upper-end department stores at lower prices, another incentive to Canadian consumers who typically have less disposable income than Americans.
Kohl's even has a famous Canadian, Avril Lavigne (pictured above), designing for it. Don't think the company won't promote her presence to position itself as a friendly American expat rather than a Yankee invader.
Internet initiatives may make a Canadian move more attractive as well. In the company's last conference call, Kohl's CEO Kevin Mansell said he believes traditional retailers will see online sales growth continue to outstrip that at stores. A significant proportion of Kohl's online sales, which exceeded expectations in the latest quarter, have come from U.S. markets where it has few or no stores. If those trends survive the border crossing, Kohl's could begin building e-commerce operations across Canada as soon as it initiates operations.
On top of everything else, retailers in Canada have done better in an economy that has experienced a softer recession than those in the U.S. And retailers don't as densely populate Canada as they do the U.S.
In a conference call earlier this year, Target said it might take three to five years for it to move into Canada. By revealing its timing, Target may be pushing Kohl's to accelerate plans for Canadian development. Target would be a major rival not only for sales but real estate, so the first to move would enjoy a literal advantage on the ground.
Plus, if Kohl's enters the market first, a lot of the ire about invading Americans may fall on the latecomer as the retailer that's just taking things too far. In crossing the border first, Kohl's might benefit from a little casual xenophobia.
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