Target ends its Canada Chapter

The U.S. retail giant Target (TGT: NYSE) has shown the retailing world that you do not enter a market, dump 133 stores, and hope they become profitable overnight. This was a hard lesson that Target learned in Canada as it has decided to pull the plug on its stores there.

Last week in an interview with Business Insider, Target’s Chief Executive Officer (CEO), Brian Cornell, who is new to his position, announced the company would be closing its Canadian stores which employ 17,600 workers. In his statement, Cornell said the stores would not be profitable until 2021. This means Target will have to absorb some hefty losses. The chain has racked up $7 billion in losses in its failed Canadian venture. That includes $4.5 billion in opening costs and 2.5 billion in operating costs.

All of this happened before Cornell took the reins as he tries to clean up former CEO Gregg Steinhafel’s messes which include a massive data breach and the staggering failure in Canada.

A long time ago, now defunct retailer J.C. Penney, had a CEO named Ron Johnson who tried to reinvent the game and failed miserably. Steinhafel’s mess almost rivals Johnson.

Two Vastly Different Spending Cultures Caused the Doom

The United States and Canada, even though close neighbors, are two different species when it comes to consumer spending and behavior. To expect that just because you opened these stores, that they would be profitable overnight, was not even close to being smart. Nordstrom (JWN: NYSE) which fared better in Canada, opened one store. Tested the model, monitored progress and then opened more stores.

What to do with Target’s stock? Buy now. Not a lot, but start a position. Even if it moves a tad bit lower, Cornell is doing a lot of right moves, including hard decisions, to correct this sinking ship. There is a good chance that Target will become that respectable retailer it once was. Which means it could become a buy again.

While it is sad to lay so many people off, and smiling when something like this happens is wrong. This is not a good day, from a humanitarian view, but it was the correct business move from that standpoint and the right thing to do for shareholders of Target.