Target Invests in Real Estate for Canada Expansion

The retailer will pay $1.825 billion in Canadian currency to take over the leases of up to 220 retail sites now operated by Zellers, Inc.

Target Corporation has begun paving the way for its expansion to Canada.

The Minneapolis-based retailer said Thursday that it has agreed to pay $1.825 billion in Canadian currency (amounting to about $1.846 billion in U.S. currency) to take over the leases of up to 220 sites now operated by Canadian retailer Zellers, Inc.

Target said the deal will allow it to open its first Canadian stores in 2013.

The purchase price will be divided in two-and one payment will be made in May and the other in September. Zellers will sublease the sites from Target and continue to operate them operate them under its banner “for a period of time,” according to Target.

Company spokesman Eric Hausman told Twin Cities Business on Thursday morning that it's “too early to say” which areas of Canada Target will favor for its new stores. “The process can clearly start now in terms of doing our research and due diligence” to make that determination, he said.

What Target will say is that it expects to open between 100 and 150 stores throughout Canada in 2013 and 2014-and it intends to invest more than $1 billion in Canadian currency to renovate the leased sites. The company also said that “the financial returns on these stores are expected to be in line with returns on new Target stores in the United States.” The stores will prompt diluted earnings prior to the store openings but be accretive to earnings in the first full year of store operations.

The initial stores will “provide a strong, initial foundation for a more robust Target presence in Canada over time,” Target said.

The retailer said that its Canadian expansion will create “thousands of jobs” for Canadians in the coming years through store renovations, expansions, and new construction-along with store operations. After the stores are remodeled and open, Target will hire “tens of thousands” of employees to operate them. The company didn't provide a specific number, but a typical Target store in the United States employs between 150 and 200.

The Hudson's Bay Company, which operates Zellers, said in a news release that the sale of the leasehold interests is estimated to create more than 20,000 new jobs in Canada and has the potential to generate more than $1.5 billion in economic activity through the renovation of the Zellers stores.

According to the Web site of Toronto-based Hudson's Bay Company, Zellers operates 279 retail locations in every Canadian province-giving Target numerous options for its expansion.

In January 2010, Target said that it was eyeing international expansion within the next five to 10 years-and it named Canada, Mexico, and Latin America as possible expansion sites. In October, following much media speculation about an expansion in Canada, a Target spokeswoman confirmed the retailer's plans to open stores north of U.S. borders.

Target's Thursday announcement about its deal with Zellers comes after speculation that Zellers would be sold to a U.S. retail chain-possibly Target.