Target's $1.825 Billion Buyout of Zellers to Drive Traffic to Canadian Malls

Strategic Insights -

Canadian shopping malls and consumers will reap the benefits of the marketing might of American retail giant Target Corp. following the $1.825 billion buyout of Zellers Inc., according to analysts and mall owners. The deal will likely drive traffic to malls and have a large spillover effect to other tenants, said Ed Sonshine, president and CEO of RioCan REIT, which has 34 Zellers stores in its properties.

As part of the transaction, Zellers will sublease the properties back from Target and operate them as Zeller's stores until they are converted. Zellers will continue to operate some stores across Canada, and Target expects to open up to 150 stores by the end of 2014, with the rest likely going to other retailers.

"This is a terrific statement about Canada and the confidence that American retailers have in this country," said Blake Hutcheson, CEO of Oxford Properties Corp. "I think this will certainly help to re-energize the malls, and give consumers choice." Sonshine noted that there is a "lineup" of American retailers who would love to find a Canadian foothold.

Key Takeaways:

  • The $1.825 billion buyout of Zellers Inc. by Target Corp. is expected to drive traffic to Canadian malls and have a large spillover effect to other tenants.
  • Zellers will continue to operate some stores across Canada, and Target expects to open up to 150 stores by the end of 2014.
  • The deal will give Zellers a significant boost, allowing them to renegotiate leases and potentially reap the benefits of the Target brand.
  • The agreement is seen as a major coup for American retailers, who have long been looking to expand into the Canadian market.
  • The combination of Zellers and Target will provide Canadian consumers with increased choice in the retail market.
  • The deal is expected to have a positive impact on the Canadian economy, creating jobs and stimulating economic growth.

Statistics:

  • The deal is valued at $1.825 billion (Toronto Star)
  • Target expects to open up to 150 stores by the end of 2014 (same source)
  • Zellers has 85% of its locations in malls (Cushman & Wakefield)
  • The U.S. has approximately 23.8 square feet of mall space per capita (Cushman & Wakefield)
  • Canada has approximately 14.5 square feet of mall space per capita (same source)
  • Real estate costs are higher in Canada due to the rising loonie (same source)
  • The best way for a major retailer to make a move on the Canadian market is to take over existing mall locations (Cushman & Wakefield)

Sources:

  • Tony Wong, Toronto Star
  • Ed Sonshine, President and CEO of RioCan REIT
  • Blake Hutcheson, CEO of Oxford Properties Corp.
  • Ken Wong, Marketing Professor at Queen's University School of Business
  • John Crombie, National Retail Director for Cushman & Wakefield