Can Canada ‘expect more, pay less’ at Target?

"Hello Canada! Expect more. Pay less," reads a Target Corp slogan promoting the U.S.-based company's foray north of the border this spring. But the key question is will consumers really pay less for the Target shopping experience in Canada?

It's too early to tell as Target has yet to open the doors to its 124 stores planned this year, but the answer is probably yes and no.

That's because the Minneapolis-based company already faces an uphill battle with everything from high tariffs on some imports to steep supplier costs blamed for goods being more expensive in Canada compared to the U.S., experts say.

Target Canada's success will depend on two factors: the ability to offer the same prices and variety of product and how rivals respond, said Robin Sherk, director of market insights at consultancy Kantar Retail of Cambridge, Mass.

"They're going to have some strong competition," said Sherk. "If they want to have that 'pay less' proposition it's just not a free sail for them."

"I think the question is who is the benchmark? Is it Targets in the U.S. or is it the local competitors."

For its part, Target vows to deliver.

"We know that price is a concern among Canadians and are committed to being competitively priced against the lowest price in the market," said Lisa Gibson, a Target Canada spokeswoman.

Gibson said Target will offer its 5 per cent "REDcard" rewards on almost everything in the store, characterizing that discount alone as a strong competitive advantage.

As well, the focus on designer partnerships and offering on-trend merchandise at affordable prices is also a huge differentiator. That probably also means consumers won't mind paying a small premium for such products.

"The number one thing we hear from our guests is the assurance that we are bringing the true Target experience to Canada," she said, noting its key strategy of making Target a routine, one-stop shopping trip for home, the latest in apparel or groceries.

Follow the price leaders

The company's launch comes at a time when the Canadian dollar remains at lofty levels, giving consumers more purchasing power. But retail prices remain stubbornly high compared to the U.S. A Bank of Montreal analysis last year suggested that prices in Canada are some 13-14 per cent higher than in America.

In the analysis, Doug Porter, the bank's deputy chief economist, said that disparity has resulted in more Canadians traveling south to shop. On the flip side, he noted there have never been fewer U.S. visitors to Canada, a big hit to the country's tourism industry.

Indeed, data released this week showed travel to Canada from the United States fell 1 per cent in November from the prior month, representing some 1.7 million visitors and, in part, reflecting the negative impact of a strong loonie.

"Like-to-like, in your city, in your country," is how Willy Kruh, global chair of consumer markets at KPMG characterizes the challenge Target faces.

"For a shaver, you're not going to drive to the U.S. to buy it. But you want to know that the shaver you're buying at Target is the lowest price, vis-a-vis Wal-Mart or Costco or wherever in Canada," he said.

Currently, Loblaw Cos Ltd dominates the overall Canadian retail market with just over $30 billion in sales, followed by Wal-Mart and Costco Wholesale, says Kantar.

Stiff competition

While price gaps are a key concern, Target isn't opening its doors in Canada to lose money, said Brian Yarbrough, a retail analyst with Edward Jones in St. Louis, Mo.

"Their goal is to be successful up there. You're not going to be successful if you price yourself out of the market. I expect them to be competitively priced just like they are in the U.S."

As Target gets set to fling open the doors of its chic stores -- there are some 620,000 likes on its Facebook page already -- the Canadian arm of Wal-Mart Stores Inc said on Tuesday it will open new stores and expand its distribution network. It is investing $450 million in the effort.

Yarbrough said Target is expected to closely watch plans and prices at key rivals like Wal-Mart, which has been aggressively expanding ahead of Target's arrival.

"They're always within a couple per cent of Wal-Mart. As long as you're in a percent or two or three, even up to five, I think you do OK," he said.

"If you're outrageously priced then people will definitely give you push back."