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Target Gets Approval for Canadian Expansion

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Target Gets Approval for Canadian Expansion

On Friday, Canada’s federal government ruled that Target Corporation (NYSE:TGT) can takeover Zellers Inc. stores across Canada. It will also require the retailer to invest $3.5 billion in the Canadian stores and sell “uniquely Canadian cultural products.”

According to The Windsor Star,  Target Corporation will be required to hire up to 25,000 people by 2015; this equates to approximately 100 to 200 employees per store. It will also have to sell products related to Canadian businesses and the company will have the Canadians participate and invest in cultural events and organizations.

A spokeswoman for Target didn’t give details on how the change will affect products seen by store shoppers but corporate spokeswoman Lisa Gibson did say, “We will be sharing details around our merchandising strategy at a later date. We have had ongoing conversations with our suppliers, including domestic suppliers, for some time now.”

The first Canadian Target stores are slated to open by April 2013 said Gibson.

The news was announced on Friday by Heritage Minister James Moore. This came after a three-month review by the cabinet as required by the the Investment Canada Act. Under this, the federal government has the right to review foreign investments in Canada and determine if there is a net benefit to Canada’s cultural sector, reported Canada.com.

This isn’t the first time Canada’s federal government has required a foreign company to sell the Canadian cultural goods in order to enter the marketplace. One business expert doesn’t support this requirement.

Ken Wong, a business and marketing expert from Queen’s University in Kingston said to The Windsor Star, “When you start to force Target to accept a level of Canadian content, you are affecting the nature of the store. That’s inappropriate. It’s protectionist under any other name.”

But Target can’t be too surprised by the government’s requirements. It’s had its eye Canada for over a decade.

In January 2011, Target announced a $1.83 billion deal to acquire around 220 Zellers’ store leases from Hudson’s Bay Co. Target will open between 125 to 135 stores in Canada and then sell the leases for stores it won’t need.

Overseas Expansions Bring Profits

So why expand overseas? It brings in money.

According to a Trefis report after Target reported its fourth quarter earnings, it estimated that international operations contributed approximately seven percent to Target’s valuation with the potential for additional growth. Target is supposedly looking at Mexico and Puerto Rico to expand.

With Friday’s news of Target’s Canadian expansion, it isn’t the first retailer to do so. Wal-Mart Stores Inc. (NYSE:WMT) has been expanding its reach for some time–enough so that it got in a little bit of trouble doing it (see Mexican bribery case). The company has its eyes on nations including Brazil, Colombia, Japan and Latin America for additional expansion.

For its overseas expansion, Wal-Mart has also been saying show me the money. Its revenue has seen a 10-time rise as compared to its its U.S. sales pace, reported the Atlanta Black Star.

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Sheeraz Raza

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