TORONTO - Zellers stores across Canada will begin to disappear starting next year as major U.S. retailer Target moves into many of their locations across the country.
Target (NYSE:TGT) said Thursday it will spend $1.83 billion to buy up the leasehold interests in up to 220 Zellers stores from the storied Hudson's Bay Company in its first expansion outside of the United States.
Though the Zellers brand won't disappear immediately, the deal is the first step in Target's plan to have between 100 and 150 of its stores open in Canada by 2013.
"This transaction provides an outstanding opportunity for us to extend our Target brand, Target stores and superior shopping experience beyond the United States for the first time in our company's history," Target president and CEO Gregg Steinhafel said in a statement.
"We believe our investment in these leases will strengthen the surrounding communities as well as create strategic and financial value for Target stakeholders."
The U.S. retailer, which helped coin the phrase "discount chic," has long been exploring opportunities north of the border. However, it hit several roadblocks that ran the gamut from unattractive real estate locations for potential stores to the economic slowdown that reined in consumer spending.
Under the agreement with HBC, executives at Target will have the opportunity to cherrypick up to 220 stores from the 279 locations currently under the Zellers banner. Both companies will negotiate those details throughout this year.
The fate of the outstanding 60-odd retail spots has yet to be decided, but many could be sold to other retail giants like Wal-Mart Stores Inc. (NYSE:WMT) or they could remain in the hands of Hudson's Bay, HBC spokeswoman Freda Colbourne said in a telephone interview.
"The company still has plans to operate a portfolio of Zellers stores in some communities across the country," she added.
One likely scenario would see Target buying up highly trafficked stores in urban and suburban areas, while HBC would maintain ownership of smaller locations in rural areas, including northern communities.
"The company is still going to run a chain of Zellers stores, it just might be a little bit different than today, but for the next 12 months nothing is changing," Colbourne said.
Target says that under the agreement Zellers will continue to lease the locations from Target and run them as Zellers stores "for a period of time."
