As Target’s buzz builds, Wal-Mart rolls out expansion plan

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Wal-Mart Canada is planning to spend $450-million on expanding its operations this year, but insists it is not worried about the looming incursion of rival Target stores into the Canadian retail market.

The company said it will spend the money to expand its distribution network and complete 37 more "super centre" stores – large outlets that sell groceries along with other merchandise. Many of those will be conversions and renovations, however, and the company will have just nine more stores at the end of January, 2014, than at the end of its current fiscal year on Jan. 31 – for a total of 388.

Wal-Mart spent far more – $750-million – on expansion in the year just ending, adding 46 new stores, although 39 of those were former Zellers stores it purchased in 2011.

(Those stores were bought from Target, which had picked up more than 200 Zellers leases but didn't want to keep all of them.)

The acquisition of those Zellers outlets caused an unusual burst of activity, so the planned 2013-2014 expansion "is really in line with what we have been doing for the last many years," Wal-Mart Canada chief executive officer Shelley Broader said in an interview on Tuesday.

Wal-Mart Canada's response to the arrival of Target stores into the Canadian market will be simple: emphasize its own low prices and "one-stop shopping" service, Ms. Broader said.

The company prefers not to worry about any single competitor, she said, but instead plans to concentrate on its strengths. "Our strategy is to save people money so they can live better, and to keep our own operating costs as low as we possibly can so we can pass all those savings on to our customers."

The retailer also wants to ensure its customers can buy everything they need in one location – a place "where they can get apparel, and bedding, and dinner, and ride home on a new bike, if they chose to," Ms. Broader said.

While Target's design-oriented cool factor sets it apart, Ms. Broader said Wal-Mart's vast worldwide network can sometimes bring in new items – like patio furniture – that have unique designs. "We continue to up our style quotient when the customer values that."

The purchase of the former Zellers locations brought far more than just more space, she said. It gave Wal-Mart a leg up on its long-term plans to expand into the urban cores of big cities and to open some stores with smaller footprints.

"It would have taken us years to learn what what we've learned in this one year with those 39 Zellers stores," she said. "It is speeding up our learning curve significantly."

Most of those Zellers stores are smaller than standard Wal-Marts, and many are in locations that tend to be more densely populated, close to city centres. "We've learned … how small we can go," Ms. Broader said. That includes concentrating and limiting stock, and gearing products for certain demographics or ethnic populations.

Ms. Broader acknowledged that another of Wal-Mart's competitive threats comes from a range of cut-price stores such as Dollarama, which are focused on the same price-sensitive customers. Wal-Mart's main advantage in this area is that it offers one-stop shopping that the dollar stores can't, she said. There is a cost associated with time it takes to travel to more than one retailer, she said, and that message will form a part of Wal-Mart's marketing efforts going forward. "You'll start to see us emphasizing that."

While Wal-Mart Canada may be adding some smaller outlets, it is the large super centres that are key to its success, said Toronto-based retail consultant Wendy Evans. "The super centre has been the engine of growth for Wal-Mart," she said, noting that these stores deploy the latest in new merchandising strategies, thus helping boost productivity.

It is clear Wal-Mart is keeping a close eye on Target's move into Canada, she said. "They know the model Target is bringing up, the technologies they will use."

Doug Stephens, president of Retail Prophet Consulting, said Wal-Mart needs to be wary of Target's entry into Canada, despite Ms. Broader's sanguine approach. First of all it is clear there is a "degree of excitement" among Canadians around Target's arrival, he said. In addition, "any time you are in a marketplace where you are dealing with the exit of a comparatively weak competitor in Zellers, and the subsequent entry of a competitor that is world renowned for merchandising, great marketing alliances and product development, any prudent retailer would be concerned about that."

In this environment, "complacency is definitely not the right strategy," he said.