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Target Buys Canadian Department Store Zellers for $1.8 Billion

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Zellers, eh? What is Zellers? And what does this mean for Target? Here's what you need to know.

Target (TGT) has agreed to buy Hudson's Bay Company-owned Zellers, Canada's second-largest chain of department stores. Why?

First things first.

What is Hudson's Bay Company, the parent of Zellers?

Hudson's Bay Company, the parent of Zellers, is a retailer that operates department stores in every Canadian province.

What is Zellers? What do they sell?

Zellers, founded in 1931, operates 276 stores across Canada. Similar to the transition Target made in the late 1990s, Zellers has been moving away from discount merchandise and introducing better-quality merchandise. This deal will ultimately eliminate the Zellers name from the Canadian retail market

Why does Target want Zellers?

Target, which will open its first Canadian store in 2013, will now gain access to existing locations as it expands outside of the U.S. for the first time in its history. According to Canada's Globe and Mail, the company will likely open 100-150 stores between in 2013 and 2014, and then sell the remaining Zellers locations to other retail chains, such as Wal-Mart (WMT) and potentially Kohl's (KSS) and J.C. Penney (JCP).

What kind of deal is this, and what does it mean for Canada's retail market?

The deal is $1.825 Canadian Dollars, but was more complex to work than it appears due to the size and scope of the Zellers locations. Multiple landlords and retailers were involved in the negotiations. Canada will lose Zellers, of course, but in the long run gain an array of new retailers.

And, last but not least, the stock?

Shares of Target (TGT) opened higher and are now trading up about 1 percent in early trading even though the broad market, as measured by the S&P 500 (SPY) is down slightly.
POSITION:  No positions in stocks mentioned.