Blogs & Comment

How Walmart unwittingly helped lure Target to its Canadian doom

Walmart started the ball rolling by offering to buy Zellers from HBC. But once Target was on the hook, Walmart walked away

Walmart low prices sign

Low prices, indeed: Walmart refused to overpay for Zellers, but Target rushed in with a higher bid. (Andrew Francis Wallace/Toronto Star/Getty)

“No dumb bastard ever won a war by going out and dying for his country,” U.S. General George S. Patton famously said in a 1943 speech. “He won it by making some other dumb bastard die for his country.”

The stakes may be lower, but the principle is the same in the sorry tale of Target Canada and its retail arch-rival, Walmart. Walmart, of course, didn’t goad Target into its disastrous overreach in Canada—but it didn’t have to. It had merely to sit back and watch as Target walked straight into the quagmire.

As Joe Castaldo writes in his in-depth Canadian Business feature, “The Last Days of Target,” the whole affair began with Zellers, Hudson’s Bay’s ailing discount arm. It was Walmart that first approached HBC in 2010 to investigate the possibility of buying Zellers. But HBC executive chairman Richard Baker, sensing an opportunity to get some competitive bidding going, invited Target to make a counteroffer:

After Baker’s team let Target know Zellers was on the block—and Walmart was interested—the American company acted quickly to finalize its own offer.

A huge, well-capitalized rival already on the inside track and a ticking clock on the deal—you can see why Target, in the heat of the moment, wound up overpaying for the dowdy Zellers chain. The cooler heads at Walmart withdrew from the bidding instead:

Walmart would eventually back out, but Target put down $1.8 billion. Steinhafel bought everything, essentially committing the company to opening stores as quickly as possible to avoid paying rent on stores that weren’t operational and leaving landlords without anchor tenants. The price Steinhafel paid raised eyebrows. “When the numbers got up as high as they did, we found that pretty surprising,” says Mark Foote, the CEO of Zellers at the time.

There’s lots more amazing material in the full feature, which is now online. Check it out in full here.

Photo of abandoned Target store with “This Is A Disaster” scrawled over it