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U.S. Retailers Set To Invade Canada

While facing a saturation of domestic store footprints at home and rising competition from online retailers, big-budget U.S. chains are eager to set up shop in the Canadian market. Target is preparing to move into Canada by spring of 2013, opening between 125 and 135 stores at locations once owned by Canadian retailer Zellers.

Target’s arrival in Canada will threaten the sales of several market rivals. According to a new report by Barclays Capital, Sears Canada, Wal-Mart, Old Navy and Loblaw’s Joe Fresh brand will be most at risk. “Over time the greatest risk to established retailers is the permanent change in customer traffic patterns that Target could induce,” the report said.

With the U.S. brick-and-mortar retailers in defensive mode, Canada is an irresistible growth opportunity. A recent report by real estate consultancy Colliers International found that the U.S. has 23 square feet of retail space per person, averaging annual sales of $309 Canadian dollars for every square foot. The comparable figure in Canada is 14 square feet, while boasting annual sales of $580 for every square foot of retail space. Compared to the U.S., Canada has fewer stores to shop and the successful retailers make more money.

“Canada, albeit a smaller market, provides a way for retailers to grow internationally that feels more comfortable and affordable,” said Wendy Liebmann of consulting firm WSL/Strategic Retail in an interview with MarketWatch. With the saturation of U.S. stores, “retailers can’t grow by continually adding stores in the U.S. (The trend) is driven by the reality check.”

Last month, Nordstrom Inc. announced its plans to enter the Canadian market in 2014. Bloomingdale’s is working with Hudson Bay Co. to bring the brand across the border as early as this fall, according to the Globe and Mail. Limited Brand Inc.’s Victoria’s Secret opened its first Canadian storefront in 2010. Wal-Mart, Costco, Sears, Marshalls, J.Crew and Tanger Outlets already have operations there.

Statistics Canada reported last month that Canada’s retail sales in July rose 0.7% to 38.99 billion Canadian dollars (US$39.83 billion), ahead of market expectations for a 0.2% gain. This was the strongest one-month gain since October of 2011, when sales rose 0.8%. According to CBC News, Canada’s economy is booming–with 52,000 new jobs created in September and 34,000 jobs in retail alone. From the most recently available data from Retail Council of Canada, retail employment represented about 2 million or 12% of Canada’s total working population in 2009.