"The only successful concept to work against Wal-Mart has been Target," retail consultant Richard Talbot said Friday. He said Zellers has already been trying to use some of Target's techniques, increasing the size of its stores and offering more designer fashions than its American rival.
But while Zellers has been holding its own, it hasn't been growing and probably needs a "quantum leap," Talbot said.
"Target, in my mind, is an absolutely perfect fit for Canada. It's a slightly more upscale Wal-Mart. So it appeals to a wider range of customers and it's has a little bit of a cachet to it."
While neither Target nor HBC commented on rumoured talks between the companies, shares of Hudson's Bay Co. rose five per cent Friday to their highest point in 2½ years after a report that a deal could be imminent.
Hudson Bay's stock has been on the upswing for more than a year, bolstered by profitable if lacklustre results and speculation that Canada's oldest company, owner of the Bay and Zellers chains, could be a takeover target.
"I think there's obviously a takeover premium in the stock," said George Hartman, an analyst with Dundee Securities.
HBC stock got its latest boost from a report on Friday, citing unidentified sources, that Target is in advanced talks to buy part or all of Hudson's Bay Co., a 334-year-old icon that traces its history to the fur trade.
It was said Target might offer $16 to $16.50 per share for HBC, or up to $1.14 billion. Target's real target would likely be some of the bigger locations in the 348-store Zellers discount chain.
Zellers has recently been the laggard in the HBC group, which also includes 99 higher-end Bay department stores and 45 Home Outfitters home-decorating big boxes.
Hudson's Bay stock (TSX:HBC) closed at $15, up 75 cents or 5¼ five per cent, after hitting $15.30 during Friday's session - the first time since April 2002 that it had topped $15.
Target (NYSE:TGT) was up $1.04 to $42.94 US on the New York Stock Exchange.
A spokesman for the largest shareholder in Hudson's Bay, American businessman Jerry Zucker, said his company has never had discussions with Target and was surprised by the attention paid to the news report.
"I think it was essentially a rehash of rumours I've heard for a number of years," Robert Johnston said from North Charleston, S.C.
Johnston said Zucker's U.S.-based InterTech Group and Canadian-located Maple Leaf Heritage Investments have been in frequent talks with Hudson's Bay Co. as the company's largest shareholder.
"We've told them what our objectives are. We may buy more stock, we may sell some and, depending on how things go, we may make a tender (offer) for all (the shares.) What we've told them is essentially the same we've said in public."
Johnston stressed that Zucker is a strong supporter of Hudson's Bay Co. and its management, and considers the retailer's stock undervalued.
Minneapolis-based Target recently sold its Marshall Field's stores and will soon complete the sale of its Mervyn's stores. The two transactions will bring $5.3 billion US to Target, which continues to own 1,272 Target and SuperTarget discount stores in 47 states.
On Thursday, Target vice-chairman Gerald Storch told analysts that "we all believe at some point - I don't know if that's five years, 10 years or who knows when - Target will be international as a retailer. But we will do that only when we find the appropriate vehicle for accomplishing that."
Analysts say that if the Zellers stores are sold, Target is the natural buyer and probably wouldn't face a challenge from any other bidder.
"A certain number of Zellers stores are designed almost exactly like, if not exactly like, Target stores," said Dundee's Hartman.
"I'm sure Target would be very successful here. I'm sure they could certainly exceed Zellers' productivity and return."
While Wal-Mart is the undisputed leader in attracting cost-conscious shoppers, Target appeals to more style-conscious buyers.
"You're getting some degree of glamour," Dundee's Hartman said, "but you're getting something at a reasonable price that has a degree of fashion content."
Stumble It!
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If I stand for my country today...will my country be here to stand for me tomorrow?
You regulars don't know what you stand for. You subscribe to a site that purports to halt the disasterous levels of foreign ownership currently prevailing the Canadian economy; yet when an economic and cultural institution of a Canadian company, HBC, is on the verge of being bought out by the Yanks, you barely muster a yawn-or worse respond with some marxist dribble. No wonder anyone takes Canadian nationalists seriously. If vive is the best voice we have, Canada is surely done. Thankfully, though, it is not. There are far more thoughtful and intelligent nationalists out there.
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Alliance Atlantis films proudly presents...
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Dave Ruston
Come on people, its just a store!
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Darren Olson
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"We shall be Canadians first, foremost, and always, and our policies will be decided in Canada and not dictated by any other country." - Diefe
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If I stand for my country today...will my country be here to stand for me tomorrow?
Canadians are too apathetic to care and we have to compensate with an over nationalistic attitude
The fact is that Bay/Zellers management, while doubtless maintaining their wages and 'perks', have not been able to keep up with the times or develop a successful strategy to deal with stores like Wal-Mart. Many who may have preferred to shop at Zellers have been turned off through the years for a number of reasons directly resulting from Zellers ineptitude at managing and stocking their stores.
This isn't purely a Canadian condition. Many U.S. retailers have also been caught 'sitting on their laurels' believing that because people have shopped at their business for many years, they'll continue to do so out of loyalty with few if any changes being required from the retailer.
Let's say it was possible to enact legislation preventing expansion of Wal-Mart type stores into Canada, or aquisition of Canadian retailers by foreign interests. All that would end up happening is Canadian consumers being left to the mercy of incompetently run Canadian retailers, trying to squeeze the most profit out of relatively shoddy foreign made or Canadian made goods, as is currently the case with Zellers.
Those close enough to the border would be cross-border shopping whenever circumstances and the value of the Canadian dollar allowed.
Years ago I tried to shop Canadian. I eased off on this through the years due to many experiences in which it seemed apparent that many Canadian companies were using the 'shop Canadian' concept to pawn off poorly made goods at a premium price.
One of the difficulties is that North American companies can only compete in many areas on the basis of offering quality goods at a higher price than their foreign made counterparts, and either nobody wants quality anymore or the foreign goods also offer quality at a lower cost.
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"When we are in the middle of the paradigm, it is hard to imagine any other paradigm" (Adam Smith).
If HBC gets bought out by an American company I will say good riddence and never shop in one of their stores again and shop somewhere that is Canadian or better value.
The reason why Zellers is doing poorly is because the variety, Wal-mart has better variety and customer service than Zellers and alot bigger. The Bay needs to advertise more about their stores, same with the other stores owned by HBC.