Target’s closure of its 133 Canadian stories has left gaping holes at some of the most prominent shopping centers across the country, the biggest symbol of an exceptional period of retailing turmoil.
TORONTO — Target’s exodus from Canada has left gaping holes at some of the most prominent shopping centers across the country, the biggest symbol of an exceptional period of retailing turmoil.
As Target Canada closed the last of its 133 stores this month — completing the parent company’s hasty retreat from its first international expansion, a move that prompted a $4.5 billion write-down — many landlords were left holding properties whose fates are uncertain. They, along with many other creditors, argue that Target is abusing Canadian law at their expense as it leaves the country after less than two years.
“There’s anger among the landlords,” said Darren Kwiatkowski, executive vice president of Shape Properties in Vancouver, B.C., which owns two malls where Target was a tenant. “There were high expectations from landlords and consumers when they came, but the result was only a B effort. Now they’re pushing the boundaries of the legal system for their company’s self-interest.”
Many shopping centers have experienced similar departures. Sony closed its 14 Canadian retail stores and ailing Sears Canada has gradually sold its most valuable leases. One Saturday morning in March, Best Buy suddenly shut all 131 stores it operated under the Future Shop brand, although 65 will reopen under its name. And Staples has closed 15 Canadian stores.
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(A few retailers have been cautiously expanding in Canada: Nordstrom, Saks Fifth Avenue and La Maison Simons from Quebec among them.)
And while Target’s decision to abandon Canada altogether shocked analysts and consumers, the company stunned some creditors and financiers with its exit plan. It obtained an order from the Ontario Superior Court of Justice granting the company creditor protection under a Canadian law normally used by businesses that need a break as they reorganize their debts to continue in business — much like Chapter 11 of the U.S. Bankruptcy Code.
Going that route gave Target much more control over the shutdown than a filing under Canada’s separate bankruptcy law would have offered. But given that Target Canada’s parent company is far from insolvent, several lawyers representing landlords questioned Target’s decision to seek any sort of court protection.
“The creditors weren’t banging on the doors,” said Heather Ferris, the chairwoman of the Canadian Bar Association’s national insolvency section, who is representing Shape.
Target said that the court process was the most equitable way to treat creditors and the thousands of Canadian employees left jobless.
“Target Canada’s aim throughout has been to conduct the process in a fair and orderly way,” Aaron Alt, the chief executive of Target Canada, said in an email. “Winding down a multibillion-dollar business with 17,600 employees and almost 150 locations is a complex process involving a broad group of parties.”
For most of the landlords, the company’s decision to go to court has several direct consequences.
David Ullmann, a Toronto lawyer who is representing two Target landlords, said the retailer’s use of the restructuring law left it with complete control of the properties, which also include leased warehouses and office space, until the end of June. While Target tries to sell its leases, landlords cannot try to find new tenants.
Similarly, he said, likely lease buyers, like major Canadian retailers, have been required to sign agreements forbidding them from discussing negotiations they may be in with Target’s real-estate agent, Lazard.
“Right now the landlord doesn’t know if the space is being sold,” Ullmann said. As a result, many landlords may find themselves without a tenant by the end of June. Even worse, they will also have done little formal work to fill their empty spaces.
“You could end up well behind the 8-ball,” Ferris said.
Ullmann said that the court may allow Target to sell leases to tenants that landlords do not want in their malls. Some potential tenants may violate landlords’ agreements with other tenants. Or the newcomer could be something like a home-improvement store, which might disrupt parking.
Two of Canada’s largest landlords, Oxford Properties and Ivanhoé Cambridge, both owned by pension funds, avoided that potential headache at 11 desirable locations simply by paying Target $138 million Canadian dollars ($113 million) to take back their leases.
About half of the landlords will see compensation regardless of how much money is left over from the going-out-of-business sale. Their Target Canada leases were guaranteed by the U.S. parent company, although Ullmann said it was unclear exactly how much money they would ultimately receive.