[BRIEF NOTE] On Zellers

[rfmcdonald]

Venerable Canadian retail chain Zellers (official site, Wikipedia), after nearly a century of existence, is facing its doom.

U.S. retailer Target said Thursday it is buying the store leases of Canadian discount retail chain Zellers from the U.S. investor who owns the Hudson's Bay Co. assets for $1.8 billion.

Under terms of the deal, Minneapolis-based Target will make two payments of $912.5 million in cash, in May and September 2011, to acquire the leasehold interests of 220 Zellers locations in Canada.

The Zellers locations will continue to exist under that brand name for "a period of time," HBC said in a release. But Target will convert 100 to 150 of those Zellers locations to Target stores in 2013 and 2014 and possibly sell the rest of the current Zellers network of store leases to other retailers.

"I think there would be a number of U.S. retailers that would feel that there is opportunity to make some inroads in Canada," said Paul Taylor, chief investment officer at BMO Harris Private Banking.

But the fate of the 70-odd Zellers stores that aren't destined to become Targets is far from clear. "The company still has plans to operate a portfolio of Zellers stores in some communities across the country," HBC spokeswoman Freda Colbourne told The Canadian Press.

Over at Torontoist, Jamie Bradburn explained the chains very Canadian genesis.

Walter Zeller entered the retail business through the stock room of a Woolworth’s in his native Kitchener in 1912. Over the next two decades he rose steadily in the five-and-dime field on both sides of the border, working at store and corporate management levels for the likes of S.S. Kresge and Metropolitan Stores. In 1928 he launched his own small chain with locations in Fort William, London, and St. Catharines. By the end of that year, the original incarnation of Zellers was purchased by American retailer Schulte-United, who rebranded the stores under their banner. Dreams of opening two hundred stores were quashed by the economic crash, which resulted in Schulte-United’s bankruptcy in January 1931. The bankruptcy trustees called in Zeller, who decided after several months of examination to buy the dozen or so stores left in Canada.

Zeller sounded optimistic about the chances for the new Zellers Ltd. when he announced its formation in November 1931. “In building our new company,” he told the press, “one important thought has been borne in mind—that the buying public to-day is more discriminating and thrifty than ever before. It knows and demands style merchandise of good quality. It insists on popular prices.” Among the first stores to carry the new banner was the chain’s sole Toronto location at Yonge and Albert streets (now occupied by the Eaton Centre). Prior to its grand opening on November 11, store manager F.C. Lee told the Star both he and the employees that had been retained were confident about the prospects for Zellers, due to the retail experience, managerial skills, and financial backing of the new corporate overlords. “While Zellers is extending a chain of stores throughout Canada,” Lee noted, “nevertheless the business is founded on the principle that the local success depends on catering to local conditions and preferences—and local managers are empowered to operate on this basis.”

Within two years of Walter Zeller’s death in 1957, a majority interest in the company was held by American discounter W.T. Grant. The Hudson’s Bay Company became sole owner in 1978. Later acquisitions included many Toronto locations of K-Mart and Towers. Though various marketing strategies and older, messy stores never won Zellers the cheap-chic cachet that Target has earned, we suspect there will be a tear or two shed at the end of a long-time Canadian brand. So long Club Z, family restaurants, and Zeddy.

The neglect of the chain's stores that Bradburn mentions is a sad reality; the chain's closest outpost to me, the Zellers in the Gallleria Mall, is dingy and faintly dirty and somewhat depressing. It's not surprising that, at least according to the Globe and Mail, the deal is as much about freeing up real estate opportunities as it is converting existing chains.

I wonder: will the Galleria Zellers will survive to become a Target?