Store Wars in Vancouver
The only certainty
in Canada's big-box marketplace is the domination of three names --
Wal-Mart, Canadian Tire and Home Depot
There is little certainty in the
Darwinian world of retailing, where venerable names suddenly disappear
from storefronts, particularly in these parlous times. Consider last
week's reports that retailers had experienced their worst month in three
decades.
There were exceptions, of course, most
notably Wal-Mart, the world's largest retailer, and other discount chains,
whose relatively robust results are a natural consequence of their low
prices.
Indeed, retail analysts say our premier
big-box stores -- Wal-Mart, Home Depot and Canadian Tire -- can be counted
on to be around for the long haul, even if the Internet gets its mojo
working.
All three have a characteristic great
companies share -- dominance over their competitors. Wal-Mart and Home
Depot, both U.S. imports, are low-price leaders day in and day out (sorry,
Zellers), while Canadian Tire is such an odd duck of an operation it has
no true competitor.
"All three will still be around in
10 years and leading in their segments," says John Winter, a Toronto
retail consultant. He observes there are only two other sure-bet survivors
on the Canadian retail scene: supermarket titan Loblaw Cos. and warehouse
retailer Costco, which eliminated its only serious rival when it acquired
Price Club in the early 1990s. "There are the five that will be
around in 2011," says Mr. Winter.
WAL-MART CANADA
Wal-Mart Canada Corp. announced earlier
this month it would open 15 new Canadian stores before the end of the
year, nearly triple the leisurely six-store-a-year pace it has maintained
since it crossed the border in 1994. That will bring its Canadian total to
194 stores.
U.S. parent Wal-Mart Stores Inc.
operates 1,736 discount stores, 888 Supercenters, 475 SAM'S Clubs and 19
Neighborhood Markets.
It has also predicted its Christmas
sales would be "not great, but good."
The Arkansas-based retailer passed
Hudson's Bay Co.'s Zellers chain in 1999 in annual sales and shows no sign
of slowing down, as analysts estimate it to rack up $8-billion in 2001.
That's more than The Bay and Zellers sales combined, even though Wal-Mart
operates fewer than half the stores.
Wal-Mart could eventually operate as
many as 300 stores in Canada, and retail watchers expect it could soon
take on the grocery giants by importing its Supercenter food emporiums
into Canada.
Nevertheless, Wal-Mart made a few
stumbles when it arrived in Canada. There was difficulty early on figuring
out the distinct culture of Quebec. Then, too, the effusive
American-styled greeters had to be toned down to suit more reserved
Canadians. And there's the twee Wal-Mart morning cheer, a ritual the
retailer might want to have its employees perform in private (we Canadians
are a snickering bunch). The cheer, which spells out the company's name
and ends with an exaltation of the company's customers, is performed on
the floors of Wal-Marts around the world.
All that said, the retailer quickly
took the measure of our market and few would question its right to No. 1
status.
Zellers, the previous discount king,
thought it had its act together before the world's largest retailer came
on the scene but seems to be still coming to terms with its vastly changed
environment. While Wal-Mart is building, Zellers has been paring back
stores, closing less profitable units or those bunched too closely
together. This summer, it even made quiet motions toward ditching its
on-sale, off-sale strategy, dubbed high-low pricing, in favour of Wal-Mart-style
everyday low pricing on basic necessities -- the stuff people buy so often
they know when they are getting a bargain.
But pricing is Wal-Mart's undisputed
strength and is an area in which Zellers is unlikely to win, given the
disparity in purchasing power between the two outfits.
HOME DEPOT
Last week, Annette Vershuren, president
of Home Depot Canada Inc., called the big-box retailer recession-proof,
and reaffirmed its plans to double its 74 Canadian outlets by 2004.
It is nicknamed Agent Orange by its
rivals, first because of the toxic effect of its namesake on its enemies
and second because of its corporate colours. It too entered Canada in
early 1994, within weeks of Wal-Mart.
Although it did not provoke the same
nationalist chest-beating of its fellow U.S. big-box merchandiser, Home
Depot had a similar chilling effect on the underdeveloped marketplace.
Brewing giant Molson Inc., which
reconfigured its small Aikenheads Warehouse chain into seven Home Depot
lookalike outlets starting in fall of 1992, quickly surrendered the chain
to Agent Orange when it came to Canada in early 1994.
Throughout the retail spectrum, Home
Depot began to suck up sales from competitors large and small; the
do-it-yourself retailer's arrival in Canada spurred a number of closures
among smaller stores while others consolidated, such as Revy Home Centres
and Rona Inc.
Others fine-tuned their connections
with building contractors, retreated to secondary markets or fought back
by creating their own big-box stores to battle Home Depot's wide
merchandise assortment.
Though it appropriated many of its
elements -- standardized stores, a cozy culture, everyday low pricing --
Home Depot Canada could never be confused with Wal-Mart. Home Depot is
deep where Wal-Mart is wide and shallow.
Consumers never knew there were so many
varieties of hammers, fasteners and lighting fixtures until they walked
through the orange doors. Home Depot also boasts knowledgeable sales staff
-- "professionals" who at one time worked with their hands for a
living -- though there seem to be less of them around in recent years.
(Wal-Mart also says it hires knowledgeable staff, though most floor
walkers seem to be good for little beyond pointing customers around the
store.)
In sum, Home Depot's professionals,
combined with its low pricing, have created the kind of consumer loyalty
that makes a retailer weep.
CANADIAN TIRE
Canadian Tire Corp. has the greatest
reach, operating 443 stores across the country -- from metropolitan
centres to the smallest towns, where it serves as much as a country store
as a hardware outlet. It boasts its outlets are within a 15-minute drive
of 90% of Canadians.
In short, it is a national icon, and
customers like the feeling that just about everything can be had at the
local "Crappy Tire" -- if you're a man at least. Men may hate to
shop, but on a typical Saturday morning at Canadian Tire, it's the wives
and girlfriends who tap their feet impatiently.
Canadian Tire, which opened its first
store in 1922, has not been overwhelmed by the Wal-Marts and Home Depots
because it is such a part of our culture and because it has retrofitted
more than half of its older, smaller stores for the new competitive
environment.
The retailer plans to build an
additional 40 to 50 stores by 2005.
The new Canadian Tires, which feature
brighter lighting, wider aisles and bigger signs, have been cranked out at
a furious rate since 1994 to replace cramped, creaking outlets that were,
despite their obsolescence, incredibly profitable.
But the renovation program has been a
mixed success: The cavernous new stores have allowed this retailer to keep
the share it had but it's been an expensive effort -- in 2001 alone, the
company is spending $270-million on replacing older stores.
That is one of the reasons the company
unveiled a new four-year strategic plan, saying it would slow the pace of
its store-replacement program and devote more cash to its gas bar and
credit-card businesses. It is also considering expanding outside Canada,
possibly through acquisitions and joint ventures.
THREE STORES, THREE
ITEMS, THREE RECEIPTS:
CANADIAN TIRE:
10/16/01
Paper bags (five-pack): $2.99
Can of WD-40 (300ml): $3.49
Black & Decker "Mouse"
Sander/Polisher: $59.99
------------------------------------------
Total: $66.47*
- In Canada: 443 stores
- In U.S.: 0 stores
- In fiscal 2000, net earnings were
flat at $148-million ($1.89 a share) from $145.9-million ($1.89 a share)
in fiscal 1999
THE HOME DEPOT:
10/16/01
Paper bags (five-pack): $2.78
Can of WD-40 (300ml): $3.49
Black & Decker "Mouse"
Sander/Polisher: $59.92
------------------------------------------
Total: $66.19
- In Canada: 74 stores
- In U.S. and South America: 1,179
stores
- In fiscal 2000, net earnings
increased 11% to US$2.6-billion ($1.10 per share) from $2.3-billion ($1
per share) in fiscal 1999
WAL-MART:
10/16/01
Paper bags (five-pack): $2.67
Can of WD-40 (300ml): $2.97
Black & Decker "Mouse"
Sander/Polisher: $57.88
------------------------------------------
Total: $63.52
- In Canada: 179 stores**
- In U.S.: 3,118 stores
- In fiscal 2000, earnings increased
17% to US$6.3-billion ($1.40 a share) from $5.3-billion ($1.20 a share) in
fiscal 1999
* Does not include Canadian Tire
"money".
**Wal-Mart stores include 888
Supercenters, 475 SAM'S Clubs and 19 Neighborhood Markets
- Paul Brent Financial
Post 16 Oct 2001
