Cruising Canada's retail highway; Wal-Mart in the driver's seat, others watch, follow - Wal-Mart Stores Inc - Industry Overview

Discount Store News, Oct 2, 1995 by Jim Fox

TORONTO - Canada's retail road map will be marked with "rapid growth ahead" signs over the next five years, while some of the once-leading retailers make a permanent exit and others speed along the on-ramp.

Len Kubas, a Toronto-based consultant who advises retailers how to navigate the changing retail map of Canada, suggested tossing away the road map - the Canada/U.S. border will be "eliminated."

In many ways, the future for Canadian retailers - many of them U.S.-based enterprises - is now. The invasion of U.S. megachains blazing the trail into Canada is driving the massive upheaval that is steered by consumer demands.

The trail has been bumpy for some U.S. retailers that have retreated, perhaps only temporarily. These include Petstuff and Eagle Hardware, and The Home Depot has eased off its expansion plans. In addition, some Canadian-based retailers have disappeared into the potholes or business ruts caused by the new, intense competition.

Kubas, of Kubas & Plant Consultants, said at the annual meeting of the Retail Council of Canada that the country has entered an era of "retail migration," in which technology, communications and the North American Free Trade Agreement will, in effect, erase the border.

Annual total retail sales growth in Canada rose from "price deflation" in 1991 in current dollars to about 6% this year. Canada's retail trade this year is estimated at $220 billion Canadian ($162 billion U.S.).

In Canada, three distinct segments have emerged: department and discount stores (modern and old-fashioned, both efficient and inefficient); big boxes (stand-alones, highly focused, power-clustered, category killers); and specialists (in the malls and neighborhoods with chain stores, independents and franchises).

In the department and discount store segment, only six dominant players remain - down from 30 banners in 1978. The current players are traditional department stores: The Hudson's Bay Co., T. Eaton Co. and Sears Canada; and discount department stores: Wal-Mart Canada, Kmart Canada and Zellers.

Kubas predicted "rapid growth ahead" for the big box segment, with category killers moving into new power centers. This provides a winning combination of category dominance, no-hassle service and ease of parking.

The retail dynamics for Canada will be more concentration and migration, Kubas said, noting that Eaton's and Sears have launched stand-alone home furnishing stores, and Toys "R" Us and Consumers Distributing are locating in shopping centers.

Also, Lewiscraft is building "Michaels-type" stores, and Canadian Tire, HMV, Moores and Consumers Distributing are increasing their store sizes.

Approaching the year 2000, traditional department stores will continue to decline and discounters will be "flat," except for Wal-Mart, which is growing, he said. Canadian Tire is being revitalized, there will be "more and more" new arrivals and consolidation of warehouse clubs. The shopping center specialists will reposition and reformat.

Driving much of the retail revolution in Canada has been Wal-Mart's arrival 15 months ago when it took over 122 Woolco stores and began building new stores. Wal-Mart continues to be the catalyst for innovation and investment.

In commenting on Kubas' predictions, Edward Gould, Wal-Mart Canada spokesman, said there's "no doubt there will be further consolidation, which means tougher competition in Canada - whether through existing subsidiaries or the entry of additional U.S. and European retailers."

Canada is experiencing a "dynamic discount retail category," he added. "We are seeing all major players step up their investment programs to improve their locations, extend their product selection and improve customer service."

The yardsticks by which successful retailers will be measured will be the use of technology, effective distribution and the creation of a customer-focused culture, he said.

Wal-Mart research showed that Canadian consumers are "smart - they shop around and they're paying attention - so either retailers are moving forward with products, pricing and service, or they're moving backwards. Customers won't let you stand still in retailing these days. To embrace the status quo is a death wish," Gould said.