Canadian retailers to counter U.S. presence

Discount Store News, Jan 16, 1995 by Jim Fox

TORONTO -- Canadian retail chains head into 1995 with new battle plans after being besieged last year by invading forces from U.S. chains.

The invaders were led by Wal-Mart, which gained control of 122 Woolco department stores, threathening traditional Canadian retailers with reduced profit margins and possible extinction.

The U.S. retailer recently completed the makeover of the former Woolcos and boosted its strength by building new stores across the land.

This has sent Canadian retailers scattering to re-group to defend their northern turf. They're quickly rebuilding, enlarging and gathering reinforcements--including adding greeters at their doors for the first time.

Canadian shoppers feel they've been liberated from a life of high prices, poor service and somewhat limited selection compared to their American neighbors.

Things started heating up last March when Wal-Mart, based in BEntonville, Ark., purchased the 122 Woolco stores from Woolworth Corp. of New York. The company paid $537.9 million for Woolco's assets, inventory, leaseholds and goodwill, according to financial statements. It has since spent another $275 million on renovations.

Retail consultant Phillip Jones said the price was reasonable since Wal-Mart purchased a nationwide chain and retired a competitor at the same time. "To break into the department store market in a country as big as this, you can't just start from scratch," he said.

Wal-Mart Canada Inc. reported "double-digit growth" in profits in the third quarter of 1994 and is adding five new stores--four in Ontario and one in Quebec.

There's been no word yet on how many new stores Wal-Mart will open in Canada, but "it is our plan to expand our presence," said spokesman Edward Gould.

Also on the horizon are further invasions from the south by specialty superstore retailers The Sports Authority, Sportsmart and Computer City, a division of Tandy Corp.

Officials of Canada's major retail chains feel threatened, but say their weapons of choice in this war are renovated and expanded stores and a new fighting spirit.

The so-called Store Wars include a plan by Canada's venerable T. Eaton Co. Ltd. to send its employees to school. On the 125th anniversary of its founding, officials of the 90-store, privately held company announced the Eaton School of Retailing in conjunction with Ryerson Polytechnic University in Toronto. "We've got the Americans coming in great droves to open retail stores and we just want to be that much better than anybody," said Jim Chestnutt, the school's general manager. Courses include organizational behavior, customer service, and electronic data interchange.

Zellers, Canada's largest discounter, is expanding, renovating and lowering profit margins. Facelifts were given to 65 to its 285 stores last year, costing $145 million. Stores directly competing with Wal-Mart were expanded to 100,000 sq. ft.

Paul Walters, Zellers' president and chief operating officer, said Wal-Mart "substantially intensifies the competitive activity in the mass merchandising segment of the market." At the yearend, Zellers added 11 new stores to its 290 and plans 20 more this year and another 100 by the year 2000.

Based in Montreal, the subsidiary of Hudson's Bay Co. "will not roll over" because of the new competition, Walters said. Operating profits were down for the second consecutive quarter through Oct. 31, 1994--off 23% to $36 million from $47 million.

The Bay, meanwhile, reported operating profits up at $19.3 million compared with $13.8 million. It's spending $145 million to renovate and upgrade 20 of its 101 department stores and has more space for fashions and cosmetics, said president George Kosich.

The Home Depot, the warehouse home improvement chain based in Atlanta, took over the 10 Aikenheads Home Improvement Warehouse stores from Molson Cos. Ltd. last year. President Stephen Bebis said 11 new stores are planned this year and another 30 within three years.

Molson's Beaver Lumber Co. took its 130 national home centers out of the retail market in order to focus on professional contractors. It is closing 12 urban home centers and is hiring an outside sales force to service builder accounts.

Sears Canada stores have undergone interior make-overs and now highlight upscale fashions, home decor and appliances along with its catalog business. Despite what president Donald Shaffer called a "particularly difficult" third quarter due to aggressive price competition and cautious consumer spending, net earnings were $4.6 million compared with a loss of $3.9 million. The comeback was credited to aggressive cost cutting.

Kmart Canada Ltd, is in the midst of building and renewing its 129 Canada stores. Last year, 50 of the stores were built or expanded to contain from 94,000 sq. ft. to 110,000 sq. ft. of retail floor space. President Donald Beaumont said Kmart might consider opening super-centers in Canada with a supermarket and discount department store all under one roof.

Canadian Tire Corp., Canada's largest automotive, hardware and gasoline retailer with 425 stores, is also thinking big. President Stephen Bachand said half of the stores will be expanded or relocated by 1998, with $72 million to be spent this year on 20 stores. The Company recently closed its money-losing U.S.-based Auto Source chain of 10 stores.