Canada's retail chiefs get the axe

Discount Store News, April 1, 1996 by Jim Fox

TORONTO - An executive shake by Canada's battling discounters has bounced four presidents out the door and - in a surprising move - prompted Hudson's Bay Co. to close the Montreal headquarters of its Zellers chain.

Job security is no longer an employment condition for those at the top, as the presidents of Zellers, Wal-Mart Canada and Kmart Canada learned recently.

The executive ousters came after all three chains engaged in a fierce price war and weathered a disastrous Christmas season at the hands of tight-fisted Canadian consumers. The end result: overall retail sales dropped by 1% from the year-earlier period. The reverberations also rippled through Home Depot Canada, which replaced its president in February.

The latest retailing leader to go is Paul Walters, Zellers' president and coo, who departed from the 310-store chain March 14, as parent company Hudson's Bay Co. announced a consolidation.

Zellers' Montreal head office with 530 people will be closed over the next five to six months and consolidated in Toronto with the Hudson's Bay offices and its department store chain, The Bay.

No replacement was immediately named for Walters, who was president of Canada's leading discounter since 1989. His fortunes, and that of Zellers have soured since the arrival of Wal-Mart in Canada two years ago. In the interim, George Kosich, Hudson's Bay president and ceo, will head Zellers.

Another executive casualty is Bruce West, president of Wal-Mart Canada, who left Jan. 30 after guiding the U.S.-based chain's arrival in Canada and its transformation of 122 former Woolco department stores. He was replaced by David Ferguson, who before joining Wal-Mart last year headed Stuarts Departments Stores of Franklin, Mass.

Kmart Canada Ltd. in January replaced Donald Beaumont, who headed the 127-store chain for five years, with Michael Lynch, former Kmart senior vice president, international retailing.

Home Depot Canada, which has been operating without a president since December (after the departure of Stephen Bebis), hired Annette Verschuren, founder of Michaels of Canada, in February to head the hardware chain's 12 Canadian stores.

Bebis, is now ceo and chairman of Sports & Recreation of Tampa, Fla. The whereabouts of the other executive departees isn't known. They have also been unavailable for comment about their departures.

The shakeup, given the volatility in Canada's retailing industry isn't surprising, but the departures by the key executives is puzzling to some analysts.

"It's kind of ironic in a way that the companies who have changed presidents in the past several months have had the best sales performances," said Len Kubas of Kubas Consultants in Toronto. "It's hard to figure out."

Hudson's Bay's decision to combine Zellers' head office operations with The Bay's and move the buying, advertising and accounting offices to Toronto will save millions of dollars in a drive to cut costs to compete against Wal-Mart. "It has been a very difficult consumer environment over the past year and a half, and we have to be the lowest-cost operator," said Gary Lukassen, chief financial officer of Hudson's Bay.

The decision comes after Zellers reported a 72% drop in fourth quarter operating profit and a disastrous Christmas.

By undercutting Wal-Mart's prices on key items in the price war, Zellers' operating profit fell by $80.6 million (U.S.) to $78.9 million (U.S.) in the year ended Jan. 31. Hudson's Bay, meanwhile, had net income of $25.6 million (U.S.) for the year, compared with $136.3 million (U.S.) a year earlier.

Speculation was that Walters left the company because of a difference of opinion on strategy to compete with Wal-Mart. In addition, his role would have been diminished in the restructuring once he lost the battle to keep the headquarters in Montreal.

Zellers has since backed away from overly aggressive price-cutting and has decided to scale back its expansion plans this year to 11 new stores instead of the original plan of 20 new stores.

Walters was caught "between a rock and a hard place," but was right to try to fight Wal-Mart on prices at the expense of earnings, said retail analyst Nancy Self of Vancouver.

Observers believe that Zellers wanted to leave Quebec for some time because of economic uncertainties over the possibility that the mainly French-speaking province may separate from Canada. Zellers, however, feared political consequences of abandoning Quebec where it has 66 stores and the largest market share.

The move now is being linked to its profit plunge and the nee to cut costs, not the separation threat.

"Hudson's Bay has quite a bit of experience consolidating as it did that about five years ago when it bought the Simpsons' chain," Kubas said, adding that there will be even more decentralization in the retailing industry.

The departure of West as Wal-Mart's president in Canada wasn't so surprising since most observers felt he "probably went in on a short-term basis," Kubas said. He gives West credit for turning the lackluster and dowdy Woolco chain into a "leading performer" under a Wal-Mart banner that now has 131 stores.