US Retail Chains Hear the Call of Canada
Home Depot already ships to Washington, so Canadian market is just `a little farther'
TORONTO — GO north, young man!
Actually, Horace Greeley's advice in 1855 was to head west for opportunity. But aggressive 1990s American retailers have put their own spin on Greeley's words by setting their sights on Canada.
The Burlington Coat Factory, Eagle Hardware & Garden, Electronics Boutique, CompUSA, and a host of others have gotten out their boots and overcoats and are preparing a march northward into Canada.
So is giant discounter Wal-Mart, which joined the rush earlier this month by agreeing to purchase by March 120 Woolco stores from Woolworth Canada Inc. for US$300 million. According to the Bentonville, Ark., company, the first of the converted stores will open around mid-year.
Not far behind is Atlanta-based Home Depot, which is expected to open the first of five warehouse stores in Vancouver, British Columbia by year's end.
``It's a natural next step for us to be in Canada,'' says Jerry Shields, spokesman for Home Depot. ``We're already getting materials to Washington state [and] it won't be much of a problem to take them a little farther.''
Canada has long been home to a number of United States retailers - among them the Safeway grocery store chain, the Gap Inc., Talbots, Price Club, and others. But retail analysts say a fresh wave of US retail interest in Canada is forming because:
* Passage of the North American Free Trade Agreement (NAFTA) promises eventually to remove all tariffs on US and Mexican-made goods shipped to Canada. That will make the US retailers that sell such goods more competitive in Canada.
* NAFTA creates a powerful competitive advantage for north-south distribution channels. Because most of Canada's population lives within 100 miles of the US border, it is fairly simple for US retailers to extend distribution one link farther north to Canada. Many Canadian retailers, meanwhile, distribute 4,000 miles from east to west.
* The US economic recovery is prompting retailers to look for new places to expand. Many US markets are glutted with competitors. Some retail analysts also say US retailers view the Canadian market as less ferociously competitive. It is one reason Canada is widely considered ``understored.''
That phrase could refer simply to Canada's less crowded retail market. Some estimates put the amount of Canadian retail space per capita at just two-thirds the US total. But it can also mean US retailers believe that Canada is undersupplied with state-of-the art competitors.
Home Depot's Mr. Shields says Canada ``is an adjacent market, one that we thought was under-stored.'' He quickly adds that Home Depot ``has a lot to learn'' about Canada and that it does not consider Canada ``an easy market.''
STILL, for many US retailers, the reason to act now is simply to get to Canada and become established before their US competitors do.
``Many [American] players are already there and others are rushing to join them,'' says Douglas Tigert, former dean of the graduate school of business at the University of Toronto, now professor of retail marketing at Babson College in Wellesley, Mass. ``You can view Canada as an extension of your north-south distribution system. Most Canadian retailers ship east-west. They're 4,000 miles wide and only 100 miles deep - that's incredibly inefficient.''
Among would-be Canadian-bound companies are Burlington Coat Factory Warehouse Corporation, of Burlington, N.J., which is said by several analysts to be looking at Canadian real estate. So is CompUSA, the big computer superstore chain based in Mesquite, Texas. A CompUSA spokesman confirmed the company's interest in a Canadian presence without further elaboration.
Electronics Boutique, one of three large US retailers of computer software and video games, has already taken the plunge - opening five mall stores in Toronto and two in Vancouver last year.
The seven have done so well, the company says, that it is planning to open another 10 to 15 stores in Canada this year.
``They [US retailers] look at the Canadian market and see it is not that much different from their own,'' says Roger Esdon, general manager of Electronics Boutique Canada.
``If a company wants to go international, Canada is the easiest step before going to someplace like Mexico,'' he adds.
Most Canadian shopping is concentrated in cities and major shopping malls, Mr. Esdon says, perfect for his mall-based chain. Also, the market is not as fragmented among competitors as in the US. Electronics Boutique has two major mall-store competitors in the US, but only one in Canada.
``We're very happy with the results so far,'' he says.