Invasion Of The Retail Snatchers

While shopping for a dress for a wedding recently, Andrea Dean spotted just what she wanted in a downtown Toronto women's store. But Dean, a secretary with five children, had second thoughts when she saw the $133 price. So she headed off to Winners, an off-price store owned by U.S. retailer TJX Cos., parent of T.J. Maxx Stores. There she found the same brand-name dress marked down to $35. "I was thrilled," says Dean. With testimonials like that, it's not surprising that Winners outlets have been springing up like daffodils across Canada. Winners Apparel Ltd. now has 27 stores, up from 5 in 1990 when TJX acquired the chain, and plans to add 10 more this year.

That's just one example of a massive new invasion by U.S. retailers of the $150 billion Canadian market. To its Southern neighbors, Canada looks like a hot growth prospect. U.S. retailers' interest in Canada has been rising since the U.S.-Canada Free Trade Agreement took effect in 1989. Now, a combination of low real-estate prices and a falling Canadian dollar is setting off a land rush. The resulting competition is being welcomed by consumers. But it's sending a cold wind through Canada's recession-squeezed retail industry. By the late 1990s, "half of the Canadian retailers you see up here now may not be in business," predicts Canadian retailing consultant John Winter.

PEER PRESSURE. Many of the strongest retailers in the U.S. are staking their claim (table). In March, Wal-Mart Stores Inc. completed its purchase of 122 stores of Woolworth Corp.'s ailing Woolco unit in Canada. It was Wal-Mart's largest acquisition ever. The chain is now spending hundreds of millions of dollars gutting and renovating the stores before putting the Wal-Mart name on them later this year. In February, Home Depot Inc. spent some $150 million to buy 75% of Aikenhead's Home Improvement Warehouse from Molson Cos. This summer, the biggest U.S. office-products retailer, Staples Inc., plans to buy full control of Canada's fast-growing Business Depot. Meanwhile, stores owned by such companies as Gap, Talbots, Price/Costco, and Michaels Stores are spreading rapidly.

Canada traditionally has been "a protected market, lagging 5 to 10 years behind" U.S. retailing trends, says Winter. For Canadians, this has meant far higher prices, less choice, and poorer customer service. In Talbots' new Canadian stores, in contrast, clerks thank customers and ask if they would like their purchases boxed, says Cathy Langdon, a confessed shopaholic from Toronto. "That is almost never done in Canada," she says.

Most of the new entrants are far ahead of Canadian retailers in buying practices, distribution, and use of computer technology. Factor in the economies of scale gained through doing some purchasing through their U.S. operations, and the Americans boast a significant cost advantage, industry experts say. Home Depot Canada, for example, buys all its wares directly from manufacturers instead of through distributors. Stephen Bebis, president of Home Depot Canada, figures that let the chain undercut competitors' prices by 30% at first. Its rivals have since dropped their prices, but Home Depot is still 5% to 10% lower.

U.S. retailers are also pressing their Canadian peers on service and selection. Each Home Depot store has 12 to 24 plumbers, electricians, and other professionals to answer shoppers' questions. Wal-Mart is hiring four people per store as greeters. Gap and Talbots are luring shoppers with sharp fashions. "Eighty percent of my friends are purchasing clothes at GapKids," Langdon says.

Wal-Mart's takeover of Woolco is testimony to U.S. retailers' appetite. Wal-Mart is overhauling all 122 stores, twice as many renovations as it has ever done in a year. A team of 25 experts from headquarters in Bentonville, Ark., is helping the new Wal-Mart Canada adapt everything from Wal-Mart's buying practices to its state-of-the-art computer system. Top managers have been sent to the Walton Institute of Retailing to soak up Wal-Mart's legendary service culture.

Industry watchers expect Wal-Mart to be Canada's largest retailer within five years. Still, Wal-Mart executives concede they face a huge task. Woolworth "hadn't invested any real money in the business since 1982," says Bruce West, chief executive officer of Wal-Mart Canada, who was president of Woolco for the past 21/2 years. While Woolco ranked as Canada's second-largest discounter, after Hudson's Bay Co.'s Zellers Inc., "it had fallen way behind the times," West says. Wal-Mart decided it couldn't salvage Woolco's archaic, inefficient distribution system: Its small warehouses could not handle Wal-Mart-style volume. So the retailer has contracted distribution to a Canadian unit of Britain's Tibbett & Britten Group PLC. Meanwhile, Wal-Mart has been criticized in the Canadian press for slip-ups such as mailing "terms of employment" letters in English to its managers in French-speaking Quebec. "It was an error," admits West, a native of Quebec.

TAXING PROBLEMS. This might seem like a risky time to be forging northward. The past three years "have been the toughest for retailers since the 1930s," says Alasdair McKichan, president of the Retail Council of Canada. Winter estimates that a harsh recession and a new 7% national sales tax slashed retail spending 15% in real terms from 1988 to 1992. About 10% of Canada's retailers went out of business. Spending has begun to pick up thanks to the economic recovery. But with unemployment still a sky-high 10.6%, consumer confidence is hardly buoyant.

In addition, some of Canada's big retailers are getting more competitive. The 425-store Canadian Tire hard-goods chain has shaken up its management and cut prices on more than 10,000 items. Similarly, the 242-store Consumers Distributing hard-goods chain had been using a distribution system so cumbersome it was impossible to shift toasters from one store to another. Last year, it switched, like Wal-Mart, to Tibbett & Britten.

However the battle shakes out, Canada's consumers will be winners. "They'll get more merchandise for less," says Wal-Mart's West. Andrea Dean can't wait. As competition forces down prices, "it will help our family a lot," she says. Millions of Canadians no doubt agree.

NORTHWARD, HO!

WAL-MART Converting 122 Canadian Woolco stores bought in March; first Wal-Marts open this summer.

HOME DEPOT Launched Home Depot Canada after buying 75% of 8-store Aikenhead's Home Improvement Warehouse chain in February. Goal: 50 stores in five years.

STAPLES Will take full control of the 3-year-old 32-store Business Depot chain this summer. The goal is to reach 100 stores in five years.

GAP Has grown from 34 stores in 1991 to 64 today, with more on the way.

PRICE/COSTCO Has opened 37 warehouse stores since 1985; plans to open 10 more this year.