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Canadian Retail: Concern or Opportunity? A GMDC perspective...

January 30, 2015

Canada is often seen as a strong candidate for retail expansion by US retailers. Target was no exception to this notion as the stylish value retailer decided that in 2013 it would open 124 new stores in Canada; however, it soon became overburdened by inventory and saturation issues.

Did Target really understand the Canadian market?

Target announced that it was shutting down its unprofitable Canadian operations just over a week ago. In the course of a fiscal review following the holiday sales period, management decided the retailer was losing money in Canada and it would be five to seven years before it would become profitable. Things were not going well.

Recent reports are telling us that this is the largest layoff in Canadian retail history. It’s possible that management didn’t take into account that the second largest landmass country in the world, heavily concentrated across the entire border with its US neighbor, is still less than the population of the state of California. Whatever the case, Target executives had one of the biggest hindsight ‘aha’ moments by any retailer; one that all companies interested in doing business in the north can learn from.

The decision to leave Canada had to have been a difficult one, but ultimately it was best to cut losses, stop the bleeding, and get out before things got even worse.

During the same week of Target’s announcement things seemed to get worse for other retailers in Canada.

Mexx announced the closing of its 95 stores, according to the Globe and Mail. The toughening retail conditions spoke louder to the management of Mexx, than did the promise of continuing business in Canada as one of the leading European-style clothing storefronts.

To top things off, Sony announced the closing of its stores after Bombay and Bowring filed for bankruptcy protection. Soon after all of this news broke, many other Canadian retailers started claiming that suffering sales are also causing them to ponder their future.

The bigger questions become why and who? Why is this happening and who will fill the middle-class retailing gap that Target and so many other stores are leaving behind?

There is speculation that Walmart may step up its game, upgrade its image from being the heavily discounted, always low-price store and go a bit more upscale. Or, Canadian Tire could expand its reach and begin to saturate the market with more than just car supplies, sports gear, and fishing lures.

There is much speculation, so let’s start with what we know. There is opportunity in Canada for existing and new retailers to find their niche, serve a massive middle-class income level, and regain trust from some of the wealthiest middle-class households in the world. According to CTV news in Canada, in 2013 the median household income was $76,000. On the other hand, CNN Money reported that in 2013, the median US household income was $51,000. This difference of $25,000 means there’s more money in the pockets of Canadian families for accessories, incremental spending, gadgets, higher priced organic foods and lifestyle upgrades.

At the same time, Canadian household debt is at an all-time high. In 2008, when US households were at the highest income to debt ratio of 125%, Canadians were at 140%. After the 2008 Great Recession in the US, American debt shrunk to 105% while Canadian debt ratio kept growing, reaching as high as 160% in 2013. Needless to say, Canadians continue to spend more and more, and have not felt the same pain that the US economy has, nor experienced the same hard lessons in personal financing.

So what’s next for the Canadian economy and the retail atmosphere?

Do these retailer shutdowns mean retailers are becoming smarter and heeding the warning signs of poor marketplace environments, or is this an opportunity for other retailers to now “get it right”?

There’s real opportunity in Canada for grocery and drug retailers. By continuing to grow and leverage their center store in the Grocery and Drug Channels, they can serve as convenience and destination shopping for consumers that normally shop at three to four stores to fill their baskets with general merchandise (GM) and health/beauty/wellness (HBW) items. The ability to bolster sales and reclaim ground lost by mass merchants in nonfood categories is primetime for supermarkets.

The lines between retail outlets have blurred immensely over the past decade. Satisfying the trip mission for consumers while they are shopping for food, generating interest and attention through cross-merchandising, promoting impulse purchases and accomplishing that in a profitable and impactful way can work more than ever if retailers recruit the right products and suppliers.

That’s where GMDC can help. GMDC has been helping suppliers build their international business and growth strategies for 45 years. Focused on retailer priorities and GM and HBW category growth, GMDC is recognized by innovative product manufacturers as the go-to association for success in connecting decision-makers and launching new and existing program into Center Store aisles. These suppliers recognize the rising opportunities in a changing retail landscape, including current GMDC member, Scott Bradshaw, VP Sales of Bradshaw International Inc., one of the largest housewares suppliers in North America.

“The Canadian market only represents 10% of retail business in North America. As a retailer, these are difficult logistics to work with and it gets expensive to ship from the US to Canada. You have to understand what you’re getting into when entering the Canadian market, such as duties and tax differences, and have the expectation of increased backside costs,” said Scott. “The companies that understand this operate more efficiently, and will succeed. Some retailers making their way into Canada don’t have the right strategies for growth, so as a supplier, you need to recognize that the Canadian market is still profitable and growing.”

Scott and his company have been members of GMDC since 1990 and have used GMDC as a platform to work with Canadian retailers such as Sobey’s. Scott serves on GMDC’s Education Leadership Council and oversees much of the research and studies that the association produces. These studies help suppliers and service companies to successfully launch and sell merchandise that build GM and HBW aisles.

“A solid growth strategy is needed to enter the Canadian market due to diversity, both culturally and geographically. There are similarities and differences between how our products operate in the US and how they operate in Canada,” said Scott. “The Canadian consumers are not going to go across the border to buy food, so by entering Grocery and Drug Channels and leveraging our relationships established through GMDC, our penetration into Center Store growth has been very good.”

GMDC is the only trade association dedicated to building suppliers’ businesses in the GM and HBW industries based on retailer priorities throughout the US and in Canada.

If you have interest or questions about how to meet with retailers and suppliers that have expertise and resources in Canada for you to go to market, please contact Patrick Spear, GMDC President, at [email protected].

Or, send me your thoughts, comments or experience based on this article. We’d like to hear from you. Mark Mechelse, GMDC Director Industry Insights & Communications, at [email protected].

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