Can Canadian retail sector fight off a U.S. invasion in time?

Canada's retail landscape has become more crowded recently, thanks to an influx of aggressive U.S. competitors like Old Navy, Williams-Sonoma and Best Buy, which swallowed Canadian electronics banner Future Shop last month. The fact that it wasn't the first time a domestic player succumbed to a U.S. chain raises the question: Is it possible to survive when a rival crosses the border and, if so, how can a retailer prepare quickly for combat?

Canada’s retail landscape has become more crowded recently, thanks to an influx of aggressive U.S. competitors like Old Navy, Williams-Sonoma and Best Buy, which swallowed Canadian electronics banner Future Shop last month. The fact that it wasn’t the first time a domestic player succumbed to a U.S. chain raises the question: Is it possible to survive when a rival crosses the border and, if so, how can a retailer prepare quickly for combat?

Certainly Future Shop appeared to be gearing up for a slugfest with Best Buy. Although it traditionally marketed itself on price and selection, it switched its message to more of a brand proposition just a couple of months before the U.S. category-killer’s arrival.

But according to observers, many Canadian companies simply can’t react in time. In fact, like Future Shop’s old strategy, several domestic retailers ‘go to the price well in order to create volume and bring in shoppers,’ according to Peter Jeffrey, CEO of Toronto ad agency Gee, Jeffrey & Partners, which keeps a close eye on the retail marketplace. The problem is that it’s akin to a cocaine addiction. ‘You get a high when you throw in the old ’30% Off’ snort, but the problem is once it’s worn off, it’s a downer again, and you often need a higher fix in order to get the same lift.’ Another downside, he adds, is that this breed of advertising simply compares the price of one retailer’s cabbage to that of another. ‘It does absolutely nothing for the brand and it does nothing to put the shopping environment and offering on a pedestal.’

One would think that after the Wal-Mart lesson – the discount retailer’s arrival in the mid-1990s sounded the death knell for both Woolco and K-Mart in Canada – homegrown companies would have learned that a price-driven strategy is too weak to win wars against stalwart American chains. But complacency is still far too rampant, says Andy Macaulay, founding partner at Toronto ad agency Zig. ‘You look at Wal-Mart’s arrival and what it’s done to everybody, and if you’re a retailer you have to think, ‘My day’s going to come,” he says, adding that, Canadian retailers who are not prepared for a foreign invasion are ‘living 20 years in the past.’

Of course, Zellers is an example of a domestic business that overcame the threat of Wal-Mart. First of all, it was smart to drop its ‘Lowest price is the law’ slogan in the late-’90s, because it may no longer have been able to hold that positioning, according to retail analyst Richard Talbot of Talbot Consultants, who believes the introduction of its private label brands, like Martha Stewart and Cherokee, also buoyed Zellers. ‘If you want to buy those particular brands, you have to go to Zellers, and that’s how you want to compete,’ he says. ‘[But] it doesn’t usually happen overnight.’

According to David Strickland, senior VP marketing at Zellers, whether or not a brand can be built quickly depends on its current positioning. ‘The retail dimensions of brand are more than just the image it projects, but the promise that is delivered through people and training.’ In other words, he explains, if a company has to re-train its employees through to store level, the implementation of a new tactic could be complicated and take up to five years before it becomes integrated into the corporation fully.

Still, beating an American Goliath isn’t necessarily implausible, particularly since there’s a chance it is ignorant of the territory, points out Patrick Rodmell, VP, global marketing for Watt International in Toronto. While most Canuck companies recognize that the country breaks into five markets – West Coast, Prairies, Central Canada, Quebec and East Coast – a U.S. retailer may thrash around blindly. ‘I think Canadian retailers should try to focus on understanding the core proposition of the American giant that is coming to town,’ he advises. ‘And then find the gaps in their strategy, particularly those that speak more to the sensitivities of each market.’

One homegrown champion in this regard is Canadian Tire. Once predicted to be on the chopping block thanks to the emergence of Wal-Mart and Home Depot, the 79-year-old business vastly improved its retail experience, according to Rodmell, not only with better adjacencies, but also by applying category management tactics in order to have a better focus on its product. In fact, as of this year, Canadian Tire has unveiled 230 newly designed ‘Next Generation’ stores, where items are arranged in shop-in-shop formats, and hopes to add about 100 more down the road. ‘Canadian Tire heard the wake-up call, responded and succeeded in the face of American [competition],’ says Rodmell. ‘They’ve gone through some challenges, but the Canadian Tire brand today is as strong as it was 10 years ago.’

Meanwhile, Calgary’s Forzani Group, which owns banners such as Sport Chek, Sport Experts and Forzani’s, fought off U.S. category killers like Sports Authority and Sportmart, which stepped onto the field in the mid-’90s. Despite tinkering on the edge of defeat, Forzani developed a new game plan, focusing on smaller, regional stores, boosting the fashion quotient of its merchandise and increasing its target to include teens and women. ‘All of a sudden it was nimble and more savvy in retail,’ explains Rodmell. ‘Sportmart came in with large stores that were too big.’

Focusing on a niche and serving it well can enable a company to contest a new player, agrees Andy Macaulay, who points out that trying to build significant brand awareness and preference from a standing start in six months would be horrendously expensive in a cluttered ad world. However, a retailer could build a community quickly if it zoned in on a particular group, he says. An example would be a Running Room type of chain. ‘If you were to create a Running Room from scratch in six months, I think you could do it by finding running evangelists and spending a lot of money to talk to them directly, because you know they can influence 20 people on their own.’

Even though it doesn’t advertise, Edmonton-based sporting goods co-operative Mountain Equipment Co-op would also be quite insulated from American opposition, he says, because of the quality of its merchandise and level of expertise in stores. The fact that MEC hasn’t spent a dime on marketing suggests that, when it comes down to it, retailers are way ahead of the game if they have that essential ingredient – an intriguing store ambiance. ‘It’s all about the ‘wow’ factor,’ explains Macaulay. ‘It’s all about having a proprietary retail experience and if you have that, the brand identity can build very quickly.’

On the other hand, if a company broadcasts a brand proposition without having all the kinks ironed out at every point of contact with the consumer, especially in store, the impact to the brand image can be disastrous. ‘If the basic offering is flawed and broken, no amount of branding, which is often interpreted as advertising, is going to fix that,’ insists Jeffrey. ‘If the store looks shitty, if the environment is bad … the consumer will just not forgive you. They’d go somewhere else.’

And that could very well mean a U.S. chain.