Niche marketing key to successful stateside retail expansion

That Eatons just died a second time may not come as a complete shock, but the finger, at least in part, can be pointed at the countless U.S. retailers that have stormed over the border and stolen a piece of the department store pie over the years - everyone from recent newcomers Old Navy and Williams-Sonoma to veteran Wal-Mart. And more appear to be on the horizon, with Abercrombie & Fitch rumoured to be planning its foray next. (A&F will 'eventually move there [Canada],' according to a company spokesperson. 'There are people up there looking around but there are no definite plans right now.')
While these aggressive, colossal American brands seem adept at luring consumers in this country - one need only recall the lineups at Old Navy last spring - Canadian-based chains that have dared to venture stateside have encountered only a 48% success rate, according to retail consultant Wendy Evans.

That Eatons just died a second time may not come as a complete shock, but the finger, at least in part, can be pointed at the countless U.S. retailers that have stormed over the border and stolen a piece of the department store pie over the years – everyone from recent newcomers Old Navy and Williams-Sonoma to veteran Wal-Mart. And more appear to be on the horizon, with Abercrombie & Fitch rumoured to be planning its foray next. (A&F will ‘eventually move there [Canada],’ according to a company spokesperson. ‘There are people up there looking around but there are no definite plans right now.’)

While these aggressive, colossal American brands seem adept at luring consumers in this country – one need only recall the lineups at Old Navy last spring – Canadian-based chains that have dared to venture stateside have encountered only a 48% success rate, according to retail consultant Wendy Evans.

Timothy’s World Coffee is the latest to join myriad others in yanking itself out of the U.S., mimicking previous moves by the likes of Future Shop, Shoppers Drug Mart, Canadian Tire, The Brick and Coles bookstores. Timothy’s boarded up 20 locations last month, mainly in New York City, blaming Sept. 11 and a depressed economy.

However, the problem, as Evans sees it, is that often retailers don’t do a sufficient amount of homework before they head south. ‘They have to do a lot of research and understand the demographics, income expenditures, cultural differences, and which markets they should be in, in the first place,’ she explains. ‘If their name is not known in the U.S., they have to look at the expenditure being significantly larger than it would be for their Canadian operation. In the U.S., they generally spend about 6% of sales [on advertising], as opposed to three in Canada.’

The other quandary, she says, is in deciding how to spend those dollars. Evans believes a generalist marketing approach would fall short in the United States, because of the significant climate and cultural discrepancies between the various regions. ‘Everything in the U.S. is far more specialized and targeted.’

That echoes the mantra of many Canadian retailers who, so far, are still standing in the U.S. Roots, for example, has seven American locations and is considering a massive expansion there, up to 300 stores in eight years, according to a report in Newsweek, although Jennifer Cornwell, VP marketing, says the exact number and timing haven’t been determined.

So far, Cornwell says, the Toronto-based fashion company has been localized in its marketing approach. Ski-resort units, for instance, carry athletic wear and are advertised in hotels and tourist magazines, while in New York, Roots offers more fashionable merchandise, like leather jackets, and relies on word-of-mouth. ‘Each city and each store is different,’ says Cornwell. ‘We look to the environment to determine where we should be advertising and what we should be saying.’

Of course, Roots is fortunate enough to be boosting its American presence with a healthy dose of brand recognition, thanks to publicity from its Canadian and American team uniforms at the recent Winter Olympics. ‘With the Olympics there’s a lot more awareness and it has helped all of the stores,’ says Cornwell, who adds that the retailer may boost marketing efforts, with ads in the New York Times, as a result. ‘We’ll probably be able to rationalize spending the money in New York now…whereas a month ago, it would have a been a lot of waste, because many people wouldn’t have known who we are.’

The fact that Roots has unique merchandise – its own outdoorsy yet stylish private label – bodes well for its future in the States, says Evans. ‘You’ll do well if you have your own brand, or something quite unusual that isn’t in the market already, like Roots or [footwear chain] Aldo.’

Montreal-based convenience store chain Alimentation Couche-Tard is also coming on strong down south. The firm started its foray last June, and with its latest acquisition, has 227 American stores, mostly under the Bigfoot banner. ‘Our president [Alain Bouchard] says we will have more stores in the U.S. than we have in Canada in five years,’ points out Michel Bernard, senior marketing manager and merchandising director. ‘In Canada, we have 8,800.’

So far the aggressive expansion approach has worked, and Bernard attributes this to a policy of decentralization, which allows each division to function as a business unit, with its own marketing department. The company plans to penetrate the States through the establishment of four divisions – one in each corner of the country. ‘That will be the start and then we will develop those platforms that work,’ says Bernard.

Integral to the strategy is a thorough understanding of each area, which is attainable through research. While the basic business plans will remain unaltered across North America – the company will continue to expand its food services department, for example – the tactics of promotion will vary from region to region.

For instance, Bernard says a subversive campaign similar to one by Montreal agency Bos spoofing cigarette package warnings that ran last summer in Quebec for Couche-Tard wouldn’t work in the Midwest. ‘The consumer is more conservative [there].’

Another distinction is in product offerings: for example, unlike the Quebecois version, the company’s Sloche brand frozen drink will be carbonated in the U.S. in response to a much stronger American craving for soda. ‘The consumer for Sloche is a teenager, so we needed to know what they are expecting from us. If we didn’t do research, we wouldn’t uncover that.’

Alimentation Couche-Tard isn’t the only retailer adjusting its product mix in American markets. Groupe Jean Coutu of Montreal has been stateside since 1987 and in 1994 purchased the New England-based six-store Brooks Pharmacy chain. While the message at Brooks is generally similar to that of the Jean Coutu banner in Quebec – stressing convenience, value and service – the store merchandise isn’t, because of a pre-existing mindset about drugstores. ‘In the U.S., a lot of products, like household goods, are sold in food stores and cosmetics are sold in department stores, while in Canada a lot of people buy [these items] in drugstores,’ points out president and COO François J. Coutu.

So far, Brooks’ advertising has consisted mainly of flyers and local radio. Groupe Jean Coutu has eased into it, according to Coutu, because it was necessary to improve the Brooks image first, and therefore concentrate on re-merchandising and renovating.

Still, the retailer has engaged in ‘neighbourhood activities,’ such as investing in the Good Neighbor College Scholarship Fund. So far the strategy has worked, with the chain doubling sales to US$4 million in five years. Coutu maintains that having a U.S.-based leader in David Morocco, who heads up Brooks from an office in Rhode Island, helps. ‘You can’t operate a U.S. division out of Montreal,’ he maintains. ‘You need someone there who thinks American.’

Nonetheless, not all Canadian retailers would agree with this philosophy. Manchu WOK, which currently has 184 locations – 103 in the United States, most of which are in Texas and Florida, and 81 in Canada – crossed the border more than 20 years ago and operates out of its Markham-based head office. However, marketing co-ordinator Julie Brennan agrees it’s imperative to cater to each specific locale. ‘Our three required combos are different from the U.S. to Canada,’ explains Brennan. ‘We make allowances for different tastes from region to region. In Florida, for instance, the seafood dishes wouldn’t do as well, because they can get seafood fresh.’

While most promotions remain identical across North America, Brennan relies on district and store managers to dish up specific marketing plans. ‘It’s all based on their requirements. We have bus shelter advertising available, we have creative for mall posters, coupons for newspapers and flyers. If they come to us with a request, we can do it.’

In fact, earlier this year, the food court retailer launched its ‘local restaurant marketing program’ in response to stores requiring signage for their own promos. Whereas in the past, store managers would find their own printers to develop the creative, Manchu WOK decided it was best to handle production from head office. ‘We wanted to protect our brand and make sure everything was cohesive as far as signage was concerned. So we developed generic art for all the inserts, so they can customize their header, their combo, their price.’

Manchu WOK has also developed a database of customers, and is currently researching marketing opportunities, as Brennan acknowledges that a niche approach is essential in the U.S. ‘We’ll be able to look up a specific store in Alabama and directly target customers that have registered for that store. That will happen some time later this year.’

Similarly, Toronto-based Danier Leather has relied on database marketing in the States. It opened its first banner on Long Island at the Walt Whitman Mall four years ago, followed by another at the nearby Roosevelt Field Mall two years later. To introduce Danier to the area, Ellen Rethore, VP of marketing, looked at her Canadian database, then used Compusearch clusters to clone consumers around Walt Whitman. The company then sent out a combination of inserts in Newsday to those areas that matched up. ‘We were able to analyze which zip codes were performing for us…and then we started to refine the target,’ she says, adding that Danier sends out postcards to shoppers, offering them preferential prices for the latest fashion items, such as tie-up suede pants.

Unlike in Canada, Danier ‘didn’t go into New York on a mass media basis, given the cost, which is at least double [what it is in Canada.]‘

However, two years ago, when it unveiled its space at Roosevelt, Rethore realized that the regional mall pulled from many geographic locations. ‘It wasn’t such a localized customer base, so we looked at Long Island transit,’ says Rethore. The company used the same creative as in Canada, the ‘Danier Touch’ campaign produced by Toronto agency Zig. ‘We also started to buy anchored positions within Newsday and ran ROP ads, maybe three or four times a month, that were more item-specific.’

About 18 months ago the company also hired a Manhattan publicist, Keri Levitt Communications, to create a buzz around specific products. For instance, last year Danier supplied duffle bags as a giveaway to guests at the Screen Actors Guild Awards, and soon after the stores were swamped with star-obsessed copycats looking for them.

‘Expansion is certainly a long-term goal,’ concedes Rethore, who adds that a major challenge for Danier was going into a market where it had zero brand recognition. ‘We’d been prudent about Canadians who have gone down and not survived, so we’re using Long Island as a test kitchen. When we feel we understand the market differences and are happy with our results, then we’ll be ready to make a move.’