Big box goes downtown

Category killers like Home Depot and Costco have conquered suburbia
- but can they hack it in the big city?

Today, a big-box store conjures up images of ‘plaza city,’ a place overrun by minivans and dotted with perfectly landscaped soccer pitches. But that’s about to change. The major players are trying to shift that kind of thinking, as they head into the downtown core to cozy up to urbanites.

As you read this, the likes of Future Shop, Costco, Home Depot and Rona are moving downtown, and they’re doing it by retooling everything they stand for. The warehouse-style retail chains are introducing new environments to cater to the time-pressed, space-deprived downtowner, with a particular emphasis on service, convenience and an urban-friendly product mix.

Why take a risk in moving downtown? Simple: because that’s where the people are. In 2001, Statistics Canada reported that 51% of Canadians now live in four urban regions – the Golden Horseshoe of Southern Ontario, the Greater Montreal Area, Vancouver and the Lower Mainland of B.C., and the Calgary-Edmonton Corridor. And since the last census in 1996, Toronto grew by 9.8%, Montreal by 3%, Vancouver by 8.5% and Calgary by a whopping 15.8%.

‘Unlike some U.S. cities which are becoming ghost towns, Canadian cities are happening places,’ says Donald Cooper, business speaker on marketing, service and business excellence for The Donald Cooper Corporation in Toronto. ‘There are two customers to reach: the people who live downtown, and those who work there.’

But if big-box chains think they can take what works in cookie-cutter home communities and transplant it to urban centres, they might get burned; after all, it’s a completely different shopping experience. For one thing, urban shoppers ‘are under much more time pressure, and are much less forgiving,’ says Cooper. ‘They have one eye on the merchandise and one on the clock.’

There are other challenges too. Joe Jackman is the chairman and CCO of Toronto-based strategic retail creative company Perennial, which counts Loblaws, Canadian Tire and Canada Post among its clients. He says urban stores will need to accommodate significantly more foot traffic (although urbanites would likely spend less money than suburbanites).

Chains also need to adjust their merchandise mix so that it caters more definitively to smaller households. Says Jackman: ‘Large families will look for large-format packaging, but in a city, that might not be suitable at all.’

Burnaby, B.C.-based Future Shop seems to have done its homework before Nov. 20. That’s when the retailer opened its flagship store on the corner of Robson and Granville streets in Vancouver’s entertainment district, an event that was promoted by advertising – produced in-house – consisting of print ads in the local entertainment weeklies, transit creative and posters distributed in bars and restaurants – a tactic that wouldn’t have been considered in suburbia.

While Future Shop didn’t scale down the size of its 30,000-square-foot metropolitan location, it has worked on retooling its offerings.

According to company spokesperson Lori DeCou, it’s a matter of ‘bringing the Future Shop brand to where the customer lives and works.’ She says there are two main targets for Future Shop’s urban units (the retailer also has locations in downtown Toronto and downtown Montreal, where it opened a new space last year in the old Forum). One is the youth demo, and the other is an affluent, knowledgeable older customer. ‘These consumers tend to be more tech savvy.’

Both the product blend and customer service have been significantly altered to address this consumer. For instance, there is more focus on business-related merchandise such as cellphones, PDAs and laptops, as well as space-saving home theatre equipment. Meanwhile, appliances have been moved out since most condos come equipped.

Service is a major element as well. The retailer’s commission-based staff is made aware that it needs to be much more educated to relate to the urban customer, and is encouraged to keep abreast of technological news.

They are also taught to push the Future Shop delivery service a lot more, since there is likely to be a higher proportion of pedestrians visiting the store, and to service customers quickly, so that if a businessman walks in with a malfunctioning laptop, it will be dealt with as expediently as possible.

‘These customers are looking for an opportunity to have a quicker transaction than they would during a leisurely visit to a suburban shop on a day off,’ says DeCou. ‘We are aware of that, so we merchandise the store a certain way, so that music, for instance, can be found quickly and people can get on with their day. It’s also more important for urban centres to have a centralized cash system.’

Similarly, Issaquah, Wash.-based Costco Wholesale Corp. will break ground in downtown Vancouver to make space for its first Canadian urban location, to be unveiled in 2006. The 147,000-sq.-ft. venue will be part of a development that will see Concord Pacific Group build four residential towers in the vicinity of GM Place. Russ Miller, who is based in Vancouver as Costco’s SVP for Western Canada, says the firm also has downtown space in San Francisco and the boroughs of Manhattan.

‘There are a lot more people moving downtown – we’ve been looking at doing this for a long time,’ he says, adding that the store is geared at small businesses, such as convenience stores.

But even when dealing with the business community, Costco still needs a distinct approach for its downtown store. Says Miller: ‘Certainly we’ll cater to the downtown population, whether on the business side, by offering items for small-business needs, or on the ethnic side, because it’s such a diverse [market].’ The location, like others in the warehouse chain, will have its own marketing group that will be responsible for ‘integrating with the business community and building relationships,’ he says.

Building relationships is also a key facet in Rona’s strategy for its community Rona Hardware shops, of which there are about 80, mainly in Quebec.

According to Michael Brossard, the Montreal-based home improvement chain’s national marketing director, there are plans to expand the concept to Ontario and Western Canada. He says the shops tend to be in ‘densely populated areas, where there’s a high percentage of apartment buildings.

‘The flexibility of our network is our strength – we don’t have a cookie cutter approach. We know from our studies that big box isn’t for everyone, so we have a multifaceted network.’

The local Rona Hardware merchants offer personalized service, something that isn’t always possible at a humongous big box, which could see 2,000 customers on the weekend. ‘For a customer who has an immediate problem, local convenience is what they need, so all the core items are available in the small-format store,’ says Brossard, who adds that special ordering is also an option. Thus, there is less plumbing gear, and more light hardware merchandise and decorative products.

Brossard says the retailer’s current quirky ‘Rona – The How To People’ campaign, which launched in March and was produced by Montreal agency BCP, is broad enough to appeal to an urban crowd.

Canada’s largest home improvement chain’s strategy seems to be paying off: Rona reported it had doubled its profits for the third quarter, with total store sales jumping 19% to $748.3 million compared to last year. (Same-store sales were up 4.5%.)

Not to be left behind, Rona’s main competitor, Toronto-based Home Depot, is erecting a 60,000 sq.-ft., two-story venue in downtown Vancouver, which is scheduled to open next fall.

The new digs will focus specifically on Home Depot’s softer side, offering what condo dwellers likely need most – décor – with the possibility to special order.

Explains director of marketing Pat Wilkinson: ‘In Canada, where urban centres have a higher population density than in the U.S., people are less likely to take on major renovation projects. So having more of a décor focus makes sense.’ And since older homes are often found in city centres, the new format will also stock maintenance and repair items.

Despite the plans to dominate metropolitan centres, there are obstacles to big-box strategies, whether they encompass scaling down the retail environment or going vertical to squeeze everything into a downtown space, according to Perennial’s Jackman. In the first case, assortment can get so narrow that it becomes difficult to present powerful propositions, and in the second scenario, sightlines are a challenge. ‘You have to guide the traffic flow, so that customers see what you want them to, without making it onerous for them.’

And that, of course, all stems back to the urban dweller’s most niggling attribute: time, or the lack thereof. Says Jackman: ‘If a customer perceives there’s extra work and extra time in moving through a number of levels, there are two effects: the basket size goes down, and then the perception of the shop’s value can diminish.’

Luring women into the box

Traditional hardware retailers like Canadian Tire and Home Depot are exposing their softer sides.

This fall, Canadian Tire unveiled its new ‘Concept 20/20′ format in four communities: Markham, Kitchener, and Pembroke, Ont., and Prince George, B.C.

Along with a better shopping experience – achieved through better sightlines and adjacencies, the introduction of indoor and outdoor ‘marketplaces’ that continually merchandise new, exclusive product and an additional 12,000 square feet in retail space – Canadian Tire has boosted its offerings to make itself more appealing to women.

‘We know that Canadian Tire’s consumer is roughly split between women and men,’ explains Jennifer Sexton, manager, PR of the Toronto-based chain. ‘While we’re still dominant with tools, automotive and power sports, we’ve better showcased some of the things female customers are interested in, like home décor and home organization.’

Other expanded categories include household cleaning (by 40%), while new sections like greeting cards, cut flowers and home office supplies were also unveiled. Canadian Tire believes retrofitted stores – the first four to six are planned for spring 2004 – will increase sales by 20%. If all goes well, 280 locations may be retrofitted.

Similarly, Home Depot has revamped its retail locations in recent years to make them more enticing to the fairer sex, by changing adjacencies and improving lighting and signage, as well as through its DIY workshops. ‘You’d think that our toilet fixing seminar would be mostly dominated by guys, but women don’t want to pay $90 an hour for plumbing,’ says president Annette Verschuren, who adds that 20% to 25% of Canadian homes are now being purchased by single women.

Home Depot has recently introduced new marketing tactics that are obviously geared at females too, such as its DreamBook catalogue, which will be dropped on 1.2 million doorsteps twice a year, and its sponsorship of home décor TV shows.

Says Verschuren: ‘Twenty per cent of our customers said they come to the store just to get ideas. That provided us with an opportunity to present them with ideas, not just in the stores, but in their own homes.’

But for Verschuren, in order to truly resonate with women she needed to implement changes internally. ‘One thing I did was I populated 40% of our senior team with women, which is unheard of in this industry. The management team reflects our customers and that’s such a strategic advantage.’

‘It’s a deal’ at Sam’s Club

The marketing message for Sam’s Club – that it will provide the best deals in town – is very similar to that of its owner, Wal-Mart; it’s the audience that differs.

Four of the warehouse style stores opened in Canada this summer in the Greater Toronto Area, after Bentonville, Ark.-based Wal-Mart decided it was time to move Sam’s north. Two more locations will be added in London, Ont. and Cambridge, Ont. next year.

Says Andrew Pelletier, spokesperson for Wal-Mart Canada: ‘There has been only one major competitor [Costco] in Canada and we believe that competition is a good thing for the consumer.’

And the new chain has been communicating that fact in its marketing, with help from Toronto-based agency Allard Johnson, which was hired on a project basis. The campaign carries the tagline ‘It’s a deal.’

‘There are exceptional deals on more than 4,000 items in a Sam’s Club,’ says Pelletier. ‘Wal-Mart’s objective is to lower the cost of living of Canadians by providing lower prices, and the objective of Sam’s Club is to lower businesses’ operating costs and to enable large families to meet their needs in a cost-effective way. Value is the fundamental [message].’

This message is geared at two audiences: small- and medium-sized businesses and ‘treasure hunters,’ or consumers looking for high-end luxury – a Jacuzzi, for instance – at wholesale prices.

The campaign included a pre-launch membership drive, incorporating direct mail sent to 580,000 potential customers, flyers, billboards, radio and a print ad in the Toronto Star, as well as cold calls to businesses from ‘field-support marketers.’

The retailer also incorporated incentives, by handing out a $10 shopping card to consumers who signed on prior to opening (a membership costs about $40) and creating a Canada’s Founding Members (CFM) program. CFMers are treated to in-store benefits and weekly draws.

Phase two of Sam’s Club’s strategy will focus on acquisition and retention, using the same tactics, while broadcast advertising is yet to be formalized. According to the retailer, the pre-launch effort exceeded expectations.