“The Americans are coming!”
It’s a whisper that’s been going through the Canadian retail sector for years, and one that was confirmed in a big way this January, when Target announced that it had purchased the bulk of Zellers store leases in a $1.8 billion deal, with plans to convert 100 to 150 of them to Target locations in 2013 and 2014.
For most observers, it was never an issue of if Target would enter the Canadian market but rather when. Retail real estate is scarce in Canada, especially for stores with a large footprint, and Target had long been rumoured to be seeking space on this side of the border. The deal with Hudson’s Bay Company (which is now U.S.-owned itself) provided an opportunity to enter the country with guns blazing. 
It isn’t just Target, mind you: the current U.S. economy has sent many retailers scrambling to find new markets, and expanding to Canada is more straightforward than entering Asia or the Middle East. This year, a slew of U.S. retailers including Marshalls, J. Crew, Intermix, Express and Zumiez will all open their first Canadian stores, following in the footsteps of Victoria’s Secret (see “Goodbye, cross-border shopping,” page 18). There’s some domestic expansion going on too, as Quebec clothing retailer La Maison Simons has announced plans to open its first location in English Canada – a 100,000-square-foot Simons store at West Edmonton Mall – next year, with a dozen to follow over the next decade. Although its name isn’t well known outside la belle province, Simons does brisk business at its seven Quebec stores, selling a mix of cheap-chic and designer lines. 
While all of the new additions will mean more competition for domestic retail brands, Target is likely the most daunting contender. As Diane J. Brisebois, president, Retail Council of Canada (RCC), points out, “Mass merchants compete with everybody, with the exception of very high-end retailers. [The overlap] can be very narrow, 2% of their SKUs, but in some cases it could be 50%.”
The new competition does come with a silver lining, according to Joe Jackman, CEO, Joe Jackman Brand, a retail strategy consultant who worked on the transformation of Duane Reade in New York, the turn-around of Old Navy and the development of FreshCo for Sobeys.
“It forces everyone to sharpen their focus and innovate to improve their position,” Jackman says. “The real enemy is not competition from the U.S., it’s a lack of focus and complacency.”
Going up against a sharp-shooter like Target requires a bulletproof retail experience, encompassing everything from store design to savvy brand partnerships. As Canada gears up for a new round of retail wars, it’s an ideal time to look at what two of the country’s biggest players, Walmart and The Bay, have been up to and what other retailers might want to add to their arsenal.
As far as head-to-head battles go, there’s none more obvious than Target vs. Walmart. Walmart entered the Great White North in 1994, purchasing the Canadian Woolco stores from Woolworths. The mass merchant now has 324 locations across the country, 119 of which are supercentres, housing a full grocery and fresh foods department in addition to general merchandise.
And the number of supercentres is growing: Walmart just announced plans to introduce 40 more in the next fiscal year, through a combination of renovation and new locations, and to expand the format to Manitoba and Quebec. By the end of January 2012, the retailer plans to have 333 stores, 49% of which sell groceries.
Clearly Walmart’s supercentre format, which first launched in Ontario in 2006, is a key part of its battle plan.
“It’s all about being a one-stop shop destination,” says Jeff Lobb, SVP marketing, Walmart Canada. “With grocery and particularly fresh [foods], it’s a proven traffic driver. The average Canadian will buy fresh a couple of times a week…So ideally they’re coming in to Walmart a couple of times a week to buy those items and potentially [buying] others.” 
Although the new superstores will boast a fresher look and feel, Lobb says no chainwide makeovers are planned. “Because we’re a low cost operator we won’t change signage over prematurely until it’s full amortized,” he says.
But the lack of glamorous new look isn’t necessarily a strike against Walmart.
“Store design doesn’t just mean slick and modern,” says Brisebois. “It’s an extension of the customer you serve. In some cases, the customer expects the store design to make them feel affluent and sophisticated; in others, they want the store to make them feel thrifty.”
As Jackman says, “Retail design is evolving from how a store looks and is organized into the customer experience it facilitates. In this regard, the importance of design as a means of differentiation is profoundly greater than even a decade ago, and the more intense the competition, the more important it becomes.”
Walmart has been making some careful in-store changes recently, such as the decision to create more space in the dressing rooms and ensure they’re kept tidy.
The electronics department has also been reorganized in all stores, with name brands prominently displayed on the TV wall and a counter added to let consumers take a hands-on look at digital cameras, cellphones, GPS devices and trendy Apple products.
“Electronics is an area where brands are particularly important,” says Lobb, while noting that low prices remain a priority in all departments. “We’ve redesigned the area to make it a more enjoyable customer experience.”
No doubt feeling some pressure from Loblaw’s cheap-and-cheerful Joe Fresh, Walmart has also put a strong push behind its George apparel brand. Last summer, the store retired a number of private lines, including B.U.M., Penman’s and 725, replacing them with the George banner. Every location was retrofitted to create a store-within-a-store experience, with branded signage, hardware and tags.
“Instead of seeing different brands, you see George, whether it’s menswear, womenswear or kids,” Lobb says.

Walmart has also been flexing its shopper marketing muscle, engaging in programs with suppliers in all corners of the store, from automotive to beauty products.
“One of the big things we’ve been doing fairly successfully in 2010 is [building] co-marketing initiatives that create a win for Walmart and for vendor partners,” says Lobb, who spent 18 years at PepsiCo before joining Walmart three years ago. “We know it’s been successful because most of the companies we’ve been dealing with want to do the same but even bigger in 2011.”
For instance, Walmart has been employing “Beauty For Less” messaging in-flyer and in-store to feature key brands such as Procter & Gamble, L’Oréal and Alberto Culver. Like the electronics department, beauty is a smart area in which to spotlight name brands – the 2011 BrandSpark Canadian Shopper Study found that only four in 10 Canadians believe private label beauty products are as good as brand name, compared to almost six in 10 who believe the same for food, household and over-the-counter health care products.
At Halloween, a key season for the retailer, Walmart partnered with Hershey and Mars to create a product display, carrying the message through to the flyer, website and in-store media.
“It gave a one-sight, one-sound example for customers and [the message] that they didn’t need to go anywhere else to get confectionary or costumes,” Lobb says.
Martin Rydlo, director of portfolio strategy and initiatives, Campbell Company of Canada, agrees on the value of such programs.
“Shopper marketing is critical in helping retailers address the ever increasing time-pressed nature of shoppers’ lives,” he says. “Just putting products on shelf or building displays that lack linkage to key shopper needs does not help the retailer grow loyalty. Convenience and a connection to their store communities do.”
Although Walmart’s U.S. management famously turned the store’s action alley into inaction alley with a “clean aisle” policy eliminating palette displays, Lobb says such efforts have been more moderate here.
“I think we’ve struck a happy balance in Canada whereby we make sure we give the appropriate amount of customer space but we still have a lot of items in action alley,” he says.
And as for the impact of the red and white bull’s eye aimed at Canada?
“Bring it on,” Lobb says. “Truthfully, and I don’t think we’re arrogant when we say this, we’ve got a plan. We’ve had a 16-year headstart in English and French Canada and that’s not insignificant. We’ve learned a lot along the way [and] that’s helped us get better.”
Lobb adds that he thinks “disarray” during the transition from Zellers to Target will create some additional opportunities for Walmart.
“Expect us to play harder on everyday low price and rollbacks,” he says.
While Walmart rolls back its prices, The Bay is reaching out to those who don’t mind spending more – a transformation that began when Bonnie Brooks took the helm as president and CEO in 2008.
Defined by psychographics more than demographics, The Bay’s new target falls into two main categories, explains Patrick Dickinson, VP of marketing. First, there’s the “true fashion-involved consumer” – female or male, young or old, this customer considers style important and is willing to pay for it. Then there’s the “pragmatic shopper,” who wants quality and value, but, once again, isn’t necessarily seeking the lowest price. “They’re looking for a price that is representative of good value when placed against the quality, style and wearability of items,” says Dickinson.
In other words, forget competing with Target — The Bay wants to give Holt Renfrew a run for its money, reaching out to the ladies (and gents) who lunch.
On that note, The Bay announced in February that all 24 of its in-store restaurants would be getting a makeover, as well as new management. Food service company Compass Group Canada will be involved coast-to-coast while fine-dining company Oliver & Bonacini Restaurants has been brought on to revamp the flagship locations. Plans for the Toronto flagship include a slick new concept restaurant at the corner of Queen and Bay streets, combining à la carte and al fresco dining as well as fresh takeaway.
“I think it can only improve the overall store environment and the experience customers will have,” Dickinson says, adding that the “foodie” demographic falls neatly in line with The Bay’s new target.
“I think people currently coming to The Bay might not even consider staying for lunch, where now that becomes more of a full-day option. You can spend more time in the store and really enjoy yourself while you’re there.”
The planned renovations for the Toronto flagship also include a state-of-the-art conference facility on the eighth floor and a renovation of the historic Arcadian Court that Dickinson says will “put us right back in the league with the best event spaces in the city.”
Retail design is critical to Dickinson and to The Bay as a whole. “We have an underutilized asset in terms of probably the most valuable retail space in all of Canada in just about every city in which we operate,” he says. “The degree to which we’ll be investing in the stores this year is probably greater than we have done any time in the last 10 years.”
Practically every store in the country will get a refresh, if not renovation, this year, he says. “Our intention [is] to bring those assets back up to realize their full potential…so that they are truly showing as best in class, not just in this country but in the world,” he says.

The Bay’s contemporary designer brand department, White Space – launched in Toronto about a year ago and since rolled out in Montreal and Vancouver – provides some clues about the direction the store is going.
 “It’s clean and contemporary, with marble floors and bright lighting, and not overcrowded in terms of the merchandising and fixturing,” says Dickinson. “It is really our best foot forward in terms of what we would love for all of the stores to approach.”
It would appear that it’s been well received: every store with a White Space increased its sales by double-digit percentage this year, Dickinson says.
The Bay’s desire to be seen as a world-class shopping destination has also taken the retailer outside Canada’s borders. In December, Parisian department store Colette began carrying items from the Hudson’s Bay Company Collection, including the iconic four-point wool blanket.
But the goal wasn’t to woo Parisian shoppers as much as jet-setting Canadians.
“There are a lot of people in this country who subscribe to the Colette newsletter [and] if they go to Paris, that is definitely a place they would stop,” Dickinson says. “[At Colette] we’re competing on a global basis within a very style-savvy environment known for selecting the coolest, the most current products. It’s a real feather in our cap.”
The Bay has also been partnering with other international brands to put its stripes on products ranging from a Burton snowboard and K-Swiss sneakers to a Swiss Army knife.

“It’s all about getting the brand into the style centres globally and having it play back as a unique take on Canadian culture…Really, Hudson Bay Company is the only company that can do that.”
Though U.S. style mavens have shown a soft spot for “Tar-jay” and its designer-produced lines, the price points are so different that The Bay probably needs to worry more about new entries like Intermix, which has 23 locations across the U.S., and carries designer fashions ranging from Vera Wang to Jimmy Choo.
The Bay’s tight new focus on fashion-loving customers who shop big and shop often aligns with Jackman’s tips for brand building: “Divide your customers into meaningful segments. Choose the one most important and valuable to you, and several others that matter, and then focus on them religiously,” he says. “It’s amazing how fast you can move, and how much momentum you can generate, when everyone in an organization is clear about what they intend to be to whom, and pumped about where they’re headed.”
As competition increases, Dickinson says The Bay will stay focused on differentiation: offering products customers can’t find elsewhere, providing an improved in-store experience (from design to customer service) and building what he calls a “true” loyalty program.
 “We’re investigating new ways of engaging the people who visit us the most and spend the most with us,” he says, pointing out that the revamped loyalty program will add another layer to the existing HBC Rewards points system.
“We know people will visit the new retailers, there’s no reason why they shouldn’t,” he says. “We just want to make sure we maintain a favoured status with them.”
As new brands fight for space in Canada’s crowded shopping centres, it’s time for the old guard to step up its game. As Brisebois says, “At the end of the day, this will encourage retailers to really dig deep in their data, in their analytics and make sure they understand their customer – the style she wants, when she wants it, at the price point she wants it and in what kind of environment.”
For shoppers, it’s great news. For retailers, this means war.

Goodbye, cross-border shopping

Here’s a rundown of some of the latest U.S. brands to announce Canuck outposts

Express
The twentysomething-focused fashion chain is the sixth-largest in the U.S., with 580 locations. It plans to open its first six Canadian stores this year, with 50 expected over the next five years. Offering both menswear and womenswear, it’s likely to butt heads with Canadian-helmed brands like
Le Château and Jacob.

Intermix
This fall, the U.S. luxury retailer will be opening a 2,500-square-foot flagship (its first Canadian location) on Toronto’s Bloor Street – just steps from the flagship of Holt Renfrew – with plans to open more Canadian stores afterwards. Carrying a range of designer fashions from Stella McCartney to Diane von Furstenberg, it’s challenging not only Holts but The Bay as well.

J. Crew
Known for its preppy clothing, shoes and accessories – sold both in store and by catalogue – the retailer will be opening its first Canadian location in Toronto this year.
Watch out, Gap!

Marshalls
Winners’ U.S. sister chain, which also sells brand-name clothing, shoes and housewares at discount prices, is about to open its first Canadian stores, including one on the premises of the defunct 50,000-square-foot Toronto nightclub Circa. In addition to borrowing share from Winners, Marshalls will likely take a poke at Walmart and Sears.

Target
The U.S. retailer is finally headed to Canada, after buying the store leases of Zellers from HBC. It plans to convert 100 to 150 of the stores to Target locations in 2013 and 2014, competing with, well, almost everybody. 

Zumiez
The U.S. skateboard and snowboard apparel store is cruising into Canada with several locations planned for this year and more to come. It’s time for Canadian action sports retailer West 49 to learn some new tricks. 

Getting the retail edge online

“If retailers are not breaking up their customer base and understanding them by digital behaviour, they’re really missing an opportunity,” says Adam Froman, CEO, Delvinia. The Toronto-based digital strategy and customer experience firm released its quarterly Delvinia Dig report, “The Social Shopper: A Lens into the Future of Retail Experiences,” on Feb. 24 and it contains some noteworthy insights for retailers looking to strengthen their online programs.
The most surprising finding, Froman says, was that although 61% of Canadian shoppers say they research products online before making purchase decisions at least half of the time, category makes a big difference. For instance, while home electronics buyers are five times more likely to choose the internet over the store environment when gathering pre-purchase information, apparel shoppers are 68% more likely to do their research in-store. Intuitively, this makes sense – most shoppers want to touch the fabric and try the garment on – but the preference extends to other categories, too, with CPG consumers also more likely to gather information in store.
The study also found that 65% of Canadian shoppers look for consumer reviews and recommendations while researching online. And there’s good reason for retailers and brands to let customers post reviews (including the negative ones) on their sites, Froman says.
“They’re going to do it anyway,” he says. “If they do it in an environment where you have some involvement, at least you can respond and deal with it…Giving up that control actually gives you more control in the relationship.”
The hunt for online reviews isn’t just happening on consumers’ laptops. Delvinia found that nearly 20% of Canadian smartphone owners use their phone to search for recommendations while they’re out shopping – a number that rises to 40% when they’re iPhone users. And one-third have used their phone to take a picture of a product in store, which Froman points out is an important reason to ditch dated no-photography rules.
Delvinia’s proprietary segmentation model, Digital Mosaic, breaks down the Canadian population based on individuals’ attitudes towards and usage of digital technology, resulting in three major groups: the time-starved, for whom technology’s primary purpose is to help manage their hectic lives; the heavy social users, for whom tech is also a lifeline to friends and family; and laggards, including late-adopters and those who don’t own or embrace technology.
As retail competition grows, Froman says it’ll be increasingly important for retailers to understand their customers’ digital usage. “They really should be putting on that lens, because that’s going to give them the insight on how to compete,” he says.