70th Anniversay

March 8, 1993

Canadian Tire Corporation has a history of success that spans more than 70 yars.

The company, with 425 stores across Canada stocked with everthing from automotive hardware, to electrical supplies, to outdoor equipment and household appliances as well as an auto repair service and gas station, has survived mainly because of its innovative spirit, its customer service, house brands and loyalty programs.

Since its beginning in 1922 with a store in Toronto called Hamilton Tire and Rubber, Canadian Tire, which together with its associate dealers now employs more than 27,000 across Canada, has continued to expand, despite the Great Depression in the 1930s and supply shortages during the Second World War.

Alan Goddard, vice-president corporate affairs for the company, worth $325 billion a year, says the reason for that is the ‘hard efforts’ of the associate dealer stores and the corporation.

‘Canadian Tire is filled with people who tend to be entrepreneurial in spirit,’ Goddard says.

‘Traditionally, that’s the nature of the company, whether it’s the dealers and what they do, or the employees, who are also major shareholders in the company and, therefore, not only concerned with doing their jobs, but also the success of the overall enterprise.

Company keeps its focus on the future

‘I think that’s meant a lot in terms of the way this company has grown and the attitude of getting it done, just doing it, developing in Canadian Tire.’

The company’s dealers are not store managers, but business owners running their own operations in their own communities.

Key motivation

Each has a major investment in his or her business, a key motivation to serve those markets well.

According to Goddard, Canadian Tire does not take its customers for granted.

‘You can’t rest on the laurels of your image,’ he says. ‘To continue to build and be innovative, you must also keep tabs on who your market is and what they want.

Balance

‘I think it’s very important to maintain a combination of balance between your reputation and people’s knowledge of you, and make sure you’re relevant to people as you move forward.

‘From the testing we do, we have a very good reputation on the whole with our customers.

‘It is the kind of store where you got your first bike, or skates, and that, we believe, is a wealth of potential goodwill, provided we meet customers’ needs and demands in the future.’

To improve customer service years ago when Canadian Tire stores were counter-service stores, the flagship Toronto store at the corner of Yonge Street and Davenport equipped clerks, who had to take orders for goods at the counter and then fetch them from the stock shelves at the back, with roller skates.

Canadian Tire began building customer loyalty early on with its Cash Bonus Coupon program known as ‘Canadian Tire Money’ – coupons worth five cents, 10 cents, 25 cents, 50 cents, $1 and a new $2 bill which are given out at the cash register based on the amount bought.

When the ‘money’ was originally introduced in 1958, it was to promote the company’s gas bar and automotive repair services.

Instead of getting a price reduction at the pump, the discount came through coupons, based on a percentage of the purchase, that could be used in the store.

The coupons encouraged customers who frequented the gas bars to go into the stores and worked so well the corporation began to also give out coupons in some stores.

It increased return trips to the stores and also caused some cross-fertilization back to the gas bar.

Today, the money coupons, paid out as a percentage of the customer purchase, are distributed in stores and gas bars in Ontario and Eastern Canada.

In Western Canada, the coupons are only paid out at gas bars, although they can also be redeemed in the stores.

This was the beginning of Canadian Tire’s use of major cross-marketing strategies.

Along with the store and gas station elements of Canadian Tire’s business, in 1966 the company established its financial services unit, Canadian Tire Acceptance Company.

The division gave customers the flexibility of using their Canadian Tire credit at the gas bar or in the store and, in turn, gave Canadian Tire a direct marketing database that today totals more than 3.7 million cardholders.

Credit card

Wayne Sales, senior vice-president marketing, says the Canadian Tire credit card ‘is very important because it completes the shopping experience and ties directly into marketing initiatives.

‘For example, right now we’re working with the dealers and the credit division on developing our commercial business,’ Sales says.

‘As a database, it has the potential in the future of enabling us to target the market in terms of knowing what consumers’ interests are by looking at purchase history.’

Other uses

The company has also developed other uses for its credit card.

The latest, Gas Key, has been tested in Alberta and will soon be rolled out across Ontario.

Gas Key is a machine used at self-serve Canadian Tire gas bars.

Customers run their credit cards through the Gas Key before they buy gas, and the machine tabulates a discount for that purchase based on the previous month’s purchases made on the card.

Gas Key automatically charges the gas to the customer’s account.

Today, store clerks have replaced roller skates with computer screens for more efficient customer service.

Goddard says Canadian Tire was in the forefront in the development and application of computer systems in the retail business.

Update systems

‘We have to continue to update those systems as well because computers and systems have become a way of life in the retail business, and we must be very diligent in continuing to expand our capabilities,’ he says.

‘The ideal situation will be to work towards being able to reorder product from the manufacturer at the point of sale.’

There is some use of edi, electronic data interchange, with suppliers, although it is in the early stages of development.

Linked by computer

The company is linked by computer to some suppliers, but most ordering is done via fax.

Inventory is up to individual store operators.

Stock depletion is registered at time of sale in the stores on computers at the checkout, and then stock is reordered from home office by individual stores.

An initiative is well under way that will bring Canadian Tire to the leading edge of edi, allowing it to manage inventory at its distribution centres through computer links with vendors.

Goddard says the retail business of the future is going to be ‘systems-driven.’

He says that trend will not take away from the customer service aspect ‘because it still comes down to individuals doing a good job looking after customers.

‘All the systems provide the support to help them look after people.’

About three or four years ago, Canadian Tire also began to look at the physical aspects of its stores.

At that time, a typical Canadian Tire store had about 60% of its floor space devoted to storage and the remaining 40% was retail space.

‘All-out retail’

‘We began a concept about two years ago in St-Hubert, Que. which we call ‘all-out retail,’ Goddard says.

‘We changed the footprint of the store to 80% square footage devoted to retail space, and only 20% for storage, and then we went up so that the same box would hold the same amount of merchandise, but more would be out on the retail floor,’ he says.

The reduction in storage space was compensated by the use of high rack storage.

Retail shelving

Finished retail shelving goes up about five feet, and above that merchandise is stored on warehouse-type shelving and brought down as needed to the retail space.

Goddard points out that a Canadian Tire ‘all-out-retail’ store is not the same as a pure warehouse store because of its upgraded finish.

But, he says, it has the advantage of a warehouse store ‘because it gets staff out of the back room where they’re working and onto the retail floor to serve customers while they’re replacing and receiving merchandise.

‘It also cuts out double handling of merchandise, where a dealer would be receiving it into the warehouse area, and storing it, and then having to take it down and put it on shelves out on the retail floor.

‘When it’s on the retail floor, when you see you’re out of stock, you can bring the merchandise down and use it right away.’

The ‘all-out’ retail concept doubles the square footage of retail space of a traditional store for essentially the same capital investment.

Even though there is more racking involved, costs are cut by using less expensive aesthetics of flooring and lighting fixtures.

‘All-out’ retail is the direction in which the company is heading, with 25 stores now operating under the concept.

Some of those are conversions from existing stores, and others are new buildings.

Canadian Tire is also building a couple of prototype larger stores of about 57,000 square feet in Montreal and London, Ont.

Try concept

Goddard says the new stores will enable the company to try the ‘all-out’ retail concept in a bigger area and experiment with different formats and layouts.

‘It will allow us, because of the bigger store, to widen and deepen our categories of merchandise,’ he says.

More choice

‘We’re going to offer the customer more choice.

‘It will also allow us to develop new systems within those stores, and allow other dealers throughout the network to see them, understand them, and look at them for their own stores.’

The corporation either owns the stores or is the principal name on the lease.

Associate dealers are not franchise operators.

Franchises, generally, involve a royalty to the company and often a franchise fee.

There are no fees and there are no royalties for Canadian Tire dealers.

Each dealer signs a contract with the corporation, which is in many ways a sales agreement, whereby the dealer agrees to operate a store provided by the company and is required to buy, with minor exceptions, all merchandise from Canadian Tire.

The dealer also follows the marketing programs and policies established by the company.

Canadian Tire selects the merchandise offered to the dealer – about 45,000 skus (stockkeeping units.)

The dealer chooses from that merchandise list and may typically have only 20,000 to 25,000 of the total offerings available in his store.

The dealer does not have a choice of where his first store will be. Whatever store that first comes available is offered.

Goddard says the dealers may be in that store on average for a year and a half or two years, by which time another store, a little larger, will become available.

The dealer then will be given the chance to move up to a bigger store somewhere else in Canada.

‘Most dealers are in three or four stores before they finish their movement,’ Goddard says.

‘Your first store will be small, with relatively small annual sales, because you have to finance the inventory and that in itself is expensive,’ he says.

‘The way you acquire the store is when a changeover occurs, when one dealer moves out.

‘All assets are evaluated on a depreciated book value basis plus the inventory, and that is the price the incoming dealer pays.

‘The outgoing dealer sells what he has to the corporation at the evaluated price and the incoming dealer buys it at the same price.

The growth of the chain is in the hands of the corporation.

It chooses where new stores will be built, where the growth areas are, and what stores will be enlarged or replaced.

These decisions are a joint function of Canadian Tire’s real estate, construction and marketing departments.

The marketing department is involved because it looks at the whole market and how best to serve that market.

Part of that is the strategic placement of stores.

Says Sales: ‘We’re also working with the associate dealers on developing very defined customer service programs. We have a group internally handling toll-free numbers that consumers can call to register compliments and complaints, and we follow up with the stores.

‘We’re taking a more active role in developing dealer programs that clearly identify what type of training we need for the associates in the stores and what product information is needed,’ he says.

‘We do seminars, such as for the automotive department, and vendors also do in-store seminars on product knowledge, sales development, customer service skills.’

Canadian Tire is developing some programs to take product knowledge to a different level than it has in the past with customer service programs.

For example, Sales says information kiosks may be placed in the stores to help customers find out about products.

‘We’re looking at testing some systems that will enable the customer to scan merchandise on the floor to tell what the price is,’ he says.

‘Kiosks to help customers find where a product may be located within the store, along with product information on the kiosk.

‘We’re also looking at coupon dispensing machines and things like automatic teller machines in the stores.

‘All of this is part of customer service,’ Sales says.

‘Obviously, electronic checkouts and scanning improve customer service a great deal, but we’re also beginning to test things like a mini-cafe in the store at Yonge and Davenport in Toronto,’ he says.

‘A coffee boutique has been installed with various flavors of coffee, along with cappuccino, muffins, and donuts. It’s a place where people can sit down and rest while shopping.

‘All of these are subtle things we’re working on in terms of customer service.’

As part of their contract, dealers must support the corporation’s promotion and advertising efforts by having advertised product in stock.

Part of the yearly advertising plan is dealer contributory and part is corporate-driven.

Catalogues and broadcast advertising are a corporate responsibility, and the weekly flyers are a shared obligation.

Says Sales: ‘Home office is responsible for the development of all advertising programs – be it flyers, tv, radio, magazine, catalogue – in terms of determining what our annual expenditures will be, how many pages we’ll run, allocation of space throughout the various divisions, developing the strategies in terms of themes, price points, but we get a great amount of input from the dealers.

‘We hold what we call mac meetings, Marketing Advisory Council meetings, where a group of dealers come in and work with advertising so we can review our strategies and expenditures with them and get their input,’ he says.

‘We receive a lot of input from our vendors as well, in terms of working with them in co-op programs and the event programs we’ve developed over the years.

Discretionary funds

‘In addition, we have discretionary funds available to the dealers to augment and enhance our 52-week flyer program.

‘If they have a major season we would not cover, maybe a fishing or hunting season, or for cultural ads, sponsorships and local initiatives.’

Sales attributes Canadian Tire’s success to its focus on the consumer.

‘[The company has] been providing them with a value composition of things they look for, and they’ve come to trust Canadian Tire,’ he says.

‘We can’t just rely on past memories and the good feelings that today’s consumer has about Canadian Tire.

‘We must continue to give the products they want, the quality they expect, the value, customer service.

Around the corner

‘We’re right around the corner for you. And when you walk into the store we have to service your needs – you never rely on historic customer loyalty.

‘You can never put that on the positive side of the ledger when developing strategies because it is so fragile that you just can’t count on it.

‘You have to work every single day. This explains what Canadian Tire is.’

Sales has been with Canadian Tire for 14 months after 23 years in the u.s. with retail giant K-Mart Corporation.

He brings to Canadian Tire an innovative approach to retailing and a marketing stance that is more aggressive than most Canadian retailers.

One of his big projects right now is the development of Canadian Tire into a service quality organization.

Sales says it has to be part of the culture that begins at the highest level within the organization, extends down throughout home office and to every associate.

Comments

‘It’s a building process, and one most retailers haven’t realized yet,’ he says. ‘It’s coming to bear because of comments we’ve received from Canadians as they shop in the u.s.

‘When the u.s. retailers began to fight the war – and it was a war in the u.s. and it’s still raging – everyone began to compete and fight on price.

‘They began to develop some unique concepts in terms of retailing, in terms of presentation, in terms of assortments.

‘Then they finally realized that what the consumers require that they were not providing was customer service.

‘And customer service can be defined in a lot of ways, because you can overdo customer service to the point of – my favorite is going into a furniture store, and the sales people are lined up at the front door, and they allow you to set off into the store, but sooner or later one of them is going to tag you and shadow you,’ Sales says.

‘I don’t like that, and I don’t think many people like that,’ he says.

Easy to shop

‘That’s not the customer service that people want. They want a shopping experience where it’s easy to shop, easy to get in, brightly lit, cosmetically appealing.

‘The presentation of merchandise makes it simple for them to find what they want. In-stock position is a cornerstone of customer service. It’s what we call `trip assurance.’

Assistance

‘And then, if they need some assistance, in terms of locating a specific product or some product information, we have to provide it to them.

‘They want to go through the checkouts with no hassle.

‘They just want these little things that make the shopping experience more complete and pleasurable for them, and [do not want to] feel like someone is tagging them, or shadowing them or pressuring them into buying something.

‘They want people to be friendly and to smile. They want to feel welcomed in the store, and that their business is truly appreciated from the associates.

‘At the end of the day, when it’s all said and done, along with the expansion of retail square footage in the u.s. and Canada, you’ll be able to buy the same product for the same price in many relatively convenient locations,’ Sales says.

‘The big difference is how you make people feel when they’re shopping in the store,’ he says.

Major difference

‘It’s customer service. It’s the major difference and the least costly of any strategy.’

Canadian Tire’s house brands and the value they offer have been a Canadian institution since they were introduced in 1931.

They have also been integral to the company’s growth over the years.

Motomaster and Mastercraft have achieved a level of recognition which is equal to national brands.

Canadian Tire research indicates those two particular brands are strong in the public mind, as strong as many national brands.

Says Goddard: ‘Canadian Tire is an unusual company. If I say Canadian Tire, you don’t have any problems understanding what I’m talking about. But imagine the collection of merchandise we have in the store.

‘There’s no other store exactly like it that carries the identical mix of merchandise,’ he says. ‘It’s grown in that sense in its bonding of strong private brands mixed with national brands.

Confusion

‘We had a proliferation of private brands some years ago, and began to bring them all in and focus them under Motomaster and Mastercraft as the two main private brands because we felt there was a little too much confusion in terms of the range of private brands we had.’

Bruce Allen, divisional vice-president Automotive Brands, estimates that today there is in excess of 10,000 automotive aftermarket products and accessories wearing the Motomaster label.

Better value

All are made by name brand manufacturers, but by using its own brand name, Canadian Tire can offer consumers a better value.

Motomaster is the leading brand in many categories.

It is the No. 1 replacement tire in Canada as well as the leading battery, motor oil and antifreeze, and Allen says the brand would place in the top three in a variety of other categories.

He refers to Motomaster as a ‘controlled captive brand.

National brand

‘We’ve made it into a national brand by the way we’ve approached the marketplace, yet it’s exclusively available through our own chain.

‘Historically, retailers have used their own brand as a price-fighter. We have decided not to use that strategy.

‘In fact, we have many products where, if we have a low-end price-fighter, we won’t put our own name on it because we have a quality standard that the products must meet.

Equal

‘The products must be equal to either the leading manufacturer’s brand or to the original [automobile] equipment replacement products.

‘We have quality constraints. We don’t put our name on some of the low-end entry products even if there’s a market there.’

The company has removed Motomaster from some product categories and inserted a brand name instead.

Conversely, manufacturers’ brands have been pulled in favor of the house brand.

Allen says it is not just the value that the house brand offers that has contributed to Canadian Tire’s success.

Approach

‘I think the approach we’ve taken to the marketplace is why we’re successful,’ he says. ‘In combination with our retail execution, which is superior in most cases.

‘The approach has been to build [Motomaster] as a brand. Invest in it as a brand, in everything from supporting motor racing and motor sports to national television brand identity advertising, high-quality packaging and product performance testing.’

Competitive edge

Sales says the development of house brands is a big part of the company’s competitive edge.

Lower acquisition costs have allowed Canadian Tire to be more price-competitive and set itself apart from other retailers in other ways, because, as Sales says, ‘No one else can have Motomaster, and Canadians love Motomaster.

‘Having said that, we have, and will continue to strategically place, name brands into our assortment so that we offer consumers a complete shopping experience,’ he says.

Want to buy

‘We don’t send them to a competitor if we offer brands they want to buy.

‘I consider anyone that has one square footage of space that sells the same product I do as my competitor.

‘And I don’t like it.’