BrainTrust Query: Hey, U.S. Retailers Looking to Canada! We’re Polite, to a Point…
Commentary by Doron Levy, president, Captus Business ConsultingÂ
A recent article from The Wall Street Journal explores how certain
U.S. apparel retailers are looking to Canada for an easy way to expand their
locations. They do have a point.
Culturally we are very similar. And to be honest
with you, the thirst for American brands here is at an all-time high. Now that
our dollar is at parity with yours, cross-border shopping trips to Buffalo,
Windsor and most other points across the border are increasing at a rapid rate.
Is
expansion into Canada a guaranteed success though? Why don’t you ask all the
people who used to work at Sam’s Club? Or how about the friendly workers at
the local Krispy Kreme (now a Panera, ironically)? While our cultures may be
similar and our thirst for American brands unquenchable, succeeding
in the Canadian retail space does take strategic planning as Canadians do not
think nor shop like American consumers. So while I agree with the article’s
assessment that opening doors north of the border is an easier plan than Asia
or Europe, considering Canadians exact clones of Americans is an incorrect
assumption.
Also,
most of the people I know that head down to Florida for the Christmas break
look forward to their shopping trips to Victoria’s Secret, Bath
and Body Works, The Limited and others that used to not exist here. Shopping
those brands would become a component of the vacation – just like you would
take a day to visit Sawgrass Mills to spend some dough at the Target Heartland.
How would Canadians look at these brands on a day-to-day basis? I think they
would literally fade into the landscape and their mystique would be lost even
when we did head down south.
Now of course if we can see something different,
this could become a game changer for Canadian retailers. I’m not sure
how they are nowadays, but in the past, Victoria’s Secret and Bath
and Body Works would really stand out in the service and selection department.
I can always remember being greeted, shown feature products and made to feel
welcome. (Yes, even at the lingerie store!) I wonder if the Americans can duplicate
that here?
All in all, I’m completely in favor of this U.S. invasion on
the retail battlefield. We Canadians have suffered long enough without legitimate
competition.
The caveat is that we are fiercely loyal to the brands that we
love. You can look at Eaton’s resurrection and then eventual re-death
as a great example of that. As long as U.S. retailers employ a Canadian specific
strategy, they should see success. (Well, in the short-term at least.) In the
meantime, I will enjoy all the extra dollars in my wallet from not having to
fill up at the Delta Sonic in Buffalo. Walden Galleria and its Cheesecake Factory,
we’ll miss
ya!
Discussion Questions: Why do you think some U.S. retailers have struggled
trying to expand into Canada? What is your perception of the differences
between U.S. and Canadian consumers and their respective retail
landscapes?
There is this niggling problem of Canadian identity which so many U.S. companies seem to have trouble recognizing.
Mexico also borders America but few Americans assume that Mexican consumers are the same as U.S. consumers.
Respect for, and knowledge of, your customer are the keys to retail success and table stakes if you plan on crossing borders.
It’s a great question and having led retail groups in both countries, there are some things that are important to keep in mind.
1. The average household incomes among the wealthiest Americans versus the wealthiest Canadians are significantly different. In general, Canadians have lower incomes at the top of the range. At the same time, the degree of polarization of wealth is somewhat less as well, putting more Canadians closer to the middle of the income scale.
2. Depending on what you sell, the Canadian market isn’t much larger in potential than say, the state of New York. That’s not a knock on Canada. It’s just a fact.
3. Selling in Canada presents language, management, human resources and transportation issues for American companies that add to overall operating costs.
4. Canadians are traditionally more credit-averse.
So, while I agree that there are similarities, I think companies that underestimate the differences are the ones that struggle in Canada.
As Doron pointed out, success for American retailers coming to Canada is no sure thing. Add to the list of ‘failures’ The Sports Authority and Sportmart. Coming to Canada is no guarantee of success. We’re as over-stored here as the US. Our tax system forces everyone into the ‘middle’, so don’t count on a lot of wealthy customers in most parts of the country. We have way too few people inhabiting this vast land, so expect to have stores that are separated by plane rides, not car rides. And to top it off get ready for some real ‘fun’ if you decide to open stores in Quebec … you’ll love the language police and the costs they’ll add to your business when you have to translate everything into French.
Now, having said all that, there are outstanding opportunities in Canada. Canadians, just like everyone else, are ready and anxious for any retail concept that is unique, fresh and exciting. Just don’t bother giving us more of the same boring retail concepts. It won’t work here any better than it does there. Consumers everywhere will eagerly open their wallets for a retail experience that is, so rarely, different.
A question might be, what kind of workers will they find up there? Slackers, go-getters or…? Each country may look at service and “helpful” very differently. The best retailers understand where the culture may be lacking and add to make it a beautiful thing. The worst settle like Sam’s may have done.
Geography kills most American companies expanding into Canada. While Canada’s population is about the same as California’s the population is spread out along a thin line from the Pacific to the Atlantic. This leads to a balancing act between the number of distribution centres you use and the lead time to get to the stores.
Successful “invasions” have been done by purchasing an existing business. Walmart did it. Best Buy did it when it purchased Future Shop and chose to compete with itself. Victoria Secret (as Limited brands) did it with La Sensa,
Buy an existing network and infiltrate it with your existing products and marketing. Don’t build it from scratch.
US retailers have struggled in Canada because, as Doron points out, they are indeed different from Americans. From my own experiences, the biggest difference is that they lack the consumerism that personifies the American culture. They do not respond well to price promotions and tend to shop on need. They are also extremely value (as opposed to price) oriented. Finally, they do not respond to big for the sake of big.
While American retailers tend to struggle, there are some exceptions. Winners, a division of TJX, had a slow start, but has adjusted well and is doing solid business there.
Canada is a great distraction for the savvy US retailer until things settle down here in the States, and a profitable expansion if they do it right. Limited Brands is taking a cautious approach in lingerie by reinvigorating the Canadian La Senza brand that they purchased a few years back and limiting the Victoria’s Secret brand to a few flagships. They are also keeping their fingers firmly on the pulse of the Canadian consumer by integrating much of the La Senza team into Limited Brands.
Taking a measured approach and considering the differences in the cultures will not ensure success but will give those that do a better chance.
I think American companies encounter the same challenges in Canada that Canadian companies have experienced moving south. Building a retail brand in any country requires a certain commitment to regional dominance and a concentration of locations as well as a significant effort in marketing to consumers. The reputation that a company enjoys from afar may not measure up in reality once the company arrives.
I agree with the comments on population dispersion and language challenges that others have mentioned but fundamentally it is about brand building with the consumer.
The cultural differences do make some difference. Poor execution is probably the biggest reason. The further retailers get from home, the poorer they perform. Don’t blame cultures, blame poor execution. Because if retailers provided a compelling reason to shop, they would have taken into account all the differences and been successful. Each case is different but in the end, good retailers succeed. Poor retailers fail.
Good comments on culture, population density (although retailers including The North West Company make it work) and branding. However there are aspects of a US retailer that can be leveraged in Canada, just like Canadian Retailers have done in the US. For instance, Loblaw’s “President’s Choice” private label brand has made a splash in the US for decades in US-based retailers. Why couldn’t there be more US “flavor” of brands and services moving into Canada? Retailers could partner more with local, established outlets, like Canadian Tire, and create a new branding experience for the local Canadian shopper.
“The caveat is that we are fiercely loyal to the brands that we love.”
Well, uhm, yeah I guess that’s something of a tautology, isn’t it?
Anyway, I find the Eatons example confusing for a number of reasons: in the end, it seems, Canada really wasn’t so keen for aubergine, and, more importantly, the paramedic in the resuscitation effort was Sears Canada…which is obviously an example of a U.S. company which HAS expanded to Canada; as has Wal-Mart; and McDonald’s…so there are some. Why are there not more? Probably because it doesn’t seem worth the effort: an entirely new set of Federal regulations, bilingualism, accounting standards, etc, for a market which quite frankly isn’t much bigger than a single U.S. state.