Stephen Wetmore says it's time to put a little more testosterone into Canadian Tire CTC-T .
When he took over as the retailer's top executive in January, 2009, Mr. Wetmore began grappling with an old question: In the name of expansion, how far should Canadian Tire stray from its strengths of sporting goods, hardware and, yes, tires? Then came the worst of the recession, and it gave him the answer.
Amid all the economic gloom, the company's flagship stores held up relatively well; operating profit fell just 4 per cent last year. Hit much harder were Canadian Tire Corp. Ltd.'s other two businesses, the financial services unit and the Mark's Work Wearhouse apparel chain. They had been growing quickly, then suffered steep declines in the downturn (31 per cent and 18 per cent, respectively).
Those results helped persuade him of the urgency of taking Canadian Tire back to its roots – and doing it better. Today, 15 months after taking the job, Mr. Wetmore will unveil that vision at his first investor day.
The plan? He's betting more than ever on tires, wrenches, hockey sticks and vacuum cleaners. He's stepping up banking activities only when they promise to bolster retailing, having ditched mortgages because they took too much energy – and capital – from the core business. And he's trimming back some home decor departments that were designed to woo more women but sidetracked too many men.
To rev it all up, he intends to eventually reinstate an e-commerce site, which the company closed in early 2009, and add new services tied to key products. He's mulling lawn cutting, car insurance and deferred payments.
“I was extremely concerned that we were wandering away from our core business – naturally, maybe, with Marks and financial services making so much money,” Mr. Wetmore said in an exclusive interview at his Toronto office, surrounded by photos and other mementos of his previous career as a telecommunications executive.
“We're not performing as well as we should be in our core business,” he added. “I don't think anyone truly realized that entering the apparel business and financial services meant we were more susceptible to a downturn in the economy. … So let's concentrate on the performance of the core.”
The chief executive officer is taking Canadian Tire back to the future. Armed with a new store format, dubbed the “smart store,” he's focused on improving the basics of customer service – right down to ensuring washrooms are in order – keeping popular products in stock, and cutting spending on store restyling.
The need for change is evident. The chain has poured about $2.5-billion into its stores and supply chain but yielded an annual return on invested capital of just 7 or 8 per cent. Those large Canadian Tire stores aren't generating the sales that they should. Despite the investments, productivity, measured in sales per square foot, is almost 17 per cent lower in newer, more spacious outlets.
Today, Mr. Wetmore will reveal his “aspiration” of raising the annual return on capital to at least 10 per cent in five years. Over the same period, he's looking for an uptick in annual retail sales to 3 to 5 per cent.
Industry observers have taken a wait-and-see attitude. “Our concern going into the [investor] meeting is that the changes outlined may not be radical and fast enough,” said retail analyst Wayne Hood at BMO Nesbitt Burns.
Mr. Wetmore's telecom background, most recently as president of Bell Aliant, may serve him well in his mission of getting more business out of existing assets. Still, his lack of retailing experience has raised some eyebrows.
“I probably would have preferred to have seen somebody with a great deal of retail background,” said Stephen Jarislowsky of Jarislowsky Fraser Ltd., a long-time Canadian Tire shareholder that reduced its holding over the past year. “I think the jury is out. … We don't see any fast growth there for the time being.”
