With U.S. discounter Target Corp. poised to open its first outlets in Canada in the next few weeks, the defensive response from established retailers is under the microscope.
Two of Canada’s most iconic retail outlets – Canadian Tire Corp. Ltd. and Loblaw Cos. Ltd. – unveil their fourth-quarter earnings reports this week, and they will be drawing close scrutiny to see if they are ready for the big-name competitor’s imminent arrival.
Both have been preparing for the onslaught for many months, tweaking their product offerings and trimming costs.
While neither Canadian Tire nor Loblaw is a direct competitor to Target – unlike Wal-Mart Canada Corp. where the overlap is much broader – each of the two does have product lines that could come under threat.
Target will compete directly with Loblaw’s Joe Fresh line of clothing and accessories, for instance, and some Target stores will likely have groceries. Canadian Tire will face-off with Target on small appliances, and its Mark’s Work Wearhouse Ltd. subsidiary will compete with Target for clothing sales.
If the two retailers are not in solid financial shape before Target arrives, there could be concern that they will be vulnerable when the new chain opens this spring.
Both Loblaw and Canadian Tire have gone through recent cost-cutting exercises to help reduce their expenses. In October, Loblaw said it was eliminating about 10 per cent of its head office and administrative jobs, about 700 positions. The impact of those cuts may show up in the fourth-quarter results being released Thursday.
In late November, Canadian Tire also trimmed its ranks, mainly among senior management. Several long-time executives left the company, which told employees at the time that it was trying to “streamline our structure and responsibilities as we enter one of the most competitive retail environments in our history.”
The cost cutting both Canadian Tire and Loblaw have gone through shows they are in “a bit of a hunker-down-for-battle mode,” said retail analyst Keith Howlett at Desjardins Securities. By eliminating what they see as non-essential personnel, it is clear “they’ve got that gird for battle mentality,” he said.
With Target set to open within weeks, most of the changes Canadian Tire and Loblaw – and other competitors – have made are already complete, he added. “At most of these companies, their work is 90-per-cent done preparing for Target. Now they will be fine-tuning their promotional and weekly offers once they see what the Target store looks like and what Target is promoting.”
Still, in the earnings calls with analysts this week, Target’s arrival “will definitely be a hot button topic,” Mr. Howlett said. However, “I’m not sure we’ll get much out of them,” he added, noting that Canadian retails are usually hesitant to talk in any detail about their competition.
Another major retailer whose results will be carefully parsed this week is Rona Inc. The Quebec hardware and home goods company has been in a state of turmoil since it turned down a takeover offer from Loew’s Cos. Inc. last year, and its board was then shaken up by activist shareholders.
Recently appointed executive chairman Robert Chevrier has been looking for a new CEO, but he said recently he is having trouble finding the right person.
Rona has said it will “unveil additional information regarding its three strategic priorities” during its earnings conference call on Thursday. It is expected to sell some of its ancillary businesses and close or shrink its least profitable outlets, including some big box stores outside Quebec. Job cuts are a certainty.
Some analysts also expect to see Rona’s results dented by the recent weakness in the housing market, which could add more pressure for change at the retailer.