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What can Canadian Tire do with Forzani? Look at Mark's Add to ...

Imagine Canadian Tire Corp. branching out to buy a big standalone retailer, leaving some analysts and investors wondering what exactly the big hardware chain was doing?

It's not today and Canadian Tire's agreement to buy Forzani Group - we're talking about Canadian Tire's 2001 agreement to buy Mark's Work Wearhouse.

One analyst told the Toronto Star at the time that the deal was "off strategy. It's a one-year synergy grab." Good thing the analyst chose to remain nameless. Because that analyst was very wrong.

Mark's has been a big success on the revenue line for almost a decade now, and it provides a template for what Canadian Tire may be able to do with Forzani stores.

In 2003, the first full year after the acquisition, which closed in early 2002, Mark's had 322 stores. Pre-tax earnings were $25-million and revenue was $458-million. Canadian Tire set out on a plan to open 24 to 28 new stores a year, eventually moving many Mark's stores into the same location as a Canadian Tire store. There were synergies, Canadian Tire was targeting about $6-million to $7-million a year. (All this information comes from Canadian Tire's 2003 annual report and securities filings.) Flash forward to 2010, and Mark's had 383 stores, about 20 per cent more than when Canadian Tire took over. But on the income statement, the key numbers had more than doubled. Revenues had soared to almost $1-billion and profit had risen to $56-million.

However, the opportunities for Mark's appear to be slowing, at least when you look at places to build new stores. The company opened fewer than 10 in 2010 and is targeting a similar number in 2011, according to its 2010 annual report.

Does that explain the move to buy Forzani?

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