Canadian Tire had a $3.4-billion growth strategy, but the slumping economy threw a wrench in the plan

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As Greg Hicks prepared for the biggest event on Canadian Tire’s corporate calendar – the annual dealers’ convention last fall, where he would address hundreds of store owners – the chief executive officer knew his speech had to acknowledge it had been a tough year.

There were the natural disasters – floods and wildfires. There were business disruptions, such as the Port of Vancouver strike and a devastating warehouse fire that destroyed millions of dollars of the company’s inventory.

“The list is long,” Mr. Hicks said during an interview just before the convention.

And that’s before he’s even mentioned the economy, and the pullback in consumer spending on discretionary purchases – or roughly two-thirds of what a typical Canadian Tire store sells. Think toys, bikes, cookware and camping gear.

Rewind a year, and Mr. Hicks thought the worst was behind them. At the 2022 dealers’ gathering, emerging from crisis mode was a theme of his speech. He was appointed CEO of Canadian Tire Corp. Ltd. just one day after the World Health Organization declared COVID-19 a global pandemic in 2020 – and after a tumultuous couple of years, Mr. Hicks had (finally!) been looking more toward the future.

In March, 2022, the company announced the launch of “Better Connected,” a $3.4-billion, four-year plan designed to increase sales across its banners, including Canadian Tire, Sport Chek and Mark’s.

Investments include thousands of new product launches under the stores’ owned brands, upgrades to physical stores and digital operations, construction of new warehouse space and expansion of the Triangle loyalty program, among other initiatives.

But now, nearly at the halfway mark of that plan, the company has pumped the brakes, signalling it will not meet the $3.4-billion target by the end of 2025, as it delays spending on low-priority investments and copes with severe economic headwinds.

In the first nine months of this fiscal year, total revenue fell by 2.1 per cent to $12.2-billion, and normalized EBITDA (earnings before interest, taxes, depreciation and amortization) declined to $1.5-billion, compared $1.6-billion in the same period the previous year. Mr. Hicks is still looking to the future, but it’s become murkier.

“What has changed is the assumptions that we had, with respect to the demand environment. So how does that adjust the strategy? It adjusts the pace,” Mr. Hicks said during an interview with The Globe and Mail at the company’s head offices in Toronto. “We still find ourselves in a position where forward-looking visibility is really tough.”

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In that tough environment, the parent company isn’t the only one making investments. Its store owners are being asked to kick in cash, too.

Modernizing Canadian Tire stores is a major part of the Better Connected strategy. This is now happening more slowly, but the company estimates more than 125 of the 500-plus stores will have been updated in some way by the end of this year.

At a minimum, this means spiffing up an existing Canadian Tire outlet, with features that include a new wood-panelled sign on the storefront, upgraded locker areas for pickup of online orders and technology to make it easier to find products. In some cases, it means building an entirely new store, with significantly more space, new floor plans, more efficient warehouse operations in the back and more tech.

“I’ve gotten calls from at least 50 to 60 dealers so far, and I get dealers coming in every single day to see how it looks,” says Ezhil Natarajan, standing in his new store in Etobicoke, Ont., which opened in late September. His old location, a five-minute drive away, was 25,000 square feet and about 40 years old; this one is 78,000 square feet. “Everybody wants to find out … especially in today’s interest rates – is it worth investing?”

Mr. Natarajan says he put in even more money than the corporation suggested for this location, to add more technology. Walking around the bright, cavernous space, he points out touchscreen stations where customers can search for products.

The system can signal a corresponding electronic shelf label to light up, pointing the way; or it can alert the warehouse to fetch purchases directly, which is helpful for cumbersome items such as snow blowers. In the automotive shop, he shows off a camera system that photographs cars as they drive in, checking tire alignment and tread wear that staff can show to customers waiting at the counter.

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Development of this store was a two-year process. It still looks like a Canadian Tire – if supersized, and more brightly-lit – but there are subtle, strategic changes. Large signs display some national brands such as Cuisinart, but the overwhelming majority advertise the company’s owned brands, a vast portfolio that includes Motomaster, Paderno, Canvas, Noma and more. Another goal of the strategy is to expand private-label brands to account for 43 per cent of sales, up from 38 per cent in 2022.

“That insulates us from the Amazons of the world,” Mr. Natarajan says.

Even under the same owner, the new store is yielding some surprising results. Mr. Natarajan says his old location ranked almost dead last among Canadian Tire stores in the pet category; here, he has already jumped into the top 100.

Partly it is because products are easier to find: Sections are prominently labelled with new illuminated “light box” signs. He also benefits simply from having more space. He can display items such as furniture, which some shoppers weren’t even aware he carried at the last place. Shelves are deep enough to stack bulky storage bins on their sides, so customers can pull out one or two rather than wrestling with a whole stack.

Such changes may seem small, but can make a difference.

“We’re extremely pleased with the sales to date,” Mr. Hicks said of the new stores, where customers buy more items during each visit, on average, than they do in other locations.

This is important because an overwhelming share of the company’s retail sales still happen in person – 90 per cent at Canadian Tire, 85 per cent at Mark’s and 75 per cent at Sport Chek. Some stores in the network are more in need of a refresh than others: There are still locations that can feel dark, cramped and out of date.

“This is going to be a good testing ground for us,” says Bruno Moscone, the company’s associate vice-president of store planning, gesturing around the Etobicoke location. “When we see people come in here and say, ‘This is Canadian Tire?’, that’s huge for the brand.”

Canadians who have grown up with the chain may not realize that Canadian Tire is a bit unusual. Bryan Pearson, an industry consultant and former CEO of Air Miles’ parent company, LoyaltyOne Inc., recalls that when international retailers visited his Toronto offices, they would always ask to visit Canadian Tire, baffled by its assortment of goods and the place it occupied in the market.

Turns out, not every country has a physical store where you can buy a spatula and motor oil and a Nespresso machine and hockey skates and sponges and a camping tent and a television and a chocolate bar and an air compressor and a parka and, yes, tires, all in one trip.

“It’s such an interesting anomaly. It’s Canada’s unofficial department store,” Mr. Pearson said.

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While the company has grown beyond Canadian Tire stores – with acquisitions of Mark’s, Party City, the Helly Hansen apparel brand and Sport Chek – the flagship chain still accounts for more than half its revenue and has maintained a significant foothold even after a century in business.

Ask Mr. Hicks about Canadian Tire’s e-commerce strategy, and he points to those brick-and-mortar stores, which he sees as integral to the logistics needed to make online retail work.

“If I told you that we had 40 million square feet of same-day microfulfilment space within a 10-minute drive of 90 per cent of the population – that just happened to have storefronts attached to them – probably your context changes pretty quickly, and you’d probably think differently about our ability to compete in e-commerce,” Mr. Hicks said. Likely because store pickup is free, click-and-collect is a sizable chunk of the online business. In addition to regular shipping to customers’ homes, the company has been testing express delivery through DoorDash.

Still, the digital operations have needed some work. Since the launch of its Better Connected strategy, the websites and mobile apps for Canadian Tire, Sport Chek and Mark’s have had an overhaul. Canadian Tire’s old website was so fusty that it couldn’t even handle booking automotive service appointments or create gift registries. There are still improvements needed in search functionality, Mr. Hicks said, as well as more accurately reflecting what’s in stock at each store.

As part of a new partnership with Microsoft Corp. announced last year, the company is using generative AI to build a “shopping co-pilot.” This technology would offer a digital assistant on the mobile app, answering questions about products via text or voice, in multiple languages.

“Amazon’s good for buying,” Mr. Hicks said. “We want to enable shopping.”

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The trouble is, shopping is exactly the kind of thing Canadians are trying to do less. Consumer spending is under intense pressure. Canadian Tire has been working with dealers on order forecasting, to strike the right balance between essential products, which are selling better, and discretionary items that boomed during COVID but are now lagging.

One tool the company uses to cope is the customer information it gathers. During the 2008-09 financial crisis, the retailer was still issuing paper Canadian Tire money, a loyalty program that – despite its nostalgic value – was next to useless in tracking shopping behaviour.

“We didn’t have the same level of analytics capabilities to really assess what was happening with the consumer back in the last recession,” Mr. Hicks said.

Now, the Triangle Rewards loyalty program has 11 million active members. That, combined with the much broader purchasing data captured through the 2.3 million Triangle credit cards issued by Canadian Tire’s banking arm, provides an important window on the economy, he said.

“Given this economic backdrop, it’s all about how we deliver value, knowing what we know about these customers,” Mr. Hicks said. “And Triangle is the biggest value play we have.”

Expanding the loyalty program is another goal of Better Connected, as is boosting members’ spending. Triangle Select, which charges an annual fee in exchange for more valuable points offers and other perks, launched last year. Roughly 30,000 customers have joined so far, but Mr. Hicks acknowledges winning new members is “more challenging in this environment.”

And the future of the entire loyalty program is currently in flux. In October, Canadian Tire announced an $895-million deal to buy back a minority stake in its financial services division from Bank of Nova Scotia. Since then, the company has been evaluating “strategic alternatives” for the business. That could mean finding a new partner.

“Groceries, gas, DIY, banking – those are the big four, where your dance card needs to get full if you’re going to take a step-change in presence in the marketplace. And a lot of those people have dance partners,” former LoyaltyOne CEO Mr. Pearson said. “Canadian Tire has cachet on the Triangle side. … There’s a deal to be done, it’s just, the devil’s in the details.”

An economic climate of such deep uncertainty is a challenge, especially for a CEO who clearly likes to have a plan for everything. Mr. Hicks arrived for an interview with a sheaf of typed notes – from which he occasionally read aloud. Even his daily schedule is a quantitative exercise: the company’s leadership team sat down last year to identify four main areas of focus, and each quarter they measure how evenly the CEO’s time is allocated among those.

Partly, this is an effort at balance, as one of Canada’s largest retailers tries to navigate the current economic turmoil without neglecting long-term strategic goals.

Controlling shareholder Martha Billes, the daughter of Canadian Tire co-founder A.J. Billes, believes that strategy is important to the company’s future. In a statement, Ms. Billes wrote that she and her son and fellow board member, Owen Billes, are confident in the plan.

“Greg was appointed to CEO at a pivotal time in history,” she wrote. “The pandemic accelerated the evolution of the business, and the Better Connected strategy was designed to maintain that momentum and ensure the continued success and longevity of the company.”

As the economy has stalled, though, the team has had to rethink the pace of their ambitions. But Mr. Hicks said he is confident in the plan.

“It doesn’t shift the fundamental drivers of the strategy,” he said. “As the market stabilizes, we believe, with potentially even more conviction now … that we can achieve the objectives that we put forward.”

Still, as the current landscape – and indeed, Mr. Hicks’ nearly four years on the job so far – have shown, even the most prepared CEO can’t prepare for everything.