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Canadian Tire posts a ‘buy Canadian’ message on its sign next to the new Target store in Guelph, Ont. that opened Tuesday, March 5, 2013.

Dave Chidley/THE CANADIAN PRESS

Canadian Tire Corp. Ltd. is thinking big about getting small.

The iconic Canadian retailer, whose big-box stores are a fixture in suburbs and towns across the country, will test a vastly smaller version in urban malls this summer. It's also set to pilot a separate chain of outdoor recreation stores – and other specialty chains eventually – taking on so-called category killers such as U.S.-based Bass Pro Shops and Cabela in stores that could be as little as one-10th their size.

"This is an opportunity for us to demonstrate our leadership position in these categories and look at markets that we believe are under-served," Marco Marrone, chief operating officer of Canadian Tire, said in an interview.

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The initiative comes amid intensifying competition and the arrival this month of Target Corp. and its big-box outlets. As the U.S. discounter moves into the crosshairs of Canadian Tire's suburban stores, the domestic chain is racing to branch out into new territory – city centres – to shore up its business in smaller stores. But it will feel the pressure to pump up sales in new mall stores to compensate for much higher urban rents than at its existing locations.

"It's quite a departure," said James Smerdon, vice-president of retail consulting at realtor Colliers in Vancouver. "But in a mall you've got a focused group of shoppers walking right by your door. You can get the impulse shopper."

An array of retailers, including discount giant Wal-Mart Stores Inc., are moving in the same direction, responding to time-pressed consumers who are seeking convenience and faster shopping – and often ready to spend more for the speedy experience. As well, big-box retailers are close to saturating their core suburban markets and now are following their shoppers, who are moving into dense city centres, where store space is at a premium.

Enclosed malls tend to attract more browsers, women and younger consumers, with stores that can generate twice as many sales per square foot than those in the open-air power centres where Canadian Tire and other big-box stores tend to operate, Mr. Smerdon said.

Canadian Tire already has found that its smaller stores are more productive: In 2009, sales per square foot were almost 17-per-cent lower in its more spacious outlets.

But the move to the urban mall will bring with it the challenge of having to be even more productive in a smaller space to make up for steeper rents. Enclosed malls command 50-to 60-per-cent higher overall lease rates than typical suburban power centres, estimated John Crombie, national retail director at real estate expert Cushman & Wakefield.

"Canadian Tire's downsizing and move to the core is just another example of the ongoing retailer's rush to capture more revenue in the under-serviced retail market in the urban area," Mr. Crombie said. "Many consumers will always spend more money for anything convenient, and that will save them time. Urban retailers are now trying to capitalize on this growing trend."

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In the past few years, Canadian Tire has rolled out some smaller stores of roughly 15,000 square feet in rural areas. Now its urban "express" stores will scale back more – taking up about 10,000 square feet – which is one-quarter the size of its conventional outlets.

"The idea of a smaller footprint makes sense," said Jim Danahy, chief executive officer at consultancy CustomerLAB. "The idea that there may be an alternative format to the Cabela and Bass Pro superstore model is quite interesting."

He said demand is growing for hunting and fishing products, which carry attractive profit margins.

Already, Canadian Tire is benefiting from the heightened demand in its mainstream stores, enjoying some if its sharpest sales gains in those categories. In its fourth quarter, its hunting-gear sales jumped 25.4 per cent from a year earlier, while fishing gear sales picked up 9.4 per cent and camping merchandise 13.4 per cent, Marrone said. To spur the business, the retailer has set up mini-boutiques, called ProShops, within 50 of its 490 stores.

It also is considering standalone specialty chains for other areas of strength on which it is focusing in its big-box stores, including kitchenware and home goods, Mr. Marrone said. Its fourth-quarter sales of kitchen appliances grew 8 per cent and storage products were up 4.4 per cent, even though less than 20 per cent of its stores got the latest makeovers in those sections, he said. (Canadian Tire runs separate PartSource auto-parts stores, but they aren't in urban enclosed malls and cater to consumers who are auto aficionados.)

At the retailer's diminutive new Canadian Tire "express" store, it plans to stock most categories that the chain is known for, but fewer items, he said.

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