Coping with Wal-Mart in Canada

TORONTO -- Wal-Mart has begun its assault on the Great White North.<BR><BR>The giant discounter is currently liquidating and converting the 122-unit Woolco chain purchased from Woolworth Canada Inc. last January.<BR><BR>The company is also considering...

TORONTO — Wal-Mart has begun its assault on the Great White North.

The giant discounter is currently liquidating and converting the 122-unit Woolco chain purchased from Woolworth Canada Inc. last January.

The company is also considering up to five more units in Canada by spring.

It’s all part of the chain’s grand scheme for international expansion. Wal-Mart has units in Mexico and Puerto Rico and plans stores in Brazil, Argentina, Hong Kong and China. It is also exploring sites in Europe. Wal-Mart had sales of $67.3 billion in 1993, and is projecting volume at $85 billion this year.

In Canada, it’s widely believed that Wal-Mart will easily surpass Woolco’s $1.9 billion in sales last year and will be a bigger player in apparel than Woolco was. Overall, stockkeeping units will double to 70,000 from Woolco’s 35,000, and clothing will receive its share of the growth, according to Wal-Mart.

“You’ll see a significant increase in the amount of apparel we will be offering,” the spokesman said.

Wal-Mart declined to reveal its sales goal, though a Wal-Mart Canada Inc. spokesman said same-store sales at Wal-Mart’s Canadian stores are ahead of Woolco stores by “high double digits,” and “as high as 60 to 80 percent” in the best stores.

Canadian units closely resemble U.S. stores, with 11 of 36 departments devoted to apparel, footwear and fashion accessories, he said. He noted, however, that apparel reflects Canadian tastes and regional differences. “The focus is on value, a higher quality with an affordable price,” he added. “You’ll see a greater emphasis on selection and more contemporary styling.”

Wal-Mart also invested about $200 million (C$275 million) in store renovations that are slated for completion by December. New ceilings and floors, brighter lights, wider aisles and more dramatic merchandising layout and signs are “designed to create a more dynamic shopping environment,” the spokesman said.

Meanwhile, Canadian discounters, Wal-Mart’s primary competitors in terms of apparel, are also sprucing up to meet the competition.

“It’s really given us a call to action,” said Don Beaumont, president and chief executive officer of Toronto-based Kmart Canada Ltd. “If anything, we’re going to stay with them.”

The 128-store Kmart chain, which had sales of $889 million last year, is among Wal-Mart’s stiffest Canadian competitors, along with Zellers Inc., with 294 outlets. Zellers rang up $2.27 billion in sales last year.

But Beaumont said Kmart Canada, which launched a store renewal program in 1991, is well positioned to compete with Wal-Mart in fashion because it derives a greater percentage of store sales from apparel and footwear than Kmart’s U.S. operations.

“We have overtly gone after apparel and dedicated incremental floor space,” he said. “We’re giving particular attention to children’s apparel.”

Kmart has been offering some higher price points than those typical of discount store apparel, such as its private label Jaclyn Smith collection. However, it plans to meet Wal-Mart with entry price points as well on a broad range of apparel, especially with “on-trend” fashion merchandise, Beaumont said.

Despite mediocre 1993 clothing sales in the U.S., the Canadian Kmart stores did well with apparel last year. This year, he said, “Business has been quite brisk.”

Zellers’ counterattack, last May, includes lower prices, wider product assortments, more advertising and enhancements to its “Club Z” program of frequent-shopper rewards. The firm also plans to accelerate renovations at 65 stores, focusing on areas where Wal-Marts are opening. Those outlets will be expanded to 100,000 square feet.

Sears Canada Inc., with 110 locations, does not consider itself a head-on competitor with Wal-Mart because only about 20 percent of their merchandise overlaps, said Ron MacInnes, vice president of public affairs and government relations. Furthermore, Sears emphasizes house brands at middle, not discount, prices on items including apparel, he said. The chain rang up sales of $2.9 billion last year.

Small specialty apparel retailers, particularly if they are geared to the middle and upper markets, are unlikely to be affected by Wal-Mart, said Toronto retail consultant John Williams.

Not that they should ignore the threat.

“This is no time to be lackadaisical,” said Donald Cooper, owner of Alive & Well, a 14,000-square-foot discounter of women’s and children’s apparel in Markham, Ontario, near Toronto. “The day to start training for the race is not the day of the race.”

But Wal-Mart simply cannot match the service and “added emotional value” that a specialty store can, said Cooper, who has made his store a popular Ontario destination by offering such customer amenities as free beverages, courtesy phones and electric massage chairs to revive weary shoppers.

Small merchants can build personal relationships with customers, Cooper said. “You have to do a bang-up job of the one or two things they can’t,” he added.

“I think I can compete with them,” agreed Jim Coyle, owner of Janie’s Fashions Ltd., a 2,600-square-foot retailer of moderate-priced women’s apparel in Chatham, Ontario. “I can call people by their first names.”

Toronto retail consultant Len Kubas said Wal-Mart will be a bigger threat to apparel retailers than Woolco because of increased inventory. “They’re going to be much tougher competitors.”

He predicts Wal-Mart Canada will strive for benchmark pricing on key brand-name apparel items, like Lee jeans, and may ultimately put a heavier emphasis on soft goods and fashion than in the U.S. For Wal-Mart, showcasing apparel may be the key to boosting profits, Kubas said. “It has to earn higher margins in Canada to offset the higher operating costs, and apparel is one way of doing that.”

— Fairchild News Service