Target an elephant in Canadian Tire's room

TORONTO -- Canadian Tire Corp. chief executive Stephen Wetmore did not mention Target Corp. explicitly at the annual shareholders' meeting in Toronto on Thursday, but the U.S. retailer's arrival loomed large in a speech that played heavily upon the company's national heritage.

"It is not lost on us that we are one of the last great Canadian retail brands," he told investors, detailing consumers' sentimental associations of the retailer as the place where Canadian kids get their first bicycles and hockey skates, gear for camping trips and Halloween decorations.

"We are the purveyor of Canadian dreams," he said.

It may tug at investors' heartstrings, but it is also a calculated strategy to play up the company's bench strengths in advance of the arrival of Target, which by this time next year will have at least 24 of its new stores up and running in Ontario.

"Their product lines and assortments are extensive, and you have customers who will definitely go in to try them out," Wetmore said in an interview after the meeting when asked about Target. "That's why it's very important that you are capturing as big a share of wallet as you possibly can from your existing customers, and stay focused on doing what you do well."

The annual meeting arrived on an upbeat news day for the 90-year-old Canadian company, which announced profit leaped 22 per cent in the first quarter to $71 million, or 87 cents per share, compared with earnings of $58.4 million (71 cents) in the same period of 2011. It far surpassed the mean analyst estimate of 79 cents a share, according to Thomson Reuters. Revenue rose 23 per cent to $2.4 billion, from $2 billion in 2011.

Canadian Tire's shares closed at a 52-week high and climbed as much as six per cent during the day.

On an assessment of retailers most threatened by Target's arrival published this week by retail analytics firm KubasPrimedia, Sears and Wal-Mart topped the list, and Canadian Tire sat in the middle of the pack.

"Canadian Tire has a home and lifestyle and housewares component that could be threatened by Target coming along with affordable prices and perhaps more fashionable and contemporary merchandise," said Ed Strapagiel, KubasPrimedia's executive vice-president.

"It is a good idea for Canadian Tire to shore up what they are good at, because when Target opens, people are going to go just to see what is there."

Wetmore said rival foot traffic is a serious competitive threat.

"In any of the major big-box retailers like that, you are going to get a pretty good percentage of overlap on kitchen, on seasonal products... One of the biggest issues with competitors is how much traffic will they generate, and what customers will they attract?"

In response, Canadian Tire has begun selling major appliances, reconfigured its "living" category of household goods and accessories and is testing a loyalty card that will operate in the same way as the company's iconic Canadian Tire Money, but with the critical component of being able to track its consumers' purchases in a way coupon tender cannot. Target plans to launch its Red Card loyalty program when it opens in Canada and about eight per cent of Canadians already hold the card.

Canadian Tire has also done a major overhaul of its automotive business, which Wetmore vowed two years ago to improve after scoring poorly on customer satisfaction surveys. The company has since begun selling tires online, changed the category's store layout, retrained thousands of staff in auto parts and service and introduced new products, accessories and technologies to drive up performance in the category. While the department is on track with its planned upgrades, it is still "nowhere close" to Wetmore's ultimate vision for the segment.

"(Automotive) is a foundational element for Canadian Tire," he said, and one which brings a lot of customer traffic into the store. "We have to be good at it."

Sales at stores open for more than a year rose 5.8 per cent at the company's Mark's apparel division and seven per cent at its sporting goods chain, FGL Sports, which includes the Sportchek retail banner. Excluding retail revenue from the new sporting goods division, retail revenue still increased 6.7 per cent, driven by growth across all banners, the company said. Financial services also performed well, with income before taxes rising 44 per cent to $73 million.

-- Postmedia News

Republished from the Winnipeg Free Press print edition May 11, 2012 B4