Canada is proving to be quite the battleground for U.S. retailers, and while there is no one-size fits all path to success, it has become glaringly obvious that it's not just business as usual north of the border.
Canada and the U.S. may share a border, but the two countries are vastly different in terms of how consumers spend money and the logistics involved in running retail stores. But when retailers stumble, there's rarely a single cause. The fatal mix usually boils down to part supply chain problems and part failure to build trust among consumers.
Take Sears Canada, for example. The retailer has been in business since 1952 and at one point was a thriving brand with booming sales. But over the years, the company was slow to respond to customer trends.
"Sears Canada today is practically the same as it was 20 years ago," said Ed Strapagiel, a retail analyst based in Toronto. "When you go in there, they've tried a few things, but they really haven't moved with the market or with people's tastes."
It should be blatantly obvious that customers like to shop in clean, neat and well organized stores. Not only that, but shoppers are more demanding now in terms of the amenities and services offered by retailers. By failing to keep stores updated, Sears Canada failed to keep its customers, too.
It was a similar story for Big Lots Canada, now shut down thanks to sluggish sales. In 2011, Big Lots took over Liquidation World, a retail chain of 92 stores, but the stores remained in pretty much the same shape when the chain shut them down this year as they were when they were purchased three years ago.
Getting the right type and amount of goods into Canada has been a major Achilles' heel for U.S. retailers headed north. No other chain makes this more evident than Target, which has suffered from supply chain issues since first opening in March 2013. The new stores were so popular, shoppers essentially stripped grocery department shelves bare as Target continued to suffer from inventory issues.
"With the merchandise, Target either doesn't have it right or has failed to get it out there on the shelves. Target is supposed to be the master of distribution but it obviously hasn't exported that talent to Canada," said Strapagiel.
What makes Target's failures even more puzzling is the fact that the company seemed to hit the ground running when it arrived in Canada, building three brand spanking new distribution centers with supposedly the latest and greatest technology and state of the art systems. None of those things have delivered—literally or figuratively.
"Moving goods across the border further increases costs. Canada is a vast country spread over enormous territory. Bringing inventory into Canada, dealing with customs and managing the inventory across the land requires significant resources, and reconfigured logistical channels, which Target still lacks," said Strapagiel.
For successful retailers in Canada, proper execution was the key.
Walmart Canada, for example, just celebrated its 20th anniversary of being in the country. The company didn't spend money on building all new distribution centers, it simply remodeled existing ones. The chain also took over several Woolco locations and wasted no time getting them ready for business.
"Walmart took over an existing chain and converted the stores into Walmart stores very quickly," said Strapagiel. "Walmart executed very well for the market and they came in at a time when the other department stores in the country weren't doing very much."
But while Walmart prospered, Sam's Club failed. The Walmart-owned membership club opened in Ontario in 2006, but all six locations were shuttered just three years later, unable to compete with its own sister stores. Sam's floundered as Walmart Canada rapidly remodeled stores and expanded large-format supercenters.
"Customer response to our Supercentres has been very strong," said David Cheesewright, then President and CEO of Walmart Canada, at the time of Sam's Club's closing. "Today's announcement will allow us to focus our resources on growing this popular one-stop format."
Of course there are U.S. retailers who are doing just fine in Canada. Costco Canada operates 87 stores. Home Depot, Crate & Barrel and Bed, Bath & Beyond have all seen success up north, even in the midst of a housing crisis. Starbucks and Staples are thriving too.
The lesson here is that yes, U.S. retailers can overcome the distribution obstacles and expansion mistakes that can happen when heading into Canada, but it's going to take the right resources, retail strategies and a lot of research to do so. —Nicole