Are Canadian Retailers Due South?

By Alfred DuPuy and Mark Rose

U.S. retailers have long been a part of the Canadian landscape. In fact, two of the five brands in this year’s Canadian Best Retail Brands list are owned by U.S. companies (Future Shop by Best Buy and Winners by TJX). However, a new trend is gaining momentum as American retailers expand more of the brands they own to Canada.

Behemoth brands such as Victoria’s Secret, J.Crew and Ann Taylor recently expanded north of the border. Target is opening stores as this report goes to press, partnering with Roots for a limited collection of cheap chic with local flavor. Nordstrom will arrive in the next couple of years. Why the rapidly growing influx? U.S. retailers find the Canadian marketplace increasingly attractive in part because of a strong, stable Canadian dollar. They’re also attracted by the spare capacity in the market, particularly online, with e-commerce comprising only 1 percent of retail expenditures, compared to 8 percent in the U.S. More interestingly, this trend reflects a growing appetite among Canadian shoppers for more, and better, retail options.

As they assess incoming U.S. retail brands, Canadian consumers (a media- and digitally-savvy population) are setting higher benchmarks for the brands they choose. While many brands are struggling to adapt (case in point: Sears, which recently laid off a sizeable portion of its workforce), a few Canadian brands are rising to the challenge. Shoppers Drug Mart responded by renewing its focus on the core tenets of the brand: health, beauty and convenience. The retailer also invested significantly to enhance the in-store experience. In contrast, Canadian Tire has been slower off the mark, but now appears to be preparing (or at least girding) for the imminent arrival of Target. Additionally, Future Shop is proactively experimenting with new, smaller store formats in an attempt to make its shopping experience more exciting and to avoid the perils that its parent brand faces.

The allure of new markets is not unique to our American counterparts, as Canadian brands appreciate the rich potential of growing beyond home borders. Canadian Tire attempted to expand into the U.S. market in the 80s, and again in the 90s, only to fail both times. Many of Canada’s strongest brands play the “O Canada” patriotic card at home to great effect (think Roots, Canadian Tire and Tim Hortons), but Canadiana is likely irrelevant to the majority of the U.S. market. Shoppers Drug Mart hasn’t yet ventured south, but the brand experience now in development could have the potential to give Shoppers a powerful presence in the U.S. marketplace.

In the race for relevance—that is, providing customers with a reason to choose a brand—the strongest relentlessly pursue knowledge about their consumers and incorporate those insights into their everyday behavior. With economic power distributed across an ever growing portfolio of touchpoints, customers—not the brand—set the rules of engagement. Altering the balance further, brands like Amazon (up 46 percent) have trained customers to expect tailored content, crowd- sourced advice, 24/7 shopping, unexpectedly good service and increasingly an expectation around near-immediate delivery. Best Buy, down 52 percent, and Toys “R” Us (off the list this year) are struggling to stay relevant and deliver value beyond price. Why would customers choose these brands as alternatives proliferate? What role should these big box retailers play in customers’ lives as e-commerce alternatives dilute their “category killer” equity? Answers to these questions may help to slow the deterioration of value in these once venerable retailers. It’s critical today to know the customer and monitor their changing needs—a tenet that must dominate the knowledge agenda within retail organizations today.

So who is getting it right?

Lululemon serves as an excellent example of a brand that has pushed beyond home borders by defining itself around universally relevant principles of healthy living—the value proposition is as equally compelling in New York as it is in its hometown of Vancouver.

Lululemon understands the power of engaging in-store shopping experiences, and provides complimentary yoga classes in its stores. Other Canadian retail brands, such as Mountain Equipment Co-op and Holt Renfrew (neither of which is valued for this study as they are privately held) also stand out by delivering unique and differentiated in-store experiences that have inspired a cult-like following.

Equally important are a brand’s out-of-store experiences. Lululemon stages half-marathons and community events. Mountain Equipment Co-op conducts outdoor training, and hosts an online gear swap to make the great outdoors accessible to everyone, which underscores the democratic principles of the brand.

Border-crossing brands will always face cultural quirks, distribution limitations, trade regulations and local pride as barriers to overcome. But it’s becoming increasingly apparent that global expectations among shoppers are converging and a new class of sophisticated shopper is emerging—and the need for a global brand to define itself around universally relevant principles is clearer than ever.

We’re seeing this trend play out as U.S. brands expand into Canada and beyond. Perhaps the next trend will see just the reverse.