Canadian Big Stores In A Little Trouble Department Stores Hurting From Consumer Debt, U.S. Competition

Canadian consumers have been giving some big stores a tough time this decade.

Department-store sales, which include discounters, have declined 6.3 percent to $13.3 billion Canadian ($9.77 billion U.S.) in 1994 from 1990. The Towers, Woolco and Kresge chains have either been bought out or closed.

“The retailing industry is swimming against the current,” said George Vasic, economist at Bunting Warburg Inc. in Toronto. “Canadian consumers remain trapped by high debt, no job growth and higher borrowing rates.”

Aggravating the Canadian retailers’ demise are U.S. retailers, who have moved aggressively into Canada because they’re convinced they can best the local retailers.

Stronger outlets, like Hudson’s Bay Co., are trying to hold the fort by cutting prices and upgrading stores as they clash with Wal-Mart Stores Inc. and other cost-efficient rivals.

As a result, Canada is set to lose more retailers, analysts said. The first victims may be among the discount chains, they said, where competition is especially fierce.

Kmart Corp.’s Canadian unit, which has had a hard time staying afloat, may be among the first to go, they said. Kmart is Canada’s No. 3 discount store behind Hudson’s Bay’s Zellers and Wal-Mart Canada.

“Five years from now, there probably won’t be three discount retailers in Canada … and somehow, I believe Kmart Canada could be sold off or merged,” said Patricia Baker, analyst at Midland Walwyn Capital of Toronto.

Actually, Canadian retailers were already in the process of consolidating and cutting costs before the U.S. competition arrived because of the nation’s anaemic spending patterns.

But it wasn’t until January, 1994 - when Wal-Mart said it would acquire 122 Canadian Woolco discount stores from Woolworth Corp. - that investors’ alarm bells went off.

Shares of Hudson’s Bay, which operates 292 Zellers shops and 100 Bay stores, tumbled 4 7/8, or 12 percent, to 35, the day Wal-Mart made its announcement. The company’s stock was down 1/8 to 26 3/4 in afternoon trading in Toronto.

Since then, Canadian Tire Corp., with annual revenue of C$3.6 billion, has pledged to renovate or add new stores at a rate of 60 a year for three years.

Hudson’s Bay Co., which had 1994 revenue of C$5.8 billion, plans to spend C$250 this year to upgrade Bay department stores and Zellers discount stores and open new Zellers stores.

Hudson’s Bay also scrapped a two-year effort to start a joint-venture business in China to work on keeping its Canadian stores competitive.

Kmart, which has been in Canada since 1963 and used to operate roughly 100 Kresge Canadian outlets, seems to be behind its rivals in responding to competition in the retail market, analysts said.

Like its Troy, Michigan-based parent, Kmart Canada has been slower than most existing chains to modernize its stores. It took Kmart Canada four years to enlarge and upgrade 59 of its 125 discount stores, and it still has 66 stores left to renovate.

By comparison, Wal-Mart Canada converted 122 Woolco stores into Wal-Marts at a cost of C$275 million in eight months. It now has 127 Canadian stores.