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CANADIAN RETAILERS EXPANDING AROUND THE WORLD

By Susan Thorne

Roots Canada outfitted the U.S. Olympic team, including biathlete Rachel Steer, and thousands of its fans.

From Manhattan to Morocco, Canadian retailers are turning up in some unexpected venues these days. With limited opportunities for further expansion in their home country, many are expanding into foreign markets in increasing numbers — and still more of them are thinking about it.

A highly visible example of this trend is the Roots Canada apparel company, which outfitted the American as well as the Canadian athletic teams at February’s Olympic Games in Salt Lake City. The sight of the Roots brand name prominently stitched on athletes’ uniforms triggered long lineups of customers waiting to buy similar jackets and berets at the seven Roots stores in the United States, and the Toronto-based company is now contemplating a large-scale U.S. rollout of its casual-wear concept. Elsewhere, Roots plans a major expansion in China over the next few years.

The United States has been the traditional target market for Canadian retailers who outgrow their domestic environment; it’s a logical step, given the two countries’ proximity, language and similar cultures. The U.S. market also offers the attraction of size.

“Canadian retailers think of the U.S. market the way some businesses regard China,” said cross-border specialist Wendy Evans, president of Toronto retail consulting firm Evans & Co. “They say to themselves, ‘If I can just capture 1 percent of it….’ ” Some of the Canadian retail success stories south of the border include April Cornell (apparel and housewares), Bata (shoes), Danier (leather goods) and IMAX (big-format cinemas). Québec companies have recently become particularly adventurous about going south, she noted, citing apparel retailers Le Chateau, Parasuco and Tristan & America, as well as Aldo (footwear) and Couche-Tarde (convenience stores). Some also have expanded into the United States through acquisition, such as Jean Coutu, Canada’s No. 2 pharmacy retailer, which has 252 Brooks drugstores in New England and is in the process of buying 80 Osco drugstores.

Increasingly, specialty retailers such as Roots are looking beyond Canada’s national boundaries because the shopping center sector in Canada offers them few growth opportunities. No enclosed regional malls have been developed there since 1991. Instead, shopping center growth in Canada has been concentrated on power centers and Wal-Mart-anchored centers.

“If you want to keep growing, you have to go to the U.S. or start a new, bigger-format concept in Canada,” said Harley Oberfeld, president and CEO of Oberfeld Snowcap, a national retail leasing consulting firm formed in January from the merger of Oberfeld Enterprises, Montréal, and Snowcap Investments, Toronto. Oberfeld Snowcap offers specialized services for Canadian retailers interested in expanding their operations into the U.S. market, and there is a growing demand for such expertise as more firms look southward. Group Dynamite Boutique, which sells jeans and casual clothing under the Garage and Dynamite banners, is considering a U.S. unit, Oberfeld said, as is Bentley Leather, a Montréal-based luggage retailer. Kernels, a Toronto-based flavored popcorn vendor with stores in California, is in the process of adding Florida units.

But while the United States beckons seductively, Canadian retailers are well aware that it’s a tough competitive environment there, as some notable failures prove. Canadian Tire (automotive/housewares), Coles (books), Colour Your World (paints), Loblaws (groceries), Mark’s Work Wearhouse (casual apparel) Second Cup (coffee) and Timothy’s World Coffee all withdrew after getting their fingers burned.

But Oberfeld opines that the latest crop of retail contenders has better prospects for success. One factor is the growing U.S. retail presence in Canada (there are more than 100 U.S. retailers operating in Canada today, compared with about 10 in 1985), which is sharpening the skills of Canadian chains.

“Canadian retailers are getting the feel of what competition in the U.S. may be like,” Oberfeld said. “And they’re getting better — better at establishing their brands and at understanding market forces. They’re doing proper research before they go, too.”

That last factor is essential, he stressed.

“You can’t just open the door and do business,” he said. “You have to understand your brand, your market and where that fits into the U.S. marketplace.”

Canadian retail entrants to the United States are also making greater use of the cluster approach, Oberfeld said, in which they begin with a group of stores that are closely spaced geographically, rather than attempting to cover large areas, scattergun-style.

From Ontario to Hong Kong, South America to South Africa, people are enjoying CoolBrands’ Yogen Früz in 82 countries.

West 49, a skateboard and snowboard equipment and apparel retailer, is using that strategy. West 49 opened stores last year in Buffalo, N.Y.; Columbus, Ohio; and Detroit, cities that are within 200 miles of the company’s head office in St. Catharines, Ontario.

American mall managers are very open to having proven Canadian tenants, Oberfeld said.

“Landlords are very excited for the right ones,” he said. “They’re very positive about Canadian retailers, depending on how they’re capitalized, the strength of the brand and past performance.”

The fact that a company is Canadian may not be a big selling point with U.S. shoppers, however.

“We don’t identify ourselves as Canadian,” said Flavia Fagnani, communications director at Tristan & America, a Montréal-based fashion apparel chain that has four U.S. stores in Boston and New York City. “There’s no interest on the part of American shoppers that we’re Canadian.”

Fagnani said that customers may appreciate the quality of Canadian-manufactured merchandise, but good retailing basics are still the deciding factor in attracting shoppers.

“If customers like the store, if the service is good, if your branding means something to them and the price is right — that’s what’s most important to success in the U.S.,” she said.

Branding is one of the most critical factors for establishing an identity in a new market, Evans observed.

“A strong brand brings a measure of exclusivity, which is even more important when entering the U.S. market,” she said, pointing out that there is more than 75 percent more shopping space per capita in the United States than in Canada.

Canadians must be learning some of these lessons, because Canada’s retail track record in the United States has improved in recent years. Evans said there have been 54 Canadian retail entries into the United States since the late 1980s; of those, 26 are still operating Stateside — a 48 percent success record, up from about 20 percent a decade ago.

Not all Canadian retailers are looking to the United States to expand, however, choosing instead to try their luck in countries where the retail industry is less advanced. Food service concepts, particularly in the quick-serve sector, often move to foreign markets before other retailers, and a high proportion of Canadian food service franchisors have units outside North America, said Rosanna Caira, editor of Foodservice & Hospitality, the Toronto-based trade publication that covers Canada’s restaurant industry.

“They often go where there’s no North American presence so they can build something more quickly,” she said. Canada’s biggest intercontinental retail player to date is Markham, Ontario-based CoolBrands International, which has catapulted to success since going international in 1991. CoolBrands is now the world’s leading frozen yogurt purveyor, with 5,000 franchised outlets worldwide in 82 countries, under the store banners of Swensen’s and Yogen Früz, among others. Recent foreign conquests include the Caribbean, China and Hong Kong, South Africa and South America (1999); and the United Kingdom (2000). Last year CoolBrands announced master franchises for more than 100 stores in South Korea, and even one in North Korea.

Other food purveyors with non-American international franchisors include Baker’s Dozen, BeaverTails (a snack-food concept), Benihana of Tokyo (Japanese food), Country Style (doughnuts), Golden Griddle (family restaurants) and Grandma Lee’s.

Outside the restaurant sector, La Senza, a midprice lingerie retailer out of Montréal, has 85 stores in Europe and the Middle East. A first store in Egypt is opening this year, expanding La Senza’s presence in the Arab world, which already includes licensed operations in Saudi Arabia, Kuwait, Oman, Qatar, Lebanon and Morocco. Additional overseas stores are in Malaysia and the United Kingdom.

Another Canadian traveler is Fruits & Passion, Montréal, which offers its own line of fruit- and herb-scented specialty cosmetics. The largely mall-based retailer has three stores in France and four in Taiwan, and is negotiating with potential franchisees in Hong Kong and China, Russia, Kuwait and the Middle East.

Though retailers do not push their Canadian lineage when expanding to the United States, they certainly do when going elsewhere. The international success of Roots, which features such national icons as the maple leaf and the beaver on its merchandise, is proof that having a Canadian identity can be an advantage in some world markets. Roots Canada operates 68 stores in South Korea and 12 in Taiwan, with plans for further Asian expansion.

CoolBrands has followed the same approach.

“Our customer research shows Canada is associated with a very clean, healthy environment — sort of like Switzerland, with mountains and glaciers,” said CoolBrands President Michael Serruya. “To the extent that focus groups show people like it, we play up the fact that we’re Canadian. We put small Canadian flags on the front of the vending unit, for instance.”

Fruits & Passion’s export director, Christianne Audet, says the French shopping public is equally enamored of things Canadian.

“They’re very, very curious about everything in Canada,” she said. French franchisees are eager to have the company’s Canadian origin mentioned in publicity, she said, and Fruits & Passion further promotes its Canadian identity with a maple syrup line of “gourmet” fragrance products.

At present, few Canadian retailers operate both in the U.S. market and overseas; these seem to be two distinct expansion modes. Retailers point out that going to the United States calls for a unique strategy because of the country’s size and strong competitive character. “The U.S. is a different situation,” said Laurence Lewin, president of La Senza. “If we ever went in, we would do so on a corporate level, not through licensees. It would be a major strategic move, with a major investment of capital and time.”

Serruya said CoolBrands looked at prospects in the United States when starting its international expansion, but felt that the frozen yogurt market was maturing there and that time and money would yield better returns elsewhere. If CoolBrands enters the United States in the future, he added, it will probably be by buying market share through acquisition.

Meanwhile, like other Canadian retailers, the company has its hands full elsewhere in the world.

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