PRINT THIS STORY:

CHANGE TEXT SIZE:

Wal-Mart's growth a boon for builder

By Albert Warson

TORONTO -- When Bentonville, Ark.-based Wal-Mart Stores decided to expand into Canada nearly five years ago, it took the quick method, acquiring 122 stores from Woolco in March 1994. But when it came to building new stores in the same year, it turned to First Professional Management Inc., an old pro at serving the price-conscious market.

First Professional Management, based here, has been a developer, builder and property manager in the rural/suburban markets that essentially mirror Wal-Mart's U.S. stronghold. First Professional has built virtually all of Wal-Mart's new community center-based stores in Ontario, Quebec and Nova Scotia. Their location in centers beside other retailers has helped blunt opposition from local merchants worried about the competition. Five more are to be completed this year.

Retail industry estimates that Wal-Mart pulled in $3.4 billion in revenue in Canada last year are not unreasonable, said the company's Toronto spokesman Edward Gould, although he declined to give specific figures. Sales are increasing at about 20% a year, and Wal-Mart's market share among discount department stores in Canada had risen from 22% in 1994 to 45% by mid-1997. Overall department store sales have doubled, increasing from 12% to 25% in the same period. The firm now has 144 stores in Canada.

Wal-Mart needed a developer with a similar philosophy, financial strength, depth of experience and track record to make its expansion work. But First Professional had something else in its corporate resume that may have clinched the deal -- an abiding commitment to Wal-Mart's type of retailing.

First Professional had blazed the trail for category killer retailers after a dogged 10-year fight, mainly in Ontario, with an entrenched government bias against anything smacking of big boxes, power centers and discount chains. Indeed, for a long time officials opposed anything but conventional enclosed centers or strip plazas.

The battle is still a fresh memory for Mitchell Goldhar, First Professional's president and CEO.

"We tried to educate councils that the new category-dominant retail format was missing," he said. "It wasn't until the early 1990s that we were able to get two or three of them approved."

By that time, a few more retailers had surfaced, including Price Club and Aikenhead, a hardware chain since absorbed by The Home Depot. These helped ease the way for getting property rezoned and centers built.

"As more and more food and discount department stores in an unenclosed retail format were built, politicians, planning departments and provincial government departments became more familiar with them and took them more seriously. But it didn't happen overnight. It's been a long and difficult process," Mr. Goldhar added.

First Professional built the first Wal-Mart store, a 125,000-square-foot prototype, in 1994 at Barrie, Ontario, about 50 miles north of Toronto. It has been succeeded by stores that are typically 130,000 square feet. The largest so far is a 160,000-square-foot store that opened recently at Brampton, Ontario, on the northwest fringe of metropolitan Toronto.

By yearend 1997, First Professional had built more than 21 new Wal-Mart stores, serving as landlord and property manager. Another three were built for Wal-Mart from converted Woolco stores. However, the company is not Wal-Mart's exclusive builder; it negotiates contracts on a store-by-store basis.

Wal-Mart is First Professional's largest client/tenant, although Mr. Goldhar has other tenants he considers to be "compatible with this type of format," including Loblaws, Sobeys, Fortinos and Provigo (supermarkets), Future Shop (electronics), Toys "R" Us, The Home Depot and its domestic competitor Canadian Tire, and a number of popular fashion, food and financial services tenants.

There is clearly some tenant mix overlap, with food being one example. But Mr. Goldhar sees this as a "healthy overlap" because "we're in a dynamic business that constantly responds to social changes," such as shopper preferences and budgets.

"Nontraditional shopping centers have become traditional, for example. Category retailers were considered discounters and off-price operators at one time, but no longer, which says something about the extent of social change and the retailers servicing it."

Mr. Goldhar also sees changes in zoning, land uses and retail formats as a function of changes in social needs.

"Retailers who survived the last 10 years and who will thrive into the next century will be the ones that most successfully provide convenience, service, price, return policy and attitude," he said. "Customers vote with their dollars."

The company was building shopping centers long before Wal-Mart came along. Mr. Goldhar's father started building subdivisions in the Toronto area about 30 years ago, and then started building for small mom-and-pop retailers. These tenants couldn't afford shopping center rents and other charges, but could afford to be in the company's nontraditional centers. They were the precursor of the category killer retailers, but on a much smaller scale, and with vastly less parking, and much less convenience.

Soon after Mitchell settled into the company full-time 15 years ago, the stage was set for what would become First Professional's future course, inspired by the U.S. model of community shopping centers.

"[The centers] combine the concept of plaza shopping, some of the better features of big box, with an overall community center flavor. There are small and large tenants and an anchor element," said Tom Heslip, senior vice president, investment and development, CIBC Development Corp., Toronto. The firm is a subsidiary of CIBC, one of Canada's leading chartered banks, and joint venture partners in 12 of the Wal-Mart centers (half of them were sold last year).

In addition to offering the best prices, such projects have widest selection of basic merchandise and services that aren't as vulnerable to the capriciousness of consumers' tastes or sudden shifts in merchandising patterns, Mr. Heslip said. CIBC Development does not invest in large regional malls.

With the help of Wal-Mart, First Professional has become one of the top three shopping center developers in Canada. Thus far, it has built 8.1 million square feet of retail space, including about 35 shopping centers started or completed over the past five years. Mr. Goldhar expects First Professional will build another 4.8 million square feet during 1998 and 1999.

"We are able to do large projects because we're entirely focused on shopping centers," Mr. Goldhar said. "We can also act quickly on opportunities, like a small company, but perform and handle the scope of development like a large company."