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Marks & Spencer, other U.K. firms exit Canada

By Albert Warson

Three of the largest, most venerable and familiar U.K. companies have pulled the plug on their shopping center/retailing operations in Canada during the last eight months, having either sold them already or put them up for sale.

Marks & Spencer, Peninsular & Oriental Steam Navigation Co., and Hammerson plc have all pulled out of Canada, either to concentrate on domestic and European markets, or to stop the steady stream of revenue losses.

Marks & Spencer Canada, Toronto, a subsidiary of Marks & Spencer, London, closed its 38 stores from Vancouver to Halifax during the months of June, July and August. The last batch of stores turned out the lights for the last time a month earlier than anticipated, at a cost of about 900 jobs and nearly $35 million in employee severance and other windup costs.

In May, Peninsular & Oriental Steam Navigation Co., London, more familiarly known as the P&O cruise ship line, put its eight regional shopping centers in British Columbia, Alberta, Saskatchewan, Ontario and Québec up for sale. The portfolio is held by P&O Canadian subsidiary Laing Properties, Vancouver.

Hammerson plc, London, sold Hammerson Canada's real estate portfolio, notably the 1.4 million-square-foot Square One Shopping Centre in Mississauga, Ontario, and three office buildings in nearby downtown Toronto to OMERS Realty Corp., for about $380 million. The deal closed in January.

Marks & Spencer (M&S) had been in Canada since 1973, and bought Peoples Department Stores (a chain of smaller department stores in eastern Canada) and D'Allaird's, a national women's wear retailer, both of which it later sold.

When asked why M&S, Britain's largest clothing store chain, was pulling out of Canada after so many years, Barry Waite, a company spokesman in Toronto, said, "it was the result of an ongoing strategic review of all the company's business operations to improve shareholder value and because the parent company wasn't prepared to support further commitments to the business in Canada.'' In other words, it had been losing money.

M&S had already undertaken restructuring initiatives, mainly whittling down the numbers of stores from 47 over the past two years in an attempt to reduce operating costs and reposition the brand. But that wasn't working. As David Stewart, M&S Canada president and CEO, noted: "In the current retail climate, the Canadian subsidiary shows little sign of achieving profitability.''

But it appears the vacated M&S stores won't be empty very long, at least not those in the better locations. Zara, an international apparel retailer with 771 stores in 22 countries (annual sales of $2.6 billion), owned by Inditex Group, La Coruna, Spain, recently announced it will take over three locations on Bloor Street in downtown Toronto, Robson Street in Vancouver, both upscale shopping neighborhoods, and high-profile Place Montréal Trust shopping center in Montréal.

The stores are typically about 15,000 square feet, selling fashions for women, men and children. Its merchandise is similar to that of The Gap, Club Monaco or Banana Republic. Reitmans (Canada), Montréal, has a less than 10% interest in the venture and is advising the Spanish company on its first foray into the Canadian market. Sales on the way

It's still too early to tell how quickly P&O will be able to sell its Laing Properties portfolio, which includes the flagship 888,000-square-foot Guildford Mall in Surrey, British Columbia, but company officials expect it to be gone by year-end, with the help of real estate investment dealer RBC Dominion Securities, Toronto. Cambridge Shopping Centres, Toronto, has looked at it but hasn't yet made any offers. P&O is said to want to return to its core shipping and cruise businesses.

Cambridge had tried to buy the Hammerson portfolio but was edged out by The Ontario Municipal Employees Retirement System (OMERS), which has become a major shopping center player, and the Hammerson name became OMERS Realty Management Corp.

OMERS is a pension plan for 260,000 active members and local government employee members in Ontario. The Hammerson acquisition brought OMERS' total real estate investments to about $2.5 billion.

The transaction interrupted work begun last year on a $45 million expansion of Square One Shopping Centre to 1.7 million square feet, but it was recently resumed under the new ownership. The expansion includes a 10-screen Cineplex Odeon theater, Rainforest Cafe, major bookstore, restaurants and other attractions. It also will give the center better street access for movie theater patrons, improved transportation flow and more accessible parking.

Ross Moore, vice president of research at brokerage Colliers Macaulay Nicholls, Toronto, put the U.K. real estate defections into analytical perspective. "I'm not surprised -- most U.K. property companies haven't done well in North America.''

M&S had "failed to find a niche,'' Moore noted. "And the one it did have was very, very small and unsustainable. What works in one culture or country doesn't necessarily work in another. They didn't spend enough time researching the Canadian market. They thought they could take a cookie-cutter approach and make it work in Canada,'' he said.

"And it isn't as if they had something in the United States they could bring into Canada. They didn't get into the U.S. because they figured Canada was enough like the U.K. Another factor was that Canada changed while M&S was there. In the late '60s and early '70s, most of the immigrants to Canada were from the U.K., which of course meant they had grown up with Marks & Spencer. Now the U.K. is barely on the list of countries providing most of the immigrants,'' he explained, noting, "Demographics were working against M&S as well.''

As for Hammerson, Moore says the company will focus on the United Kingdom, from which it has launched a "very aggressive acquisition and development program at home and in Western Europe. It is probably one of the most aggressive shopping center developers in the U.K.''

Moore's explanation for the British departure for greener pastures: "They decided to get serious or go home -- deciding if we're going to stay in Canada, let's do it properly and dominate certain markets and operate as a national player and go big or go home.

"There's a real push for U.K. property companies to become European property companies, because of the European Union and the common currency. Besides, Canada [In terms of the market] is such a small country, the product and liquidity isn't there.''