The international appeal of retail basics

Walmart should shorten its checkout lines and improve the store experience in Canada prior to the arrival of Target next spring. That was the advice of Diane Briesebois, president and CEO of the Retail Council of Canada who spoke Wednesday at a dinner in Toronto, which preceded Walmart’s annual international meeting for the financial community.

Following her prepared remarks, Briesebois was put on the spot by Walmart International president and CEO Doug McMillon who asked during a question and answer session, “What can we do to improve in this market?”

Briesebois pondered the question and thinking out loud said, “You want me to be honest? I’m going to be honest. With Target coming into Canada, there is a perception that (Walmart’s) service in Canada is not as good as it is in the United States. I believe there will be an increased expectation around service and the number of people waiting in line.” She added that Walmart will be compared constantly with Target and suggested to McMillon and the audience of investment analysts that also included Walmart Canada president and CEO Shelley Broader and her senior leadership team, “I would pay attention to the way the stores look and how quickly customers are served at the checkout, because Target does a good job with that.”

Target enters Canada next spring when the first wave of a planned 125 to 135 units opens. Target acquired more than 200 leases from Zellers last year and in turn Walmart acquired 39 of the leases from Target. Walmart is moving faster than Target and will open its stores this fall as part of a record year of expansion that will see the company’s current store count of 330 units increase to 380.

With competition set to elevate in Canada, Briesebois highlighted that the Canadian consumer is a value conscious, “tough nut to crack” that loves loyalty programs and finding a deal. Her view of the market is shaped by the fact that she leads an organization that includes retailers that operate more than 45,000 stores and account for 85% of Canadian retail sales of $297 billion.

In addition to suggesting some improvements, of which Canadian operators are surely aware, Briesebois disputed the view that Target’s entry into Canada is the most significant development the market has seen since Walmart entered the country with the acquisition of 122 Woolco stores 18 years ago.

“Target is a formidable competitor,” Brisebois said. “For those who don’t know the Canadian market well, it would be a mistake to assume that Target will be a game changer.” She said the market already is well served by such large, well-established operators as Walmart, Loblaws, Canadian Tire, Shoppers Drug Mart and Costco. “Target will have an impact, but it is entering a competitive market,” Briesebois said.

It is also entering a market where Walmart has much greater familiarity with the operational and supply chain challenges that can detract from financial success. The big one is the labor situation. Unemployment is lower and the minimum wage is higher so employees can be more selective about where they work, which creates challenges around turnover. Then there are the supply chain issue and expense pressures associated with serving a nation with fewer residents than California, where 90% of the population lives within 100 miles of the U.S. border and two thirds of those people live in urban areas. Other market characteristics highlighted by Briesebois included a higher concentration of immigrants, the requirements of two languages and compliance challenges stemming from the fact that Canadian provinces have their own unique regulatory requirements.

“It is easier and cheaper to transport goods from one Canadian province into the United States than it is to transport them from one Canadian province to another Canadian province,” Briesebois said regarding the supply chain. And to highlight the regulatory complexity, she noted the country has 50 different legislatively mandated waste diversion programs. “None of these programs are run the same way which means you have to run 50 different programs. A lot of people compare (the regulatory climate) to California. We have to deal with a lot of regulations and it has a huge impact on the cost of doing business in Canada.”

Despite the challenges, Briesebois described a consumer ideally suited for the Walmart and Target brand of retail, which implies the companies will co-exist successfully, even if it isn’t always peaceful.

“There is nothing that gets a Canadian more excited that a sale,” Briesebois said, adding, “Nine out of 10 Canadians participate in loyalty programs.”

There has been some slippage on the frugality front in recent years though as retail spending per capita now equals that of the United States, due in part to the strengthening of the Canadian dollar and the willingness of confident Canadians to take on more debt with average household debt levels now exceeding those in the United States, according to Briesebois.

Consumer confidence among Canadians is higher than in the United States, but the higher debt levels ensure that “Canadian consumers will continue to be value conscious for the foreseeable future. Seventy six percent of Canadians describe themselves as being cost conscious, I don’t think I could repeat that often enough.”