Canada's Changing Retail Market
Consumer Trends Update - Summer 2013
3. Major actors within the Canadian Retail Marketplace
The Canadian retail market structure continued to change and evolve as foreign retailers increased their presence within the Canadian marketplace. In 2011, 53 percent (or 66) of the top 124 leading retail organizations in Canada were foreign owned and operated (Daniel and Hernandez, 2010). The 66 leading foreign retailers in Canada accounted for approximately 40% of total leading retail corporations' sales in Canada, an increase of five percent from 1996 (Simmons and Kamikihara, 1999), or approximately $85 billion of total retail sales (Aversa, Hernandez and Daniel, 2011). Of the foreign retailers operating in Canada, U.S.-based retailers maintained a significant presence in Canada's retail landscape, accounting for 95 percent of retail sales by foreign retailersFootnote 12 (Simmons and Kamikihara, 2011). And this presence is a significant one as of the top 20 retailers (by sales) in Canada 10 were American-based, with 4 of these companies being among the top 10 retailers operating in the country. For a list of Non-U.S. Based Foreign Leading Retailers in Canada, please see Table 5.
Conversely, Canadian retailers have not experienced the same level of success with expansion abroad, although a handful of organizations have had notable success in expanding their operation into United States, such as Aldo and Joe Fresh. In 2012, Aldo, for example, had over 1,500 storefronts in over 55 countries, whereas Joe Fresh signed a deal with J.C. Penny to open 700 shops within 1,100 of its locations in the United States (Strauss, 2012b)
|% of total retail sales||Employment||Activity||Nationality|
|Source: (Daniel and Hernandez, 2012)|
|2.||Wal-Mart Stores Inc.||23,551||7.89||90,000||Department Store||American|
|3.||Empire Company Ltd.||16,055||5.37||97,997||Food||Canadian|
|4.||Costco Canada Inc.||13, 867||4.65||21,764||Department Store||American|
|6.||Shoppers Drug Mart Inc.||10,459||3.5||52,714||Pharmacy||Canadian|
|7.||Canadian Tire Corp. Ltd||8,437||2.83||73,199||Speciality||Canadian|
|10.||The Home Depot Inc.||6,426||2.15||26,621||Speciality||American|
|11.||Best Buy Co.||6,023||2.02||17,941||Specialty||American|
|12.||NRDC Equity Partners||5,763||1.93||50,699||Department Store||American|
|13.||Sears Holdings Corp.||5,717||1.91||47,412||Department Store||American|
|14.||The Katz Group Inc.||5,498||1.84||12,834||Pharmacy||Canadian|
|15.||Home Hardware Inc.||4,977||1.67||31,518||Speciality||Canadian|
|16.||Jean Coutu Group||4,002||1.34||19,811||Pharmacy||Canadian|
|17.||Jim Pattison Group||3,420||1.14||17,024||Food, Automotive||Canadian|
|19.||TJX Companies Inc.||2,651||0.89||17,111||Department Store||American|
There also continued to be a significant level of corporate concentration at the highest tiers of retail in Canada. In 2011, the top 30 major retail companies in Canada controlled "approximately $196 billion in total retail sales", "equivalent to 66 percent of total non-automotive retail sales in Canada" (Daniel and Hernandez, 2012). In the same year, the three largest retailers (The Weston Group, Wal-Mart Stores Inc., and the Empire Company Ltd) controlled "23.9 percent of the non-automotive retail market, or $71.3 billion [in retail sales], with 3,148 retail locations between the three combined" (Daniel and Hernandez, 2012). And, the concentration ratios are high amongst the top four retailers in each sub-sector as five out of the nine retail sub-sectors
have concentration ratio levels higher than 55% (Daniel and Hernandez, 2012). For a list of Market Concentration Ratio Levels in Canada by Sub-Sector, please see Table 4.
|Retail Sub-Sectors||2011 Sales (millions)||Market Concentration Ratios (percent)||Top Four Retailers in each sub-sector|
|Source: (Daniel and Hernandez, 2012)|
|Furniture and Home Furnishing||$15,028||35.2%||1. Sears (10.7%); 2. The Brick (10.2%); 3. IKEA (8.5%); 4. Leon's (5.9%)|
|Electronics and Appliances||$14,982||55.2%||1. Best Buy (40.2%); 2. Apple (4.7%); 3. BCE (3.7%); 4. GameStop (3.6%)|
|Home Improvement||$27,037||74.6%||1. Rona (23.9%); 2. Home Depot (23.8%); 3. Home Hardware (17.6%); 4. Tim-Br Marts (9.4%)|
|Grocery/Food||$104,134||61.9%||1. Weston Group (30.0%); 2. Empire Company (15.1%); 3. Metro (10.4%); 4. Safeway (6.4%)|
|Pharmacy and Personal Care||$32,848||68.6%||1. Shoppers Drug Mart (31.8%); 2. Katz Group (16.7%); 3. Jean Coutu (12.2%); 4. McKesson (7.9%)|
|Clothing and Accessory||$26,049||18.9%||1. TJX Companies (7.7%); 2. Reitman Group (3.9%); 3. Canadian Tire (3.8); 4. Gap (3.5%)|
|Hobby Store||$11,155||35.0%||1. Canadian Tire (15.1%); 2. Indigo Books (8.3%); 3. Toys 'R' Us (7.2%); 4. Golf Town (4.4%)|
|General Merchandise||$56,770||85.7%||1. Wal-Mart (41.5%); 2. Costco (24.4%); 3. Canadian Tire (10.2%); 4. NRDC (9.6%)|
|Miscellaneous||$10,696||34.8%||1. Staples (28.4%); 2. Petsmart (2.9%); 3. Roark Capital (2.3%); 4. Hallmark Cards (1.2%)|
American retailers have had a "profound impact" on the Canadian retail landscape as many of these retailers are "capturing the lion's share of retail sales across many sectors" (Aversa, Hernandez and Daniel, 2011). American retailers now dominate significant segments of the Canadian market, including the general merchandise category (e.g. Wal-Mart and Costco) and the electronic and appliance sectors (e.g. Best Buy and Future Shop). However, as revealed in table 2, Canadian-based retailers still dominate the grocery (e.g. Weston Group, Empire Company and Metro) and pharmaceutical (Shoppers Drug Mart, Katz Group and Jean Coutu) segments of the retail sector.
|Corporate Ownership||Nationality||Dominant Chains Controlled||Retail Sales
Source: Daniel and Hernandez (2012)
|Seven-Eleven Japan Co. Ltd.||Japan||7-Eleven Food Stores||759|
|H & M Hennes & Mauritz AB||Sweden||H & M||423|
|Hilco UK||U.K.||HMV Canada||326|
|Billabong International Limited||Australia||West 49, Amnesia, D-Tox||205|
|LVMH Moët Hennessy Louis Vuitton SA||France||Louis Vuitton, Sephora||170|
|Sony Corporation||Japan||The Sony Store||147|
|Luxottica Group S.p.A.||Italy||Sunglass Hut, LensCrafters||114|
|L'Oréal International||France||The Body Shop||80|
|French Connection Group plc||U.K||FCUK||21|
|Edizione Holding SPA||Italy||United Colors of Benetton||6|
i) Renewed Influx of Foreign Retailers in Canada
The recession may indeed have contributed to a recent jump in U.S. and foreign interest in the Canadian retail marketplace as global retailers consider Canada as a relatively safe and attractive market for expansion. The global recession has made it increasingly difficult for foreign retailers to achieve their desired growth levels in the U.S. market and abroad. As a result, focus has turned to Canada as foreign retailers survey potential opportunities to increase their growth opportunities and customer base in a highly-competitive global marketplace.
In particular, Canada has garnered much attention by foreign retailers due to the strong Canadian dollar and high levels of sales per square foot of retail space (Cooper, 2011). In addition, Canada experienced a relatively mild recession compared to other industrialized countries as the "housing markets have remained robust", "household wealth relative to disposable income is near record high," and the unemployment rate has remained relatively low (Cooper, 2011; Harrison, 2011).
The heavy American presence in Canada, beyond the favourable environment, noted above, is also attributable to the close proximity of the two countries, a common language, and a shared popular cultureFootnote 13 (Aversa, Hernandez and Daniel, 2011). This aids American retailers in transitioning their retail concepts and store formats smoothly and effectively into the Canadian retail marketplace. Notable American retailers that have expanded their operations into Canada include: the Apple Store, J. Crew, Lowe's, Marshall's, Nordstrom and Target, among others. Although European and Asian retailers are also becoming more prevalent in the Canadian retail marketplace over the last decade (e.g. H & M from Sweden, Sephora from France and the Sony Store from Japan), American retailers are still the dominant actors amongst foreign retailers operating in Canada.
ii) What does it mean for consumers?
The increased presence of foreign, especially U.S.-based, retailers is expected to benefit Canadian consumers, providing important advantages such as a wider variety of products, more convenient store locations and formats, and the potential for a more competitive pricing environment (Harrison, 2011; CI, 2011).
However, Kyle Murray, Associate Professor of Marketing at the University of Alberta's School of Retailing, warns:
"consumers expecting the transplants to offer the same shopping experience they receive south of the border may be disappointed…as stores may charge higher prices than their U.S. counterparts" (Mah, 2011).
A case in point was the opening of J. Crew's first store in Toronto in August 2011, where consumers were met with prices 15 percent higher than those at the company's U.S. outlets (Strauss, 2011b). Even with the strong Canadian dollar, American products are often priced approximately 20% higher in Canada than the U.S. (Cooper, 2011). During the recession, the total retail spending in Canada increased by 5 percent from 2009 to 2010 without retailers resorting to price-cutting strategies to maintain sales volumes (Collier International, 2011a). Given the relative robustness of the Canadian retail market, some foreign retailers may recognize the opportunity to price their merchandise at the full Canadian sticker price, rather than implement discounted prices similar to those found in the U.S., thus reducing any competitive price advantage for consumers in Canada.
A second factor of relevance to Canadian consumers is location. The majority of foreign-owned retailers are heavily concentrated in a handful of major urban markets (i.e. Calgary, Edmonton, Montreal, Toronto and Vancouver), with certain geographic regions being less favoured by foreign retailers. In particular, the province of Quebec, with nearly 23 percent of the nation's population, is home to only 13.5 percent of all foreign-owned retail organizations in Canada (CI, 2011a).
The location choices are not surprising – approximately 70 percent of the Canadian population lives in concentrated areas within 100 kilometres from the U.S. border. For example, Toronto and the surrounding area (i.e. the Greater Toronto Area) has a population of 5.8 million, or 16.8 percent of the Canadian population (Collier International, 2011a). Other major Canadian cities, such as Vancouver, Ottawa and Montreal, also, fall within 100 kilometres of the U.S. border. Locating just across the border allows American retailers to use their existing supply chains to service their Canadian retail outlets, reducing the investment and risk of entering Canada (CI, 2011a). Although some of the major foreign retailers do expand outside of major Canadian markets (e.g. Wal-Mart and Costco), many Canadian consumers living in smaller markets are relatively untouched by the positive convenience and product variety effects attributable to the expansion of foreign operations into Canada.
- Footnote 12
Five percent of foreign retailers operating in Canada are concentrated amongst retailers from France, Italy, the United Kingdom, Sweden, Spain, Netherlands and Japan (Simmons and Kamikihara, 2011)
- Footnote 13
Canada also receives high levels of American advertising and marketing courtesy of American cable television networks broadcasting in Canada as well as U.S. periodicals and publications distributed in Canada both in terms of subscriptions and news stand sales.
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