Selling to the forgotten shopper

Ann Walmsley July 29 1985

Selling to the forgotten shopper

Ann Walmsley July 29 1985

Selling to the forgotten shopper

Ann Walmsley

Beneath the garish, neon-lit facade of the famous Honest Ed’s discount store in Toronto, Anthony De Battista lined up for half an hour with another 150 bargain-hungry shoppers. For the 73-year-old retired hospital maintenance worker, who supports himself and his sister on a $500-a-month pension, the week’s shopping trip was a bonanza—a loaf of fresh white bread for 11 cents, two kilos of sugar for 59 cents and a package of smoked mackerel for $1.18. De Battista generally spends less than $10 on his weekly visits to Honest Ed’s—a store that sells everything from black-velvet paintings and garlic presses to men’s pants. But for Honest Ed’s and a growing number of cut-price outlets across the country, De Battista represents a valuable consumer who was bypassed in the 1970s rush to serve the well-heeled, free-spending buyer. Said John Winter, a senior associate with Clayton Research Associates in Toronto: “There is always a bottom and a top in retailing. Now a lot of people want to cover the bottom.”

In the past five years bargain-price chains have increased their annual sales to more than $1.5 billion from $650 million (annual sales generated by major and junior department stores, such as The Bay and Towers are $11.5 billion). The market is significant: lower-income families,represent 14.6 per cent of all Canadian families, according to Statistics Canada. Among the stores that are now aggressively expanding to meet growing demand are Regina-based Army & Navy Dept. Store Ltd. with eight outlets in the West, Ottawa-based Giant Tiger Stores Ltd., with 35 stores in Ontario and Quebec, and two Ontariobased discount giants, Bargain Harold’s Discount Ltd., with 55 stores, and the 138-store Bi-Way Ltd. chain, which is also expanding into Manitoba and Nova Scotia.

The approach is simple: rather than hiking the costs of their merchandise with frills such as flashy store furnishings and numerous sales staff, the bargain dealers heap merchandise on plain tables for customers to help themselves. Said Arthur Uram, stores director at Lawrence Emporium Inc., a southern Ontario chain with 10 outlets: “Usually our type of store does better during a recession, but now that times are better, people are used to saving.”

Discount retailers, convinced that the market for cut-price merchandise is still largely untapped, are vying to expand their operations and their profits. Mav-

erick entrepreneur Ed Mirvish, who owns Honest Ed’s, said that he prizes the low-income clientele that flocks to his high-volume bazaar. Last year his customers generated gross sales of about $400 a square foot—more than any other department store in Canada compared to average sales in major department stores of $200 a square foot. Last October, in response to rising consumer demand at the 43-year-old one-

store operation, Mirvish doubled the floor space. Said Honest Ed’s Ltd. personnel director, Ralph Cranston: “Lower-income shoppers know what they want and they are easy to satisfy.” Now, bigger chain operators across the country are wooing similar customers. Dylex Ltd., the Toronto-based apparel conglomerate that has owned Bi-Way since last year, is orchestrating the chain’s push from its Ontario base into Manitoba and Nova Scotia. Bi-Way’s gross sales jumped 13.5 per cent in 1984 to $270 million, and the company anticipates sales of $325 million in 1985. Dylex president Wilfred Posluns told Maclean's that he envisioned a crossCanada network with eventual sales of as much as $750 million. Bargain Harold’s will add 49 stores this year as part of

an expansion program launched after Brampton, Ont.-based K-Mart of Canada Ltd. bought it last April.

Only in the West are discounters running into trouble. Generally, discount stores do best in dense metropolitan centres, and the relatively small and widely scattered population in the region works against them. More important, the severity and duration of the recession in Western Canada has

prompted traditional retailers to fight back with dramatic 40to 50-per-cent discounts, a strategy they were never forced to adopt in Eastern Canada. Said Garth Kennedy, president of the 65year-old, privately owned Army & Navy discount chain: “We do well in our shoe department—$125 shoes for $13.95—but generally business is slow.”

Analysts say that price-slashing retailers are attracting the customers abandoned by such longtime junior department stores as Zellers, K-Mart and Towers, which are introducing increasingly expensive fashion merchandise and adding in-store frills like mannikins and window displays. Said Winter: “Everybody is rushing to cater to the upscale baby boom generation market and it leaves a niche for

aggressive new discounters.” Their most popular lines are children’s clothes and sportswear. Said a Halifax mother who outfits a family of four including two teenage sons on her husband’s $22,000 armed forces salary: “I come to Bi-Way twice a week and I buy most of our clothing here.”

The hallmark of the deep discounters is the sale of factory seconds, discontinued lines, manufacturers’ overruns or huge volumes of regular merchandise. Bi-Way stocks a very limited choice of merchandise (1,500 items compared to 35,000 in junior department stores) in small, low-rent, unadorned stores.

Clothes are piled on tables, while canned goods or hardware items are left in open cartons. There is no sales staff, the only employees stock shelves and tidy the merchandise and the stores accept only cash. Said Dylex vice-president of corporate development Christopher Schwartz: “The concept is to offer the merchandise, not the store.”

Where the stores’ owners do invest money is in research that identifies their clientele’s needs.

Dylex analysis has revealed that most Bi-Way customers have family incomes of $25,000 to $30,000 for a family of four and generally use public transportation to reach the stores. To cater to that group, Bi-Way opens outlets in industrial parks and other locations on transit lines that will attract blue-collar workers. Every week the

stores deliver 20,000 flyers to neighborhoods identified as working class districts.

Giant Tiger is one chain that has adopted the Bi-Way model. Its 20month-old Longueuil store is located in a Montreal suburb with a high percentage of pensioners and welfare recipients. Said branch manager Gérard Chartrand: “At the end of the month, when the welfare cheques come out, business is always better for us. We do well off welfare.” Giant Tiger relies on its weekly newspaper advertisements and flyers to promote at least five brand name items at prices below any other

local store. Recently, the store offered Foster Grant sunglasses at $5.97 (compared to a list price of $14.95) and a 144bag package of Tetley Tea for $3.99 (suggested retail price: $6.99).

Discount retailers say that traditionally there are advantages in selling to economically disadvantaged Canadians.

Noted Leonard Kubas, a Toronto retail marketing specialist and president of Kubas Consultants of Canada: “They pay by cash. And they are not as demanding or critical as other consumers. They do not go back to the store and complain about a faulty item, because it might have cost only $2.50.” That loyalty prompts some observers to question whether low income shoppers get value for their money. Said WL ö Lynn Hancock, a Toronto o secretary who shops at a 3 downtown Bi-Way store:

“The material in the clothes is poor. You cannot really wash them or they fall apart.” Responded Bi-Way senior executive Malcolm Coven: “We have a policy that we would not put anything in the store that we would not bring home to our children.”

In recent years, as more affluent shoppers have been drawn to discount stores by the low prices, some budget retailers have responded with betterquality merchandise. Bi-Way and Bargain Harold’s carry extensive lines of name brands such as Levis and GWG jeans. And a Vancouver Army & Navy store manager, Joseph Oberhoffner,

said that the addition of cut-price designer clothing, including Albert Nipón and Alfred Sung dresses, has appealed to low-income customers. Said Oberhoffner: “The economically disadvantaged are looking for quality goods too.” And increasingly, upper-middle-class customers are mixing with those who depend on low prices. Said Army & Navy’s Kennedy: “With designer sales we have Mrs. Peter Lougheed and Wayne Gretzky shopping in our stores.” Giant Tiger president Gordon Reid said that federal NDP Leader Ed Broadbent shops in an Ottawa Giant Tiger store.

Still, discount retailers are under no illusions about the key to their success. Said 61-year-old Marie Claire Lamoureaux, a regular customer of the Giant Tiger store in Longueuil, Que., whose income is limited to her disabled husband’s health insurance cheques: “We have no choice but to shop here.”

With Greg Fjetland in Vancouver, Sandy Fife in Toronto, Dan Burke in Montreal and Susan McPhee in Halifax.