Trouble in store

The shakeout in retailing strikes Consumers Distributing

DAVID ESTOK August 12 1996

Trouble in store

The shakeout in retailing strikes Consumers Distributing

DAVID ESTOK August 12 1996

Trouble in store

The shakeout in retailing strikes Consumers Distributing


Sandwiched between a video arcade and a novelty store, the Consumers Distributing outlet at Eastgate Square in Hamilton is coming to the end of another less-than-busy day. Despite banners boasting a $40-million inventory sellout—complete with colored balloons and stickers on most items promising up to 50 per cent off—sales have been slow. Behind the jewelry counter, a lone salesclerk declines to give her name but clearly looks worried. “They told us not to talk to anybody,” she tells a reporter who asks about the company’s surprise announcement a day earlier that it is insolvent. “We don’t really know very much,” she adds nervously, “or what will happen.”

Uncertainty over Consumers’ future, in fact, extended all the way from the sales floor to the company’s executive offices in Mississauga, Ont., last week. Best known for its stubby pencils and order forms, an attractive catalogue full of low-priced jewelry, appliances and other goods, and a chronic lack of stock, the retail chain filed for protection from its creditors under the Companies’ Creditors Arrangement Act on July 29. The chain—which has 217 stores across Canada and employs 3,900 people—now has until Nov. 15 to restructure its business by

slashing staff, closing stores and selling off inventory. With last week’s announcement, however, the 40-year-old retail landmark became just the latest victim of a bruising shakeout of Canadian retailing that is being driven by increased competition—much of it imported from the United States—weak consumer confidence and dramatic shifts in buying habits. And, analysts say, the bloodletting is far from over. “You can expect two or three more large national retailers to file for protection in the next two or three months,” predicts Len Kubas, president of Kubas Consultants of Toronto and a longtime retail watcher. “It just has to happen. It’s a brutal retail environment out there.”

Certainly, Consumers is far from alone in suffering hard times lately. Other well-known Canadian names have also felt the chill:

• Earlier in July, Sears Canada announced that it will cut 1,200 jobs after losing $8.6 million in the second quarter of 1996. The 110-store retail giant has already laid off 14,000 people during the past five years.

• Dylex Ltd., once a highflier of fashion, sought court protection last year, closing 193 of its 740 stores across Canada and letting more than 1,800 workers go from its Tip Top Tailors, Fairweather and Thrifty’s outlets.

• Last March, Hudson’s Bay Co., North America’s oldest retailer, with 101 stores in Canada, reported a dramatic drop in 1995

earnings with year-end profit falling to $34.6 million from $151.3 million the year before.

• Zellers Inc., owned by Hudson’s Bay, announced the resignation of its president as well as plans to relocate its head office to Toronto from Montreal after a similarly dramatic drop in 1995 profits.

• T. Eaton Co. Ltd., another institution of Canadian retailing, put $1 billion worth of its real estate up for sale last year in an effort to raise cash to offset poor sales.

• Kmart put its Brampton, Ont., head office up for sale last week, after replacing its Canadian president in January and hiring a liquidator to sell off more than $100 million worth of unsold merchandise at cut-rate prices.

Still, the anguish has been selective. Bucking the prevailing gloom, Canadian Tire Corp. announced last week that it had made a $34-million profit in the second quarter of 1996—up from $32.3 million a year earlier. Over the longer term, while once-potent presences such as Simpsons, Towers and Kresge have disappeared from the Canadian shopping map over the past decade, new players like Wal-Mart, The Gap, Business Depot and Computer City have moved in.

And even though Statistics Canada reported last month that retail sales remained virtually flat for the first half of this year, retail-

ers cannot blame their difficulties entirely on consumers’ unwillingness to buy. True, major department stores, a sector that includes Sears, Eaton’s and The Bay, saw combined sales fall 4.7 per cent in 1993, 1.1 per cent in 1994 and 3.7 per cent in 1995. But over those same years, discount department stores such as WalMart, Zellers and Kmart have seen sales increase by two per cent, 9.7 per cent, and a whopping 13.4 per cent, with the bulk of the increases in this category going to Wal-Mart.

To a degree, such statistics underscore the growing presence and merchandising power of large, U.S.-based retail chains, as much as any underlying resilience in the Canadian market. Arkansas-based Wal-Mart, the world’s largest retailer according to revenues, purchased 120 faltering Woolco outlets in Canada in January, 1994. Since then, Wal-Mart has steadily gained consumer acceptance and, more importantly, market share, in Canada. Over the same period, other U.S.-based chains such as Atlantabased Home Depot and Kirkland, Wash.-based Costco Corp., have also invaded Canada, frequently targeting specialized retail niches with huge product selection and low prices in cavernous warehouse settings. Observes Wal-Mart’s Canadian spokesman, Ed Gould: ‘We have seen a general shift away from department stores towards the discount stores as consumers continue to seek out value.” But for older Canadian chains like Consumers, which already occupied the discount end of the retail spectrum, the WalMart-led invasion has dramatically increased pressures to slash prices and improve service.

Most retail analysts agree, however, that Canadian chains cannot pin all their woes on U.S.-based competitors. Mel Fruitman, an

analyst based in Maple, Ont., north of Toronto, says that shifting sales patterns also reflect changes in Canadian lifestyles. Citing one such factor, Kruitman notes that the growing popularity of home offices and telecommuting has “created a fundamental change in our clothing needs.” With fewer Canadians dressing up for a day at the office, he concludes, fashion outlets are feeling the pinch.

Similarly, Elliott Ettenberg, chairman and CEO of Prism Communications, a Toronto company that designs marketing strategies for large Canadian retailers such as Sears, A&P supermarkets and White Rose nurseries, detects a dramatic change in consumer priorities. Beset by profound economic insecurity, Ettenberg says, many Canadians are choosing to “squirrel money away into savings accounts, into mutual funds and RRSPs,” instead of into new purchases.

But Canadian retailers have been fatally slow to respond to the new realities of the marketplace. Too many, Ettenberg asserts, “think they can do what they did the last time to get through the recession. They do not understand and refuse to accept that this is different.” Merely keeping prices low, Ettenberg adds, will not be enough to save retailers who fail to make more


The turmoil in Canada’s retail shopping sector has

claimed dozens of formerly familiar business names over the past decade. A selection of once prosperous, and now vanished, Canadian retailers—and some of the outlets that have replaced them.

THEN . . . • • NOW Woodward’s Price/Costco Simpsons Value Village Towers Home Depot Bargain Harold's Future Shop Kresge Blockbuster Woolworth HMV Miracle Food Mart The Gap Majestic Business Depot Brettons Sportmart Elks Computer City

sweeping improvements in their operations, level of service and delivery of goods to the customer.

Up until last week, that analysis seemed particularly true of Consumers. The company’s reputation for foot-dragging in the face of a changing marketplace was so well-established that University of Toronto economist David Foot cites it in his best-selling book, Boom, Bust & Echo. “The art of customer service,” Foot charges, “is something at which Canadian retailers are notoriously incompetent because, until the late 1980s, they were operating in a marketplace that didn’t require it.” To illustrate his argument, Foot recalls a slogan that Consumers used in the 1970s: “Suffer a little, save a lot.” At the time, Consumers used the line to justify a poor distribution and warehouse system that often disappointed shoppers who waited in line to make a purchase, only to find that, all

too often, the item they wanted was out of stock. Today’s harried and overextended middle-aged consumer, Foot argues, is not only unwilling to waste time waiting to make a purchase, but will not give a retailer a second chance if the first experience is unsatisfactory. Predicts Foot: “These stores won’t survive unless they upgrade the quality of their service, product or both.”

It is a lesson that Consumers insists it is learning. Chief executive officer Perry Caicco says the company has already taken several steps to improve customer service. Many of its stores, he says, now have selfserve computers that let customers bypass lineups and order goods directly. The company has also introduced the “five-per-cent promise”—a guarantee that Consumers will undercut any competitor’s sale price on an item by five per cent—as well as a homedelivery service.

But time is running out. After peaking at more than $1 billion in the mid-1980s when the company had a large U.S. division, Consumers’ sales have declined to a projection of $580 million for the current year. At the same time, an aggressive capital spending program to create 11 superstores in major centres has contributed $25 million to the company’s total $250-million debt load. By last week, the company found itself in a cash-flow crisis and was forced to seek protection from its creditors.

And despite its court-mandated Nov. 15 deadline for restructuring, Consumers’ fate may in fact be sealed by the end of next week. Montreal-based Quebecor Ltd., which has the contract to print the company’s 1996 Christmas catalogue, has threatened not to complete the job unless Consumers pays the $6 million already owed for past work and another $4.3 million for this year’s book. The catalogue, chock-full of toys, appliances, jewelry and other items, is the key to Consumers’ Christmas season—normally responsible for more than 75 per cent of annual sales. A failure to print and distribute the catalogue to the five million households that usually receive it by the end of August, says Caicco, “could be the death blow for the company.” Even as last-ditch negotiations went on last week to prevent that happening, Caicco moved swiftly to stanch the company’s losses—announcing that half the company’s 210 head-office employees would be laid off by October.

Customers like Aline Verrier will miss Consumers if it folds. The 26-year-old Hamiltonian and her fiancé, Keith Woolley, bought their engagement rings at the Eastgate Square store earlier this summer. Last week, they were back looking for a few items for their new home. “It would be really sad to see it close,” Verrier says. But unless the chain can attract more consumers like her, that may indeed be its fate.