All Business

FLAG-WAVING ISN’T ENOUGH

Why nationalism and nostalgia couldn’t save Molson and Hudson’s Bay

STEVE MAICH August 30 2004
All Business

FLAG-WAVING ISN’T ENOUGH

Why nationalism and nostalgia couldn’t save Molson and Hudson’s Bay

STEVE MAICH August 30 2004

FLAG-WAVING ISN’T ENOUGH

All Business

Why nationalism and nostalgia couldn’t save Molson and Hudson’s Bay

STEVE MAICH

HERE IS A BIT OF INVESTING WISDOM you can take to the bank: when a company starts draping itself in the Canadian flag to attract customers, sell the stock. It’s not that nationalism doesn’t exist in this country. Canadians are a quietly patriotic lot, and never is that more apparent than at times like this, when the Olympics provide a global stage for flag-waving and chest-thumping. The trouble is nationalism doesn’t sell in this country. It never has, it never will.

For proof, look no further than your local business pages, as Canadians come to grips

with the possibility that two of our oldest public companies, Molson Inc. and Fludson’s Bay Co., may be acquired by foreign owners. Molson is in the midst of a merger with Colorado-based Adolph Coors Co., and the Globe and Mail reported this month that the Bay is in talks with Minnesota-based retail chain Target Corp. and may be taken over.

All this has sparked a predictable round of soul-searching about the loss of our corporate icons. The Bay traces its Canadian roots to 1670, Molson was founded in 1786, and the thought that both will be run from U.S. head offices, with American executives calling the shots, is just more than some folks can stomach. The Globe staked out the Bay’s downtown Vancouver location and asked shoppers if a sale of the chain would affect their buying habits. Oh yes! they said. There’s no darn way I’d spend my hard-earned dough in a store controlled by the Yanks! No word on where those patriots might shop instead. American-owned Sears? Or the pride of Arkansas, Wal-Mart?

It would have been more useful to hang out in the parking lot of a local Wal-Mart and ask shoppers why it is that, in just 10 years since entering the Canadian market, the company has gone from 15 per cent of this country’s total department store sales to 52 per cent, while the Bay and its discount chain Zellers have slipped from 40 per cent to 31 per cent. The sad truth is, the Bay is not falling victim to a voracious foreign invasion, but to its own failures. Nobody kidnapped its customers—they walked away.

The same goes for Molson. The company’s “I Am Canadian” ads caused a stir in the

summer of2000 when “Joe Canadian” ranted about foreign stereotypes of Canuck culture. The ads were a rousing success by all measures but one: they didn’t sell much beer. In 1999, Molson’s core brands, including Canadian, held 36 per cent of the domestic beer market. That has slid steadily since then, to about 28 per cent, according to Veritas Investment Research.

Molson’s mistake lay in failing to recognize that its key market was splintering. Middle-of-the-road beers like Canadian were losing out to microbrews and pricier imports. Molson fell back on a patriotic ad campaign designed to appeal to a customer it already had—the quantity-beats-quality beer drinker—rather than trying to capture consumers feeding the market’s growth. In-

THESE companies aren’t falling victim to a voracious foreign invasion, but to their own failures. Nobody kidnapped their customers-they walked away.

stead of buying a “premium” beer maker— Sleeman Breweries, for example—Molson wrapped itself in the flag, and got crushed. Its net income dropped 15 per cent last year. And that is a large reason why it’s now trying to join another fading titan in Coors.

The Bay also attempted to make its history and nationality a selling point, decorating stores with pictures of fur traders and the company’s original 1670 charter. In so doing, it has demonstrated just how little it understands today’s consumers; they’ve all decamped to high-end specialty stores or to discounters. Rather than evolving with its cus-

tomers, as all successful companies must do, the Bay dug in its heels and waited for the market to return to it, because ... well ... because It Is Canadian.

The numbers tell the story. The chain saw sales decline by 2.2 per cent and profit tumble by 38 per cent last year. Granted, Hudson’s Bay shares are up more than 25 per cent this year, but Merrill Lynch analyst Patricia Baker doubts that a real turnaround is under way. Instead, speculators have bid up the stock in anticipation of a takeover. “We cannot recommend HBC shares on any fundamental basis, as the company continues to surrender market share as a result of increasing competition from all sides,” she wrote in a recent research report.

Contrast that with La Senza Corp., a lingerie retailer that has prospered without most Canadians realizing it’s a homegrown company. La Senza’s stock has almost tripled since the start of 2001. The company gives customers quality merchandise at a reasonable price in attractive stores. No flag-waving is necessary because La Senza’s business speaks for itself. Instead of rhapsodizing about the good old days, it’s expanding to the U.S.

All things being equal, it would be preferable to see the Bay and Molson thrive in Canadian hands. But it’s better that they sell out to Americans than face the fate of Eaton’s, another Canadian stalwart that failed to change with the times. For the many who lost their jobs when the Eaton’s chain went bankrupt, there was no solace in the fact that their termination notices were signed by a Canadian.

If Hudson’s Bay shareholders can get $16.50 a share in a takeover of the company, as some reports suggest, they should consider themselves lucky. As for the rest of us, we should leave nostalgia and nationalism for museums and sporting events, and demand better from our corporate icons. lifl

steve.maich@macleans.rogers.com