Canadian Tire Corp (CTC)

TOP CONTRIBUTORS

Hongliang Zhang

Alan Ibrahim

Note: All financial figures are denoted in Canadian $

Canadian Tire Corporation (TSE: CTC) is one of the oldest retail companies in Canada. With over 1,200 stores totaling over 22 million square feet of retail space across Canada, CTC offers everything from consumer appliances to car washes to financial loans to its customers. Following an initiative to have a store within driving distance for every Canadian, CTC has increased its store count by over 7% in the past 3 years, building 86 stores in that time span. CTC posted revenues of $10 billion and a net income of $335 million in the 2009 fiscal year.^[1]

While this expansion has served CTC well, by continuing to do so it runs the risk of cannibalizing sales from its existing stores as data from the 2009 fiscal year has shown -- same-store sales in its Canadian Tire Retail (CTR) business and Mark's Stores business fell 4.2% and 6% respectively in 2009.

In January 2009, CTC announced that it would be closing down its e-commerce site as a result of high logistical costs and would be placing an added emphasis on the shopping experience in stores.^[2] This move may limit the company customer base in the long run. Also, CTC's Financial Services segment of its operations exposes the company's other business segments to credit risks. By giving loans to its customers, CTC is exposing its retail branches to the credit risks of its Financial Services segment. If CTC's Financial Services segment were to clamp down on loans, for example, CTC could see its retail sales fall as well.

Company Overview

As of the 2009 fiscal year, CTC operates a total of 1,216 stores throughout Canada.^[3] CTC offers a variety of services and goods such as clothing through its Mark's Stores, consumer goods through its Canadian Tire Retail stores, gasoline through Canadian Tire Petroleum, and financial services through its Canadian Tire Financial Services locations. Since 2006, CTC has pursued an aggressive expansion program in order to grab market share from its competitors, creating 76 new stores in the past 2 years. CTC hopes to integrate its various business segments into a more cohesive operation by 2013.

Business Segments^[4]

Canadian Tire Retail (74% of revenue, 64% of income)

Canadian Tire Retail (CTR) is CTC's largest business segment with 479 stores spanning across Canada. CTR offers various products ranging from household appliances to hardware products. In addition to offering consumer products, CTR also offers automobile parts for personal use under its PartSource subsidiary. CTR stores currently fall under 3 categories: the Walmart-like Supercenter stores, the mid-sized Small Market Stores, and the smaller Smart stores. In the 2009 fiscal year, CTR had total retail sales decrease by 2.8% while same store sales decreased by 4.2%.

Canadian Tire Petroleum (16.5% of revenue, 17.4% of income)

Launched in 1958, Canadian Tire Petroleum (CTP) offers gas and car repair services. Traditionally a part of CTR stores, CTP represents a vital part of CTC's overall operations as its business helps bring in customers to both its retail and financial business segments. CTP sites fall under two categories, its built and fully owned CTP sites and its rebranded sites that are independently owned buy operate under the CTP logo. As of the 2009 fiscal year, there were 272 CTP gas bars, 37 of which were rebranded sites. CTP's sales volume fell 1.1% in 2009.

Mark's Stores (9.6% of revenue, 9.6% of income)

Mark's Stores represent CTC's clothing retail segment of its operations. Mark's stores posted $960 million in retail sales in the 2009 fiscal year, down 4.8% from last year, despite drops in same store sales as well as retail sales per square foot. CTC identifies the decreases due to poor economic conditions as well as its rapid expansion of Mark's Stores. As of the 2009 fiscal year, the 3 main segments of clothing Mark's Stores offer are industrial wear, which accounted for 42% of the year's sales; men's clothing, which accounted for 31%; and women's clothing, which accounted for 26%.

Canadian Tire Financial (9.1% of revenue, 10.5% of income)

Canadian Tire Financial (CTF) represents CTC's banking and credit divisions of its operations. though its primary operation is to offer lines of credit in the form of personal loans as well as maintain CTC's customer loyalty programs, CTF also offers other services that range from offering insurance and extended product warranty to managing and servicing CTC's credit cards. The number of counts with a balance fell 3.4% to 1.79 million people

Business Growth

FY 2009 (ended January 2, 2010)^[1]

• Net sales fell 5.6% to $10 billion as all of the company's business segments had negative growth during the year, with the hardest hit being Mark's Stores (a 4.8% decrease in sales).
• Net income fell 10.8% to $335 million.

Trends and Forces

Lack of Online Stores Prevent CTC from Reaching Optimal Audience

On January 22, 2009, CTC announced that it would be shutting down the e-commerce segment of its operations. Citing high logistical costs, CTC chose to shut down the site despite it being ranked as one of the top three busiest e-commerce sites in Canada. At a time where brick-and-mortar retail stores have started moving toward e-commerce as a way of boosting sales that have been increasingly eroded by solely e-commerce sites such as Amazon, CTC instead hopes to appeal directly to customers by expanding physically and improving its shopping experience.^[5] In line with its expansion initiative set in 2006, CTC hopes that the fact that 90% of Canadians are within 15 minutes of a Canadian Tire store will help offset the decrease in sales as a result of its loss of e-commerce.^[6] While CTC will not have immediate repercussions from this decision because of the strong customer loyalty it commands, it will find itself limited in the future when it no longer becomes profitable to expand physically. Furthermore, CTC will find some of its customer base that shopped solely online lost to its competitors that have e-commerce sites of their own and thus CTC will lose market share as well.

Canadian Tire's Physical Expansion Yields Low Returns

As CTC continues with its expansion initiatives, it will inevitably encounter decreasing returns on investment for each new store created and see its sales figures remain stagnant as consumption simply shifts from an old store to a new store. CTC has expanded its physical influence by building over 86 stores in 3 years.^[3] Though this expansion is in line with CTC's goal of having a store within driving distance for every Canadian and plays to CTC's strengths of high quality service and customer loyalty, it has yielded low returns. As a result, CTR and Mark's Stores same-store sales fell 4.2% and 6% respectively in the 2009 fiscal year respectively. This trend will inevitably lead to some form of cannibalization of sales from existing stores as CTC runs out of new areas to expand to.

High Satisfaction and Loyalty Allows Canadian Tire to Retain and Attract Customers

CTC has had a long history of pioneering customer loyalty programs as it has been credited with creating the first versions of corporate money in Canada. CTC has in place its Canadian Tire Money as well as its Canadian Tire Credit Cards to boost customer loyalty. These programs allow Canadian Tire to have high customer satisfaction, as 80% of customers surveyed say that they are very happy their shopping experience and would strongly recommend it to a friend. A high customer loyalty means that CTC can expand into areas it has never been before and be confident that it can attract customers. Furthermore, this will become increasingly important as Canada's retail market becomes increasingly mature. When there becomes little to no growth opportunities that exist without taking away customers from their competitor, CTC will have the advantage of being able to retain its customers at a higher rate than its competitors. Likewise, CTC's high customer satisfaction will allow it to attract customers from their competitors and keep them as well.

Competitors

Hudson's Bay Company: With over 600 retail locations in Canada, Hudson's Bay Company is Canadian Tire's main competitor. Privately owned, it operates under four banners: the Bay, Zellers, Home Outfitters, and Fields, and sells clothing and household appliances to low to mid-income families.^[7] In addition to retail, Hudson's also offers financial services such as credit and loans similar to those offered by CTC.

Wal-Mart Canada: Wal-Mart's Canadian segment of its operations follows the same strategy used by Wal-Mart in the United States. Offering a variety of goods at low prices, Wal-Mart Canada competes with CTC's retail business segments for the same customers by offering similar products. Wal-Mart Canada operates slightly more than 300 stores, and even though CTC has significantly more locations in Canada, Wal-Mart Canada has the advantage of being part of the Wal-Mart Corporation allowing it to command lower prices.

Sears Canada: A subsidiary of the United States operated Sear's Holding Co., Sear's Canada is one of largest department retail stores in Canada. Operating under the Sear's brand, Sear's Canada offers clothing and appliances, competing directly for customers with CTC's retail segments. Sear's Canada operates roughly 400 stores. ikkkkkkkkkkkkkkkkkkkky ll

References

1. ↑ ^{1.0 1.1} CTC 2009 Annual Report "Consolidated Financial Results" pg. 8
2. ↑ Canadian Tire stops selling online
3. ↑ ^{3.0 3.1} CTC 2009 Annual Report pg. 10
4. ↑ CTC 2009 Annual Report "Business Segment Performance" pg. 13-36
5. ↑ Canadian Tire 2008 Annual Report pg. 5
6. ↑ Canadian Tire Business Encyclopedia
7. ↑ Hudson's Bay Company About us