Canada's retail market now equals the American market on a per capita basis, according to Colliers International, as a surging Canadian dollar and increased spending draws U.S. retailers north.

With Target's $1.8-billion deal to take over about 200 Zellers locations well under way and Canadian Tire announcing this week it would take over Forzani Group to gain access to the Sportchek line of stores, the retail landscape is undergoing some of its most dramatic changes since Wal-Mart took over Woolco in 1994. 

Looking back on the progression of American retailers on Canadian soil, Drew Keddy, VP Canada, Colliers International, notes that, “The combination of exchange rate, higher sales per square foot and room for growth in retail square footage, all play a part in this recent wave of announcements,” Colliers vice-president Drew Keddy said.

Which retailers are rumoured to be coming?

With Target’s plan to take over Zellers storefronts, there are only three Top 10 U.S. retailers without Canadian expansion plans: Kroger, Walgreen and CVS Caremark.

Colliers suggested there are key markets that U.S. retailers may want to target – clothing, accessories, jewellery and home furnishings. And while everyone knows Target is coming, it lists another handful of retailers who are likely on their way – including Express, Marshall’s, J.C. Penney, Nordstrom, Topshop, J. Crew, Kohl’s and Dick’s Sporting Goods.

Why are they coming?

A strong Canadian dollar makes a northern store a more attractive proposition, especially considering American retailers have a long history of selling goods at higher prices outside of their home market.

Canadian sales average $580 per square foot, while the U.S. market average is $309.

American retailers are still fighting difficult economic circumstances in their own country, with many offering deep discounts in a desperate bid to woo shoppers through the doors.

Those discounts have also attracted Canadian cross-border shoppers, who aren’t averse to a deal themselves. Opening Canadian stores allows the American retailers to target the Canadians, where they live.

“U.S. retailers see the opportunity to open stores in Canada to sell merchandise at full sticker price, rather than at heavy discounts south of the border,” the report states.

The stores can also set up supply chains easily from their U.S. distribution centre, although that doesn’t seem to be their preference.

Finally, there’s an argument to be made that Canadians lack the shopping density that can be found in the U.S., where there is 23-square-feet of shopping floor area per capita. In Canada, there are 14-square-feet.

While there are millions of square feet vacant, it’s hard to argue that the U.S. has found the perfect ratio, but Collliers said the fact remains that Canada is underserved.

What happens to Canadian retailers?

Target plans to open about 200 stores and reach $6-billion in sales in the next six years. Colliers said that money will likely be pulled from existing Canadian chains such as Loblaws and Shopper’s Drug Mart.

“This extra spending will come from somewhere and is not likely to come from induced demand,” Colliers said. “Once Target stores are open, there could be additional acquisitions of Canadian brands that can’t compete head-to-head- with Wal-Mart and Target.”

What about Canadian shoppers?

Colliers said more retailers means more competition, and that likely means “lower prices, more convenient store locations and store formats that adapt to the way consumers live and want to shop.”

It also means consolidation among the retailers they are already used to frequenting – just this week Canadian Tire announced a $770-million deal to purchase Forzani Group, which owns Sportchek.

“We view this acquisition as a good strategic move,” said TD Newcrest analyst Jessy Hayem. “Canadian Tire potentially forestalls the entry of a U.S. competitor and becomes the leading sports retailer in Canada with 1,000 combined retail sports outlets.”

Article provided via the Globe and Mail

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