Canadian Tire take wrong turn again

Investors have plenty of reasons to shudder at Canadian Tire's union with the Calgary-based peddler of steel-toed work boots. Canadian Tire's track record with takeovers is uniformly dismal.

The Toronto Star
December 21, 2001

Canadian Tire take wrong turn again
David Olive

CANADIAN TIRE CORP. LTD. has never missed an opportunity to confront its key weakness — the worst reputation for customer service among otherwise successful retailers.

The company has been around for 79 years, long enough for Wal-Mart, Nordstrom and Four Seasons Hotels to build a culture of excellent service that is the bedrock of their business. Canadian Tire, by contrast, trades on its ubiquity. Its 454 stores are within 15 minutes' drive for 95 per cent of Canadians, 40 per cent of whom shop there at least once a week because it's simply the most convenient place to get auto supplies, housewares and sporting goods.

Rather than commit themselves to the down-in-the-trenches job of training a loyal, knowledgeable and friendly workforce, a succession of CEOs has opted for the expedient of takeovers to give the company a quick revenue boost. That tradition continues with this week's announcement that Canadian Tire intends to pair up with Mark's Work Wearhouse.

Investors have plenty of reasons to shudder at Canadian Tire's union with the Calgary-based peddler of steel-toed work boots. Canadian Tire's track record with takeovers is uniformly dismal. In 1985, the failure of its White Stores acquisition in the United States cost former CEO Dean Muncaster his job.

While the Mark's deal will almost double Canadian Tire's store count, to 779 outlets, Mark's will bolster Canadian Tire's sales and profits by only 10 per cent or so. Wayne Sales, the current CEO of Canadian Tire, trots out the usual synergy argument for buying Mark's, citing up to $7 million in anticipated savings from combining the two firms' transportation, real estate and advertising budgets. But that's pocket change for Canadian Tire, which earned $148 million last year.

And it's a small reward for the risk of taking on an alien product line. Canadian Tire has scant experience in the apparel market. And Mark's itself, which reported a 71 per cent drop in third-quarter profits, has an uncertain grasp of the market. It has lost focus over the years, making itself vulnerable to Wal-Mart, Old Navy, the Bay and others after expanding from specialty work apparel into the more competitive market for casual wear.

Had Sales opted for internal growth, he could have spent the $116 million purchase price for Mark's more wisely on bulking up the company's fledgling chain of PartSource outlets aimed at auto-repair enthusiasts, heading off an expected assault from U.S. chains Pep Boys and Auto Zone.

Already the nation's largest independent gas retailer, Canadian Tire could strengthen that franchise by bidding for the retail operations of marginal players like Suncor Inc. An expanded network of retail locations would give it the opportunity to roll out a new chain of mini stores to blunt the challenge from an aggressive Home Hardware, whose 1,000 outposts are nibbling away at Canadian Tire's home maintenance business.

Or Canadian Tire could invest more heavily in its people. The high card for building-supply vendors Home Depot, Reno-Depot and Rona is their skilled sales staff. Greeters at Home Depot can tell you how to build a kitchen cabinet, while their counterparts at Canadian Tire aren't sure what aisle to find the snow blowers.

Sales acknowledges the concern about service, saying customers have told him that his part-time stock boys who double as salesmen are "not as knowledgeable as we'd like and sometimes not as friendly as they need to be." But it's hard to believe Canadian Tire is paying more than lip service to the issue, and missing the chance to extract more money from the pockets of frustrated visitors. While Lansing Buildall, now a unit of Rona, provides its staff with a minimum of 60 hours of training, the indoctrination for new
Canadian Tire employees lasts just two days to a week.

Canadian Tire knows it has an image problem. That's why it registered the Internet domain name, to thwart cybercranks who might otherwise broadcast to the world their complaints about out-out-stock merchandise, inept car-repair jobs and surly cashiers. Alas, Canadian Tire has learned there are 478 Web sites using some variation of the words crappy Canadian tire. What it will make of that revelation is anyone's guess.

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