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Why Walmart Is Winning In Canada

Via Forbes : Recent failures by U.S. retailers expanding north of the border could leave some wondering, “What’s the matter with Canada?” But the short answer is: Success in Canada is not one size fits all. Some retailers, notably Walmart, are doing just fine and even expanding.

Walmart is opening 11 new supercenters in Canada this month even as Target beats a hasty retreat, closing all 133 stores there a little more than a year after entering the market to much fanfare. (Target TGT -0.63% has since fired its CEO, retooled U.S. operations and after announcing the Canadian closures, new CEO Brian Cornell has candidly acknowledged the many mistakes made in the expansion.)

The Bentonville, Arkansas-based retailer, however, continues to do well there. During the company’s call with analysts to discuss third quarter results, CEO Doug McMillon said, “I’m especially pleased by the sales improvements this quarter in Canada, both sequentially and over last year. The investments we’ve made to remodel our stores and drive supercenter expansion are resonating with customers.”

Why does one mass-market discounter succeed where another has failed? There’s no single answer, according to retail consultant Neil Stern, partner in Chicago-based McMillanDoolittle.

First, it got there first. Walmart entered Canada in 1994 when it purchased 122 Woolco stores. Target waited until 2011 when it bought 220 former Zellers stores, locations considered to be outdated and fated to under perform based on that alone.

Second, Walmart took its proven strategy in the United States to Canada by opening discount stores there first and then followed with the larger supercenters, said Stern. And while a 100,000 sq. ft. store isn’t exactly starting out small, compared to the 200,000 sq. ft. supercenters the company later opened it’s definitely smaller.

Walmart’s early entry also ensured that competition was much less intense. “Since then, Loblaw has significantly upped their non-food presence and of course, Target has Walmart to contend with,” Stern said.

And perhaps most importantly, Walmart runs its Canadian stores through its international division. Said Stern, “It is not a satellite of the U.S., but understood to be a different country.”

In that same vein, Walmart brought its everyday low price strategy to Canadian shoppers with a consistent assortment. Target priced items higher in the Canadian stores and failed to bring its signature brands and style to the new market, enraging customers who had previously driven across the border and were not just familiar with Target, but had keenly anticipated its arrival.

Target’s failure does not mean that other companies will shy away from expansion there. There is a growing list of retailers expanding in Canada.

Nordstrom JWN -0.41% recently opened its first locations in Canada and brands on both sides of the economic spectrum are experiencing success as luxury retailers and fast fashion chains alike are growing. The one thing that brands such as H&M and Jimmy Choo have in common is experience operating internationally.

Like Walmart, each carefully considered the marketplace and its unique attributes. These businesses allow that Canadian shoppers are different than U.S. shoppers, that they are different than shoppers in any other country and are uniquely their own. Retailers who insult their customers with lesser offerings, as Target did theirs, will likely be sent packing.

All of that said, the population in Canada is not big enough to support multiple retailers operating similar formats. Competition is fierce and even Walmart has stumbled. The company’s Sam’s Club wholesale concept never got beyond six locations in Ontario and pulled out of Canada in 2009.

In contrast, Costco had 88 stores there as of Nov. 2014, with a goal of ultimately exceeding 110 locations.

“Sam’s failed in Canada so their track record is far from perfect. In Sam’s case, a very established and successful Costco made it difficult for a second wholesale club in that market,” said Stern. “I suspect that Walmart will be a buyer for many of the Target sites.”

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