BAXTER MAGAZINE - Focus on Canadian Tire

by Kent Edward Baxter, Michael Dahlike, Lisa Hollett, Garrick Robertson, and Diana Sahari

FOCUS ON CANADIAN TIRE CORPORATION:

A Strategic Management Case Study

Note: This project was composed with the time element of the early 1980's in mind, in the event that any references are not familiar.

ENVIRONMENTAL SCAN

- From 1979 to 1982, the time that Canadian Tire owned the McEwan’s hardware company of Australia, the Australian Foreign Investment Review Board (F.I.R.B.) prohibited more than 50% ownership of businesses in that country, which prevented Canadian Tire Corporation from expanding its control over that firm. As Canadian Tire held a 36% share in McEwan’s, it meant that the plan to ‘conquer’ the Australian market would have to be abandoned. Another factor had been McEwan’s losses over a two-year period dampening the enthusiasm of company management to go ahead with any elaborate pans for the McEwan division.

- Antitrust legislation has existed in some states of the United States, prohibiting exclusive dealings between distributors and dealers. Such a factor meant that the exisitng setup that had been in place in Canada for many years could not be replicated in the United States.

- In 1982, Canadian Tire Corporation sold off the investment in McEwan’s so that it could turn its attention and resources into making an American expansion, with White Stores.

- Those parties who are interested in the continuing success of Canadian Tire Corporation include loyal customers, suppliers (who wished to receive revenue and have their products succeed), shareholders (with considerable investments in the company), employees, management, and landlords.

- Those interested in the failures of Canadian Tire Corporation are the competition to the company, namely: Zellers, Home Hardware, Pro Hardware, Dominion Hardware, K-Mart, Towers/Bonimart, Miracle Mart, Woolco, and Aikenhead’s.

- As many of Canadian Tire’s stores are considered highly valuable real estate, related stakeholders would be both the owners of the land or properties on which the stores are situated. Those businesses that share the property or are close to the stores, such as banks, restaraunts, and smaller-scale stores, clearly capitalize from the existance of Canadian Tire operations nearby.

- The consumers in the areas that White’s stores are located presently are also stakeholders, even before a deal is finalized.

- Canadian Tire Corporation has to maintain some of these stores in their current areas, but also try to garner more customers in the more commercial areas in order to compete with Sears and Wal-Mart (in the United States).

- When Canadian Tire initiated a plan for growth, the agenda for international operations would mean an expansion into a country with an English languange and similar cultural component, namely Australia and the United States.

- Canadian Tire relies heavily on the expertise of well-trained management to run its stores effectively. Much of the success of Canadian Tire has come from the fact that there have never been any major failures with its store managers, although it takes a considerable amount of time to train people for a managerial capacity.

- Overall, the Canadian Tire Corporation has developed a potent work force from well-trained and well-compensated employees.

- The fact that there is a similar language does not mean a similar culture so Canadian Tire has to invest in research and development to ensure that the needs of the region are serviced.

- Product Culture: The types of cars driven in Canada may be different from what is driven in the United States, be it in terms of models, engines, body styles, companies, availability or popularity.

- The ‘do-it-yourself notion’ is a plus that Canadian Tire can capitalize on for the sales of car parts, likewise because there may be a recession this should be even more attractive to consumers.

- With the White’s acquisition perhaps a television ad campaign should be the predominant form of advertising, with the potential of reaching a larger audience.

- The product mix should reflect what the American customers want and not just the regular Canadian Tire Corporation mix of products offered in Canada.

- Although the Sunbelt is the most viable area in terms of demographics and economics, other areas should be included in the corporate strategy.

- Some of the leased land and buildings should be relinquished in order to purchase lands in more commercial areas, such as the Dallas –Fort Worth area.

- Considering the price of the acquisition compared to that in British Columbia, Canadian Tire Corporation could afford to Make significant upgrades to White’s strategy-structure-performance image.

- By 1981, the traditional predominance of males making up Canadian Tire customers had declined, so there was an equal split between males and females as customers.

- Demographics acquired for Canadian Tire suggest that the White’s acquisition has the potential to reap positive benefits - there is an expected 12.9 % and 14.2 % expected population growth in Dallas and Houston from 1980 to 1984 respectively while the overall U.S. average was 5.2 %.

- The Canadian Tire Corporation has usually dealt with a homogenous cultural market in Canada. The Sunbelt states (where Canadian Tire proposes to estabich itself) are comprised of a mix of cultures. Unlike Ontario and western Canada, the Sunbelt states have somewhat more racially segregated populaces, including whites, blacks and Mexicans (Hispanics) who had varying levels of skill in the English language. Many corporations have had to adopt their corporate image to reach out to each of these groups, or at least the ones in the market segment they catered to.

- The Sunbelt area has a very fast growing populace that is very dynamic and has a greater rate of change than the Canadian market.

- Many White's stores reside in local neighborhoods rather than being in the prime retailing areas, namely centralized urban locations.

- The northeast US market has a very similar demographic composition to Canada, not quite like the south, which as mentioned has a considerable number of Hispanic residents.

- Another factor to consider is the difference in climate between Canada and the American Sunbelt. The NorthEast, with its close proximity to Canada, would be easier for marketing the product line that is offered in Canadian stores.

- Within Canada, approximately 85% of the population live within a 15-minute drive of a local Canadian Tire store.

- The first years of operation for Canadian Tire showcased innovation on many degrees, even on simplicity. An example was in 1937, when the usage of roller skates by employees moving products provided quicker customer service time.

- In 1963, the corporation had adopted computerized accounting and inventory control procedures, a new feature at the time.

- The 1970's saw new warehousing and technological controls implemented. A new distribution system arose, with automation being the focus of the operations. New warehouses for the company featured technological features such as robotics, conveyor belts, and computers.

- Computers were given a major role in providing greater operational standards. Both retail operations and warehoused had their inventory levels monitored by means of computers. Levels of inventory are carefully tracked, with automatic re-order points established. Such technology allows for an outlet to receive a shipment within a two-day period.

- Most moden businesses, such as Canadian Tire Corporation, are moving from ‘old fashioned’ communication and management systems to new technology based systems using databases and paperless, i.e. electronic communication.

- The White's operation is older than Canadian Tire Corporation 's operation. Many White's stores, being 20 to 30 years old, require renovation. The 4 warehouses that White’s own would likely not be as advanced as the ones Candian Tire owns in Canada.

- Based on its employment of technology, Canadian Tire Corporation should be able to incorporate this element into the White’s operations to improve efficiency, and customer service.

- Utilizing the fully automated warehouse syetem should also reduce storage costs in general.

- As economics is defined as being ‘the allocation of [scarce] resources’, Canadian Tire, in order to retain as well as expand its position in the retail market, has expanded its overall product line to lend credence to its ‘more than just tires’ slogan. More items are therefore more likely to be purchased if a greater selection is offered.

- The Canadian Tire catalogue, published twice yearly in both English and in French, keeps Canadian consumers well-informed of the entire product lineup, and the availability of goods for each season.

- In order to lure customers back to their stores, Canadian Tire employed ‘Canadian Tire Money’, a system of discount coupons given to customers after each cash purchase, starting in 1958. These coupons could be combined with cash for making future purchases.

- During times of an economic downturn, such as the 1981 recession, the product offerings of Canadian Tire, namely in home improvements, proved to be a success when people who sought renovations, yet in the face of the economic slowdown, formed the ‘do-it-yourselfers’ market.

- In relation to the above recession, prices remained reasonably low in times of high interest rates, so that ‘necessary items’ could be purchased at a fairly steady level.

- Between 1977 to 1981 Canadian Tire had increased its net income approximately 82% while only increasing their associated stores from 314 to 333, an increase of only 6%. Canadian Tire's main ability to earn money in Ontario has been its efficiency with its dealer-run network.

- Canadian Tire Corporation's main advantage with the White's stores would be to adapt the dealer-run network system to the stores to achieve similar increases in net income while utilizing the current White's infrastructure to the greatest degree.

- The Sunbelt states have been seeing a surge in competition in recent years. Canadian Tire has typically competed against only a handful of competitors in Canada.

- Canadian Tire Corporation has more direct competition in the Sunbelt states because of a fast growing niche market.

- Overall, Canadian Tire Corporation has more in-direct competition because of large department stores carrying the same products that Canadian Tire carries.

- When White Stores were purchased by Canadian Tire, company planners forsaw the need for renovations to take place in the newly-aquired stores, so an appropriate sum of money was therefore set aside for this purpose.

SWOT

- With a fairly loyal customer base, Canadian Tire is expected to retain that loyalty. Since the company has been in business since 1922, the company isn’t likely to be made redundant any time soon. Upholding company fixtures, such as the store catalogue, and Canadian Tire money are keys for the company to remain a force in the market.

- As long as Canadian Tire can keep up its existing operations, as well as elements that its competition lacks or has fewer of (automotive servicing and petroleum sales), it will have a significant advantage for the company in the years ahead.

- Employee loyalty is high, with motivation given for employees to do well for the company as a whole.

- A common management plan, set by the corporation (rather than dealers) ensures that customers and suppliers nationwide receive equal and reliable service and treatment in regards to company operations.

- The stores of Canadian Tire offer consumers approximately 55,000 different products in Automotive Accessories, Car Parts and Service, Home Improvements, Housewares, Hardware, Gardening, Outdoor Recreation and Sporting Goods. With such a selection and experitise, stakeholders in White’s are ensured a capable and reliable ownership for the company.

- The Canadian Tire Corporation encourages both customers and employees to participate and make contributions to worthy causes. An example would be the Canadian Tire Foundation’s plan to raise money for families in need across Canada. This operation help gives the company a positive image.

- Compared to the locations of Canadian Tire Stores, the locations of many of the White’s stores are not the best, namely being in an urban setting, rather than in a suburban or a small-town environment.

- Canadian Tire has no experience in other languages, cultures, and climates. The company would have to study and absorb all aspects of the new region in a thorough manner, as not to make mistakes in such a volatile environment, which could jeopardize the operations significantly.

- The significant losses by White’s stores can be considered a liability in some respects. Even though Canadian Tire can afford to purchase and refurbish the stores, the lack of an immediate available profit will mean that it will take a longer period of time plus effort to make a profit, or at least break even.

- In regards to the Automotive Repairs area of White’s, it should be mentioned that the company is behind Sears Auto, who have more automotive work bays per store, 16, as compared to 5 or 6 maximum at White’s. An investment may be required to make White’s fully competitive with Sears.

- Canadian Tire would be trying to enter a market with already established businesses in same market, namely Home Depot, with bigger (larger-scale and industrial) or similar products, as well the United States being more likely to have a higher number of direct competitors than Canada. Examples include Montgomery Ward, Builders Square, and Handy Dan.

- As the Sunbelt is fairly competitive and dynamic, Canadian Tire Corporation is not used to competing with large companies that are suddenly new to them. Canadian Tire would have to compete with both large and small specific companies (found in the Sunbelt) that specialize in similar product lines.

- To do well, Canadian Tire would have to have a greater understanding of all aspects of the American Corporate culture in this region, as well as a strong knowledge of all major competitors.

- As Sunbelt states are generally more sophisticated and affluent, many people may not be “do it yourselfers.”

- With Canadian Tire being the new owners of White’s, they need to understand the operations completely, requiring a new image and advertising so not to offend and make the company look like a united one, almost family-like, their family company aspects dominating the image.

- The fact that the U. S. has different cultural attitudes could prove to be quite troublesome, especially if Canadian Tire decides to introduce pruducts or elements in the White’s stores that are of a greater degree of familiarity to Canadians.

- The lack of a politically friendly system in some states, such as Anti-Trust Legislation, may jeopardize Canadian Tire’s entry into the American marketplace.

- In the Sunbelt, American patriotism may be considered strong, with a potential backlash against the Canadian ownership of an established American company possible if the average consumer is influenced politically.

- Since Canadian Tire has kept aware of trends arising in the retail sector, a counter-attack has been made, in the situation of Woolco and K-Mart’s operations in Canada, namely an ‘opening blitz’ in new areas. Canadian Tire is opening new stores before Zellers, Woolco and K-Mart can, in order to secure a base in that area. Where current facilities exist, improvements to stores are the key to keeping customer support. For example, over the past few years, many stores have been extensively renovated, moved to larger, newer, more accessible locations, or reorganized. An example would be the relocation of a store’s Auto Centre to a new location, while the store is devoted to non-automotive sales, as has been done to certain locations.

- When stores such as Fields leave the Canadian retail scene or have closed a location (such as a K-Mart in Kitchener), Canadian Tire and Zellers more or less have fought to capture the vacated market share left behind. The sooner that Canadian Tire can capitalize on a vacancy in a market, the better. This includes the United States, where White’s has been, and should continue to be a major player after Canadian Tire purchased the operations.

- As anyone who has followed trends in Canadian retailing for the past several years realizes, American-owned Canadian retailers, such as Sears, S.S. Kresge (K-Mart), and F.W. Woolworth (Woolco) have been following examples set by their American counterparts. Examples include company uniforms, usage of common slogans, a cleaner, neater and brighter store appearance in order to make stores more attractive. From what was discovered with K-Mart, ‘nostalgia isn’t always popular’, came to light when some stores were retaining the shabby appearance of 1960’s stores, while most of the competition was remodeling from time to time.

- Complacency: Although a company should pride itself on its successes and stature, it should not take these aspects for granted. Efforts should be made to improve in any way possible, and pessismism should be avoided at all costs. A retailer should take note of the case of Montgomery Ward’s, a department store chain in the United States which fell considerably behind its direct competitor, Sears, after it’s head of operations, Sewell Avery, decided not to allocate funds for continued improvements and developments. Avery’s decision came after he believed that such actions were not worth the effort, since the post-war years were assumed to be uncertain, perhaps disastrous, economically, when in fact they evolved into a boom period. In other words, any business should be prepared for anything.

Textbook: Strategic Management: Text, Readings and Cases (Fifth Edition) by Paul W. Beamish and C. Patrick Woodcock, McGraw-Hill Ryerson, Toronto 1999.

Case Study No. 4: Canadian Tire (Condensed Version) Pages 340-349 By Mark C. Baetz and Ralph Troschke, School of Business and Economics, Wilfrid Laurier University, Waterloo, 1986. (Condensed Version 1989)

A focus on Canadian Tire Corporation’s use of databases to organize their information.

A site with information on the technical aspects used with the Candian Tire inventory system.

FOCUS ON CANADIAN TIRE CORPORATION:

A Strategic Management Case Study

ENVIRONMENTAL SCAN

SWOT