Caution key to U.S. expansion

April 1st, 2016 | News

Low loonie among reasons retailers slow moving into Canada

Some U.S. retailers are tapping the brakes when it comes to their Canadian expansion plans, but others are proceeding full steam ahead.

The manager of Winnipeg’s largest regional shopping mall — CF Polo Park — said one U.S. retail chain that was planning to open a store in the mall this summer informed mall officials last week it has put those plans on ice.

“They said, ‘You know what, all of our plans are on hold right now,’” Deborah Green said. “They want to, I guess, kind of wait and see how it goes.”

Green said she’s heard rumblings some U.S. retailers are worried about the low value of the Canadian dollar and the impact that would have on their Canadian earnings.

“By the time they convert it back to U.S. dollars… their $100 sale only puts $75 in their pocket,” she noted.

That’s not the only reason some are rethinking their Canadian expansion plans, she said. She’s heard others are also worried about the struggling Alberta economy, and about Target’s disastrous entry and subsequent withdrawal last year from the Canadian market.

However, Ken Yee, senior vice-president of the Winnipeg office of Cushman & Wakefield, said he knows of at least four U.S.-based retail chains — Marshall’s, Dollar Tree, Five Guys Burgers and Fries and Blaze (a quick-service pizza restaurant chain) — that are still pursuing expansion opportunities north of the border.

“The Dollar Trees and the Marshalls — they’re still looking to get positions in our marketplace and across Canada,” Yee said. “And Blaze is looking to open at least a couple of outlets here, although nothing has been announced yet. Five Guys is already here, but we also continue to look for additional locations for them.”

A Marshall’s spokeswoman said in an email the chain doesn’t have any plans to open any more outlets in Winnipeg in 2016. She wouldn’t comment on its plans beyond this year. The chain currently has just two stores in the city, but Yee said it makes sense for it to have at least four.

He noted Saks Fifth Avenue Off 5th — the discount version of high-end fashion retailer Saks Fifth Avenue — also announced late last year it plans to open 25 stores in Canada over the next three years, including one in the Outlet Collection Winnipeg fashion outlet mall now under construction at the corner of Kenaston Boulevard and Sterling Lyon Parkway.

He said a host of other U.S.-based chains are also rumoured to be interested in becoming tenants in the $200-million Outlet Collection Winnipeg mall, and he doubts those plans have changed.

“Canadian shoppers have defined themselves as being very price-conscious,” he explained, adding many of them want quality, brand-name products but don’t want to pay full price for them.

“I wouldn’t even call it a niche market anymore. It’s a good part of our market. And that’s where Off 5th comes into play, that’s where Marshall’s comes into play and where Winners comes into play. You get all of this brand selection and the quality, at discount prices.”

He said he suspects the U.S. retailers that are delaying their Canadian expansion plans are likely doing so because they’re focusing on opening more stores in their home country. He noted U.S. retailers began expanding into Canada during the last global economic recession because there was no opportunity to grow their operations south of the border. Now the U.S. economy is finally rebounding, that’s no longer the case.

“So now they’re going to address the American consumer,” he added.

John Pearson, a commercial real estate broker/developer with Shindico Realty Inc./I.C.& I Properties Inc., agreed some U.S.-based retailers are being more cautious these days with their Canadian expansion plans.

“But I don’t see it (expansion into Canada) halting or stopping,” he added. “Things take a little longer to get done, but we’re still busy, and transactions are still happening.”

He also agreed it’s more than just the low-valued loonie that’s causing U.S. retailers to proceed more cautiously.

“It’s cautiousness in the economy in general, it’s cautiousness in the Canadian dollar, and it’s cautiousness because of Target.”

He said Target’s failure here was solely due to its own mismanagement. But because it happened, other U.S. retailers are being extra-careful to ensure the same thing doesn’t happen to them.