Big Lots Gets A Chilly Reception in Canada

Does Big Lots' decision to retreat from the Canadian market after only two years suggest there's a big chill under way for retail expansion north of the border? Big Lots made headlines with the 2011 $20 million cash acquisition of Liquidation World that would bolt on 89 stores to its existing 1,400 locations. With plans to expand to as many as 150 stores over time, the buy was seen as the next, natural phase of growth.

Yet two years later Big Lots is slinking back across the border, anticipating a fourth-quarter loss on operations between $38 million and $43 million and recognizing that continued pursuit of business in Canada "would not be in the best interests of our company and shareholders."

Other retailers have also declared that expanding into Canada would transform their business, and though a weak global economy can likely shoulder part of the blame for a failure to realize their audacious expectations, it's become clear that transferring a U.S.-oriented business model to our northern trading partner is not so cookie-cutter simple.

Wal-Mart has been in Canada for years following its acquisition of Woolco in 1994. While it has seen an increase in sales as it continues to expand its footprint, same-store sales are starting to falter, falling throughout the year as a result of what some analysts are blaming on Target's  entry to the market. 

Not that Target's expansion up north has been smooth: expenses are expected to reduce earnings in 2013 between $0.95 and $1.05 per share, a much wider hit than the $0.82 per share previously guided, which itself was nearly double the cost forecast Target made at the start of the year.

And while there are a host of issues that can be attributed to the woes reflected in the results of Sears Canada, it's inescapable that the sins of parent Sears Holdings  are also being visited on the offspring despite -- or perhaps because of -- its long tenure in Canada.

Yet from J.C. Penney and Kohl's, to Nordstrom and J. Crew, Canada is often seen as an easy expansionary route because it allows retailers to use existing supply chain networks without committing a lot of money to building out new infrastructure.

Which is why it's not all cold and gray there. Lowe's said its Canadian division delivered double-digit comp growth following the installation of a new management team, but then again it still only has 34 stores in Canada despite being there since 2007 and after failing to acquire rival Rona last year.

I don't expect we'll see Wal-Mart or Target abandoning the Canadian market, but as Wal-Mart found out in entering and then abandoning China, moving to a new country is not always a matter of wash-rinse-repeat. Still, on a mall square footage basis, Canada, at around 14.6 square feet per capita, remains underserved compared to the U.S., which has around 23.8 square feet per capita.

Yet as Big Lots found out, even though we share the world's longest border between two countries, it doesn't always mean outcomes will be the same. Not every expansion into the Canadian wilderness will meet with success, and we can expect we'll see others finding their reception to be just a chilly.

Cold, stark reality
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