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Don't Fail When Expanding North
From The Buxton Co
The Canadian retail market is in an era of major change. U.S. retailers are driving a steady retail boom in Canada as they are lured in by untapped potential, higher retail productivity rates and an underserved consumer base with an affinity for American brands.
Suburban areas like Calgary offer opportunities for real estate expansion as they are growing rapidly. In fact, between 2014 and 2016, Canada will add an additional 42 centers containing nearly 16.1 million square feet of new leasable space.
Another main driver of U.S. retailers' interest in expanding north is the fact that 90% of the Canadian population is within 100 miles of the U.S. border and frequently cross-border shop at the brick and mortar stores located in cities such as Detroit and Cleveland.
The U.S. retailers that can sustain stores in the Canadian market will grow their share of Canadian consumers' wallets, as the convenience of shopping local increases shopping frequency.
However, success in the Canadian market ultimately requires a deep understanding of consumers and a solid real estate and marketing strategy.
Opening Doors in Canada Is Harder Than It Seems
Retailers cannot have the mentality that haphazard expansion into Canada will be successful. There must be thorough evaluation of who your competitors are in this new territory, where they are located, whether they are similar in concept and whether they are being embraced by consumers.
That's why the brands who have been and will be successful ask themselves, "who are my established competitors north of the border and how do I out-position them?" That is a hard first step to take, but it's an important one.
Additionally, regardless of the fact that the U.S. and Canada are geographically close and share a common language, there are some major obstacles that require strategic planning and foresight, such as cultural differences, distribution limitations and trade regulations.
U.S. retailers need to take into account the ways that Canadians think and shop differently from Americans. Due to cultural and demographic differences, retailers need to optimize and customize their product mix on a store-by-store basis to meet consumer demands.
Another important point to note is that in order to find Canadian sites, many U.S. retailers will have to find existing locations, rather than new construction, or expand through acquisitions. And retailers migrating north can't have the same time-to-market expectations that they do with the U.S. retail real estate model. Opening 20 locations in a year in Canada is almost impossible and even four or five is lucky.
The failure to follow these basic principles is exactly what caused Target's $5.4 billion Canadian blunder. Target bought the 220 Zellers' leases and began their market entry in a rushed way — opening 124 stores within 10 months. Additionally, Target's Canadian sites were out of the way and weren't located where Target's typical customers tend to shop.
The Bottom Line
As there is a strong push among U.S. retailers to extend their reach across the border to Canada, Buxton is helping retailers answer everything from the preliminary questions of, "Could we exist in Canada and what would our customers look like?" to, "What is the blueprint for where and how we can grow in this market?"
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