More US Retailers Are Setting Their Sights On Canada

Ample growth opportunities, a ready customer base and untapped profit potential are expected to drive U.S. retailers into Canada during the next couple of years.

The trip north is an easy way to mount international expansion while keeping a very close eye on its progress. The similarity of customers on both sides of the border makes big changes to stores and merchandise generally unnecessary. And the idea of a less crowded retail field eases competitive pressures and the difficulties of finding new space in U.S. markets.

"The U.S. market is largely tapped out in terms of expansion opportunity and consumer demand has softened," said Madison Riley, managing director at retail consulting firm Kurt Salmon. "At the same time, the Canadian economy did not suffer as much as ours and there are virtually no regulatory hurdles."

This week saw two major retailers take big steps in their Canadian expansion.: Target Corp. (TGT) on Thursday said it chose 105 sites for potential Canadian stores, which would be its first international expansion. The locations were culled from 220 Zellers leases it bought the rights for in January for C$1.8 billion, with a second wave of selections to come in September. Target sees its mix of groceries, apparel and home goods as a good fit for the many Canadians who are price conscious, but seek value.

Also on Thursday, Big Lots Inc. (BIG) said it planned to buy Canada-based closeout merchandiser Liquidation World Inc. (LQW.T) for about C$1.8 million, also in its first move outside the U.S. Big Lots plans to buy the 92 stores that Liquidation World operates and "will probably get the opportunity to grow" the operation to 150 stores, Chief Executive Steve Fishman said.

Other U.S. retailers with plans to enter Canada include Express Inc. (EXPR), which expects to open its first store in September and have five to seven stores open by the end of January. The apparel retailer, which operates 591 stores in the U.S., sees Canada as "a location with wonderfully cosmopolitan cites and fashionable people that's going to be a great market for us," spokeswoman Amy Hughes said. The company believes it can have as many as 50 stores in Canada in the next five years.

On the higher end, Nordstrom Inc. (JWN) is looking at sites in Canada, but so far hasn't found a fit, spokesman Colin Johnson said. The retailer said the majority of its online international customers are Canadian and that many Canadian shoppers already cross the border to visit its stores.

With a move into Canada, the companies would join a number of U.S. retailers already doing business in the country, including Wal-Mart Stores Inc. (WMT), Sears Holding Corp. (SHLD), Guess Inc. (GES) and TJX Cos. (TJX).

TJX said it receives its highest financial returns from its Canadian operations, where it has Winners, HomeSense, STYLESENSE and, as of March, Marshalls stores, which the latter seen growing to as many as 100 locations.

"We have found that Canadian customers are not very different from those in the U.S.," TJX spokeswoman Sherry Lang said. "Generally what plays in U.S. retail plays in Canadian retail; customers really appreciate value."

U.S. mid-market department stores are one type of retailer that have so far been quiet about heading north, despite chatter that it is a logical next step for them.

Kohl's Corp. (KSS) has "a number of successful stores on the Canadian border and will continue to assess opportunities to best serve our customers in markets where we have backfill opportunity and in markets not currently covered by the existing Kohl's store base," spokeswoman Vicki Shamion said. "We will continue to explore opportunities to gain market share through expansion when and where it makes sense."

"While international stores remain a long-term interest of the company, we have no current plans," Macy's Inc. (M) spokesman Jim Sluzewski said.

A spokeswoman for J.C. Penney declined to comment, saying the retailer has not publicly addressed the topic.

Canada does seem to offer a potential bounty, if U.S. retailers execute well. Expressed in U.S. dollars, per-capita retail spending in Canada is equal to the U.S. As recently as 2004, Canadians' retail sales per capita were $8,000 while Americans' spending power was 50% higher, at about $12,000 per capita, according to a study by real estate brokerage Colliers International. The strong Canadian dollar currently is also appealing, as are shopping center sales that average $580 per square foot in Canada compared to $309 in the U.S., Colliers said.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com

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