Local discount retailers aim to target a tight niche, keep real estate expenses sustainable and pass savings on to customers as strategies to survive a rising wave of competition from their larger U.S. counterparts.
U.S. giant Target plans to open 15 B.C. locations within the year, and this week Wal-Mart confirmed plans to open 73 new Canadian stores and hire 4,000 new staff within the next two years. The world’s largest retailer did not disclose how many of those stores would be in B.C.
It’s in this retail landscape that FHC Holdings Ltd. owner Jason McDougall spent more than $10 million in May to buy 57 Fields stores and the exclusive right to the brand from the Hudson Bay Co. (HBC).
He wasn’t interested in the remaining 84 Fields stores in western Canada, which HBC is now closing.
“If you plot on a map where Wal-Mart is, we didn’t take Fields stores near them because the big box guys have made those Fields stores unprofitable,” McDougall told Business in Vancouver.
Stores McDougall didn’t want to buy included two Fields stores in Kamloops and nearly 20 Fields stores in the Calgary-to-Edmonton corridor, where he said there’s a proliferation of Wal-Marts.
McDougall plans to keep the average footprint for his Fields stores at a manageable 8,000 square feet to further differentiate his chain from big box competition.
Walmart plans to open its smallest Canadian store (50,000 square feet) in Prince Rupert later this year. Its largest Canadian stores are more than 200,000 square feet.
“We’re like the little department store in these towns, but we have a discount twist,” said McDougall, who is a past BIV Top Forty under 40 winner. “We’ll have the most basic picture frames. We won’t have 60 different options.”
Buying stores in smaller communities like Ashcroft, 100 Mile House and Chetwynd, where real estate is more affordable, will help McDougall keep lease costs low.
Joe Segal, who opened the first Fields store in Vancouver in 1959, owns what he called a “token” stake in the company. He said McDougall has the determination and the smarts to make the chain a success.
Segal took Fields public in 1968 and rapidly expanded the chain before Toronto bankers shocked him, in 1976, by agreeing to finance his $50 million purchase of Zellers, which he said then generated $300 million in annual revenue.
Segal jokes that the acquisition was similar to a goose swallowing an elephant. He increased Zellers’ annual revenue to $800 million in 1979, when he sold the company to HBC and made enough of a profit to kick-start a career as a real estate developer.
HBC now has ambitions to be viewed as a high-end retailer – something largely responsible for its decision to spend millions of dollars to renovate its iconic Vancouver store.
It also sold leases for 220 Zellers stores to Target last year for $1.825 billion. Target then sold 39 of those Zellers leases to Wal-Mart.
While Target and Wal-Mart have the economies of scale to keep operating costs low, which Segal stressed is key to being a successful discount retailer, discount department store chain Army & Navy limits its expenses by owning four of its six locations.
For example, Army & Navy owner Jacqui Cohen owns the lion’s share of the block bounded by Hastings, Cordova, Carrall and Abbott streets – holdings that include parking lots, a head office, a hotel and her chain’s original 93-year-old store.
“I have plans to one day redevelop that block with an Army & Navy store within it,” Cohen told BIV June 26. “It won’t be in the next year.” •
