Big retailers like J. Crew and Target are setting their sights on the Alberta market

Allison Wall lives less than five minutes away from CrossIron Mills, a megamall near Calgary that houses many large American retailers. Yet the 27-year-old Grade 5 teacher routinely drives more than four hours, across the border, to shop at the exact same stores that are in her own backyard. “When CrossIron opened, we thought, ‘Oh great, we won’t have to go to the States and buy our stuff,’” Wall says. But like many Canadian shoppers, she has found that isn’t the case, despite a Canadian dollar that has flirted with parity with the U.S. greenback. And so, every Thanksgiving, Wall drives south of the border – some years to Great Falls, Montana, and others, like this year, to Spokane, Washington – with her husband to purchase fall clothes and staples like shoes and socks, and every spring she heads to Las Vegas for some higher-end shopping.

Wall isn’t alone. Heather Climenhaga is an Edmontonian who shops across the border and plans to continue even as more American retailers, like Target, come to Canada. She says the product selection and pricing is that much better in their American locations. “Just because American retailers are coming doesn’t mean they’re going to stock the same product. I’m not convinced that Target Canada will be as good as Target U.S., and I say that based on past experience.”

J. Crew’s recent public relations fumble is emblematic of the pricing paradox that enthusiastic Canadian shoppers have run into. The preppy fashion retailer made headlines when it opened its first Canadian store in Toronto’s Yorkdale Shopping Centre in August, but they weren’t the kind the company was looking for. Despite a Canadian dollar above par at the time, the clothes in J. Crew’s first Canadian location and its new Canadian e-commerce site were priced noticeably higher than its American stores, especially when taxes and duties were factored in. The resulting media backlash forced J. Crew to announce it had reversed its decision to charge online customers in Canada for duties, instead offering a flat $9.95 shipping fee.

Clothing isn’t the only product for which Canadian consumers pay more. Wall says cellphone plans and groceries are noticeably cheaper south of the border. Some products, like greeting cards and books, display both the Canadian and American prices, making cross-border comparisons easy. Ironically enough, it’s the root cause of this conflict that is attracting so many American retailers to Canada in the first place. Kyle Murray, the director of the University of Alberta’s School of Retailing, says one of the reasons why both global and American retailers are suddenly attracted to Canada is precisely because of our strong loonie. “Part of the reason the American companies are coming to Canada is because they see the opportunity to have more pricing power,” Murray says. A stronger economy and higher consumer confidence means American retailers can enter Canada’s market and get away with charging Canadians higher prices. This unsatisfactory state of affairs has even attracted the attention of Canada’s minister of finance, Jim Flaherty. “We live in a market economy, and Canadians know the value and power of shopping around,” he wrote in a letter he sent recently to two Canadian senators asking them to investigate the issue. “If we want our consumers to shop here, we need competitive prices.”

That may not be in the cards for Canadian consumers any time soon, at least when it comes to the American firms making their way into our market. Take Target, the mega-chain with more than 1,750 stores in the United States that announced in January of this year that it would be opening its first stores in Canada by 2013. While Target spokesperson Sarah Van Nevel says Canadian shoppers can look forward to new lighting, wider aisles and better signage after Target finishes renovating the 220 Zellers locations it purchased for $1.82 billion, she won’t offer specific details regarding pricing. She can only say that the chain is still finalizing both the merchandising and pricing strategy for Canada. “When it comes to pricing, we’re still determining our overall strategy,” she says. “But we certainly understand that price is a critical part of guest shopping decisions and we absolutely plan to be priced competitively.”

Maybe that’s why Canadian retailers don’t appear to be intimidated in the least by the new kids on their blocks. One of those retailers is London Drugs, a company that opened its first store in Vancouver in 1945 and now has 21 locations in Alberta. According to Wynne Powell, its president and CEO, the first rule of retailing is that you can’t fight an opening. “The customer is going to go and try the newest retailer every time. You just have to give them time to try it,” he says. It will be business as usual at London Drugs, he says, even with the new competition. “Are we going to do anything different? No, because we already do that,” Powell says. “That’s our DNA. Our DNA is that we constantly challenge ourselves, we constantly change.”

It’s a similar story at Henry Singer, a high-end fashion retailer that has been in Alberta for 73 years. “We welcome the Americans coming in as competition,” says Jordan Singer, president of Henry Singer Fashion Group. He says the arrival of American chains has actually had a positive impact on his company by bringing greater exposure and attention to retail and fashion in general, and certain high-volume shopping districts in particular. Singer attributes Henry Singer’s longevity to its ability to communicate with its customers, a value the business is rooted in. “We’re in a relationship with our customers,” Singer says. He believes that strong local retailers are more in touch with the marketplace than their big-box American competitors. “They already have hundreds of stores; it’s not about being specific or making an individual feel like an individual. It’s kind of the opposite.”

That focus on customer service is a winning strategy, according to the U of A’s Murray. Whether they’re up against major American retailers or their Canadian counterparts, he says there are four main categories that retailers compete on: location, product selection, price and customer experience. It’s the last category that really matters these days, Murray says, noting customers are looking for a higher level of personalized service. “The retailers we see really exploding, grabbing a lot of market share and growing rapidly, are those that are offering a unique customer experience.” Murray says small retailers, which he defines as one to six stores, will have little trouble competing in Alberta’s shifting retail industry. “I think the opportunity for small retailers has really never been better.”

Competition coming from the other side of the border is hardly a new concept. Michael Going and wife Nan Eskenazi’s Alberta coffee house and bakery chain was just five years old when Starbucks pushed into the market, opening its first Alberta location in 1996 in Calgary’s Dalhousie Chapters location after forming an alliance with the bookseller in 1995. When Starbucks moved to Alberta, Going, the president and co-founder of Good Earth Cafes Ltd., knew that there was no going back. “We knew they were going to affect us and they did. There is no question about it.”

Not surprisingly, when Starbucks opened coffee shops close to already-established Good Earth locations, their sales figures often suffered short-term declines. In addition, because Starbucks “rolled out so many new locations so quickly” (something American retailers often do), Going says the American chain took good real estate opportunities away from smaller operators like him. But Going and Good Earth withstood the onslaught by focusing on their strengths. “Sure, it put some pressures and financial strain on us, but when you found and own and operate a company, you just do whatever you need to do to survive.”

What he needed to do was start franchising, something that wasn’t part of the company’s original plans. Today, there are 33 Good Earth locations across British Columbia, Alberta and Saskatchewan. “We felt that we needed to grow, not to overtake any of the multinationals or national chains but to be able to compete against them. Size and market share matters if you want to do that.” In September, Good Earth celebrated its 20th anniversary, and Going thinks the company’s staying power in the face of such strong competition is a credit to the initial concept (a coffee house with good food) and the co-founders’ backgrounds in business. “If you go up against multinational brands on their terms, you’ll probably lose,” Going says. “So you’ve got to find a way to be different – to find some niche, to be better, to have more of a connection to your customers.”

Going’s experience may be a useful lesson for today’s smaller retailers, who have to deal with the reality of new American competition. His advice for those going through what he went through 15 years ago is simple: take the competition seriously, differentiate your product as much as possible and be authentic. “Really, just understand who you are and what you do well, and then do what you do well more often,” he says. It’s a simple strategy that Albertan retailers may want to follow to avoid becoming casualties as more American retailers cross the border. After all, as Murray suggests, there will be blood. “Some retailers won’t survive,” he says. “I don’t know if those will be the American chains that will leave or if it will be some of the local Canadian firms.”

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