TORONTO — Shrinking the size of its vast stores is not one of Canadian Tire’s plans, even as it strives to shift a bigger portion of its business over to digital sales.
Retailers from Best Buy and Staples to Sears have closed outlets or opened smaller stores as their outlets have faced competition from online and other retail and their core square footage grew less productive.
And though Canadian Tire’s online sales still comprise a tiny part of the overall business, chief executive Mike Medline doesn’t see the company’s vast stores shrinking their footprint any time soon.
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“Every square foot in Canadian Tire is being fought over,” Medline said in an interview after the company’s annual meeting Thursday. “An issue I have with most of our dealers is, ‘If only we had another ten thousand square feet’ … I don’t think we ever overbuilt our store (network).”
It’s a positive indicator for a company that has spent several years investing heavily in digital commerce initiatives and is spending a significant portion of this year’s $600 million to $625 million in capital expenditures on digital technology investments: all retailers with big stores want their online operation to integrate with stores and heighten overall sales, not transform bricks and mortar outlets into dusty mausoleums. Indeed, the company’s smallest store format, a 6,100-square foot Canadian Tire Express outlet, which offered about a quarter of the goods available at the chain’s biggest stores, failed to take off after a two-year test pilot in Toronto and closed down last month.
“We cannot rest on our laurels, or be complacent,” Medline told shareholders, despite a year of increased store productivity, profitability and strong sales. “Digital disruption is happening on a scale larger than any of us could have imagined, and no industry, including retail, will be immune from those changes.”
The company is using its Ottawa-area stores to test out new ideas for its click and collect program, in which customers buy an option and pick up goods in the store, to determine how to optimize the online business. One of the ideas being tested is putting a discrete area away from the standard customer service desk for customers to pick up Internet orders. E-commerce sales “are growing by leaps and bounds, off a relatively small base,” Medline said, but he did not elaborate further on its performance.
The news came as Canadian Tire posted higher first-quarter sales and earnings, which rose to 90 cents per share in the period ended April 2, up from 88 cents in the same period a year ago. That beat analysts’ mean estimates of 84 cents per share, according to Thomson Reuters.
Overall sales were hit hard by the slide in petroleum prices; consolidated retail sales rose just 0.8 per cent to $2.56 billion from $2.51 billion due to a nine per cent dip in gasoline sales.
Excluding petroleum, consolidated retail sales were up three per cent.
Same-store sales, an important measure of performance that strips out the effects of square footage growth, rose one per cent at Canadian Tire’s retail stores. At the FGL Sports division, which includes the Sport Chek chain, same-store sales rose 7.6 per cent and at Mark’s they climbed 0.8 per cent.
The retail margin rate, excluding petroleum, rose 46 basis points and the retail segment’s income before income taxes rose 4.8 per cent to $20.6 million, up from $19.7 million last year.
“We believe investors will be relieved that Canadian Tire was able to improve its margins despite the pressures on the Canadian consumer, weakness in Alberta, and the decline in the Canadian dollar,” Peter Sklar, analyst at BMO Financial Markets, wrote in a note to clients.