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PRICE WARS

Canada’s retailers borrow Wal-Mart’s low pricing strategy

By Susan Thorne

The Bay and Zellers are just two of the Canadian chains going head-to-head with Wal-Mart.

To compete against Wal-Mart and one another, Canadian discount and traditional department stores are borrowing some of the U.S. giant’s tactics, including everyday low pricing (EDLP).

This is what the customer wants, these retailers have decided, as they try to re-create Wal-Mart Stores’ success in Canada for themselves (see story Wal-Mart Canada grows). So it looks as though future competition for shoppers will be built around sustained discounting to a greater degree than ever.

The practice of EDLP is much newer in Canada than in the United States. Ed Strapagiel, senior vice president at Toronto market research firm Kubas Consultants, traces its arrival to Wal-Mart’s 1994 Canadian debut.

“Back then, everybody was used to the high-low model, where you had weekly fliers, loss leaders and specials,” he said. “For the longest time, until Wal-Mart, that is how you did retail in Canada.”

Canadian customers loved EDLP; Price-Costco and Home Depot as well as Wal-Mart have used the model with great success, offering most of their merchandise at a consistently discounted price point instead of relying on sales to draw shoppers.

The introduction of EDLP may have changed shopper preferences in Canada, as it has in some parts of the United States. The presence of a Wal-Mart store in a community creates a “market spoiler effect,” according to Stephen J. Arnold, professor of marketing and retailing at Queen’s University, Kingston, Ontario. Once people have experienced EDLP, they get a lot less excited about periodic sales, he said. Arnold has done studies in Atlanta, Chicago and Kingston, both before and after the opening of a Wal-Mart store; in each case, after a few years of exposure to Wal-Mart, a higher proportion of shoppers ranked EDLP as an important factor in their shopping, while fewer participants said they went shopping because of sales and promotions.

Now EDLP is becoming the mantra of other Canadian department store leaders as they introduce their own enhanced-value offerings for shoppers. The Bay, well known for its scratch-and-save purchase discounts and other sales, initiated “Bay Value” deals in October on 180 moderately priced items to be offered at everyday low prices, many of them day-to-day purchases selected by a customer focus group, such as T-shirts costing C$13 ($8) and C$8 pillows.

Company research shows that shoppers are hard pressed both financially and in terms of shopping time, and the new pricing is intended to address those needs, said Neil Fedun, senior vice president of marketing at The Bay.

“The customer can have assurance that those prices will be there all the time, so she doesn’t have to worry about getting there on the weekend for a sale,” he said. “We have tested this, and she wants to shop that way.”

The Bay also unveiled two new lower-priced private labels: Outline (fashion basics such as turtleneck sweaters) and Market Square (nonapparel items). Together with the ToGo and Mantles labels, these initiatives move The Bay closer to Sears in price point, Fedun said, and give greater competitiveness in suburbs and smaller communities.

Toronto-based Zellers, a subsidiary of Hudson’s Bay Co., having Canada’s largest complement of discount department stores (350 across the country, mainly in shopping malls), competes head-to-head with Wal-Mart in many product categories and began emphasizing EDLP last year.

“The customer is saying, ‘I don’t want to play a game to get value when I shop. You have to make it simple to do business,’ “ said David Strickland, senior vice president of marketing at Zellers. The retailer has responded by moving a larger share of total inventory to an EDLP system (96 percent, versus 87 percent two years ago) and by stressing the price message more explicitly in its marketing.

Sears Canada is introducing its EDLP program on some key products this year, said Rick Brown, senior vice president of strategic planning. The move is partly customer-driven — “More and more consumers are unwilling to wait for sales,” he said — but it is also fueled by the increasing prevalence of EDLP pricing in Canada.

“More retailers in the marketplace are offering EDLP today,” Brown noted. “I don’t think sales have lost their credibility, but new retailers coming into the country have brought day-in, day-out low pricing, and it’s becoming a trend across the board.”

Brown points out that EDLP offers advantages to the retailer as well as to the customer. “It’s much easier in operational terms to offer an everyday low price than to have sale items, where you need to advertise, set up displays and signage and take them down again.”

Sears Canada will not move, however, to a lower overall price point like that used by Sears Roebuck, which owns 55 percent of Sears Canada. Brown says the middle-market competitive situation in Canada is quite different from that of the United States.

“Up here there is really only The Bay and ourselves,” Brown said, “whereas in the U.S. the mid-range includes several players, from Penney to Macy’s and Nordstrom.”

Giving the customer value involves more than low prices, and Strickland noted that Zellers is enhancing value in other ways, too, such as keeping up on stock, broadening its merchandise offerings with such items as patio furniture and combining the highly popular Club Z loyalty program with The Bay’s HBC cards.

The Bay is also rearranging store layouts with a view to better customer service, Fedun said, reducing the number of checkouts from about 40 per store to roughly four per floor so that more staff can be on the floor.

The economic slowdown gives added urgency to retailers’ need to woo the value-minded shopper, observers say.

Sales, however, will continue to have a place in the marketing programs of both Zellers and The Bay, their spokesmen said.

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