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BIG BOXES, SMALL TOWNS

Rural communities provide lucrative new frontier for major retailers

BY SUSAN THORNE

Retailing has a new face in the Canadian small town.

It is visible on a visit to Okotoks, Alberta, a prairie community of 14,500 a half hour’s drive south of Calgary. Not far from Okotoks’ traditional main street sits the Cornerstone power center, a grouping of big-format stores that includes Canadian Tire, Mark’s Work Wearhouse, Wal-Mart and a large Sobeys supermarket conveniently located beside the north-south highway running through town. Since it opened two years ago, this center has been a catalyst for further retail development nearby. It has also turned little Okotoks into a regional retail hub.

“When Wal-Mart and Canadian Tire decided to locate here, that doubled our customer base from 35,000 to 70,000, and we started drawing shoppers from as far away as Fort McLeod, a good 90 minutes’ drive away,” recounts Robert E. Miller, a team leader at the Okotoks Department of Economic Development. “It changed the traffic dynamic. People in the region didn’t have to drive to Calgary anymore when they could visit those stores here.”

Similar retail expansion is evident in many Canadian secondary markets; small towns and communities on the periphery of urban areas (those with trade-area populations between 25,000 and 75,000) are acquiring the kinds of big boxes formerly found mainly in suburban power centers.

“They’re all doing it: Canadian Tire, Shoppers [Drug Mart], Home Depot, La-Z-Boy, Leon’s Furniture, Staples and Wal-Mart,” said Wally Ciastko, managing director of Powers Property Services, a Markham, Ontario, retail leasing agency. “You name a [big] box and they’re there.”

Well, maybe not every big box. For the time being, Best Buy, Future Shop and Winners have not come up with a format appropriate to this market. But of the 30 new stores Wal-Mart plans to have operating in Canada by year-end, slightly less than half will be located in smaller communities, says Kevin Groh, manager of corporate communications at Wal-Mart Canada, Mississauga, Ontario. The Home Depot is also targeting secondary communities, says Nick Cowling, public relations manager at The Home Depot Canada, Toronto. Cowling notes that 10 of the 15 Canadian stores opening this year are in small towns: Brandon, Manitoba; Sydney, Nova Scotia; Sault Sainte Marie and Bracebridge, Ontario; and Charlottetown, Prince Edward Island, among them.

Untapped consumer demand and a lack of competition attract expanding large-format players to rural areas, but often an equally compelling reason is the urge to fill a hole within an existing distribution area.

“Say you have stores in Winnipeg and Brandon, Manitoba, and you’re driving through Portage la Prairie between them,” Ciastko said. “Portage may not have 100,000 people, but it’s right on the way, so you drop a store there.” Such a strategy achieves economies of scale in distribution and supervision, two of the biggest operating costs, he adds.

Some retailers are making the transition to secondary markets using smaller new formats. Home Depot Canada, for example, has prototype stores measuring between 72,000 and 80,000 square feet (the chain’s standard unit spans 95,000 square feet) for such smaller markets.

Wal-Mart’s stores range from 70,000 to 130,000 square feet, depending on the trade area’s demographics.

Other retail players already in secondary markets are increasing their exposure by enlarging their stores. Shoppers Drug Mart has a long-standing presence in smaller towns, but has over the past three years been expanding its units to 15,000 square feet. (Typically, they span 6,500 square feet.) This provides space for Shoppers’ broadened merchandise offerings, such as food items and extensive, department-store-style cosmetics departments, says Arthur Konviser, Shoppers’ senior vice president of corporate affairs. Canadian Tire, too, has been enlarging its stores in smaller communities.

Loblaw Cos., Canada’s largest owner of grocery stores, operates multiple banners of various sizes, making it relatively easy to slot any one of the appropriate size into a secondary market. A community too small to support a Real Canadian Superstore (100,000-150,000 square feet) might get a Your Independent Grocer franchised store, for instance, or an Extra Foods grocery (50,000-60,000 square feet), in tandem with a No Frills or Maxi hard-discount concept. Across all its formats, though, Loblaw is progressing toward larger stores to accommodate broader assortments of general merchandise and household wares, plus service offerings, such as fitness clubs. General merchandise is being added to the inventory at the No Frills and Maxi stores.

The small-town shopper benefits from the convenience of having expanded retail offerings close to home. Before, consumers in small towns had to go about 40 to 60 kilometers [25 to 40 miles] for major retail services, says Michel Grenier, an associate at Geocom Recherche, a Montreal-based demographics research firm. “Now retailers are providing basically the same service on-site,” he said.

Not everyone has rolled out the welcome wagon for these new arrivals, though.

“In some smaller markets where the economy isn’t growing, there really isn’t enough room as a net addition for some of those companies coming in,” said Hermann J. Kircher, president of Kircher Research Associates, a market research consulting firm in Toronto. Kircher’s clients are retailers and shopping center interests opposed to new big-box retail development in the Ontario towns of Huntsville, Simcoe and Welland. New retail development will mean a loss of sales for existing stores in these communities, Kircher says.

Community shopping centers and downtown cores alike are feeling the effects of the trend, because new large-format retailers such as Wal-Mart are increasingly locating in power-center-type retail configurations or freestanding sites outside town.

Still, not many in Okotoks are complaining about the imminent arrival of a Payless ShoeSource — the town’s first footwear store and a much needed addition to the retail mix. And there is further retail development on the horizon. Starbucks will be opening a café in Okotoks soon, and the town has 240,000 square feet of commercial space ready for other future occupants, which will include a major grocery retailer and a home renovation supplier.