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American retail is landing in the Great White North

TORONTO - Canadian nationalists chafe about American corporate domination of their domestic economy. Canada, they say, is a branch-plant economy and a relatively cheap source of natural resources.

However, they don't seem to mind American shopping because they never grouse about the presence of U.S. retailers in most regional and super-regional malls in Canada.

They also won't complain when a new wave of American retailers invades the Canadian market. Propelled by renewed investor interest in the country's strong economy and weak dollar, those same retailers arrived this past spring and took the Great White North by storm.

"This country is for sale at a 67-cent dollar," said Peter Sharpe, president of Toronto-based Cadillac Fairview Corp., at the ICSC Convention in Toronto in October. Sharpe went on to explain the renewed interest in Canada by the United States (The value of the Canadian dollar against the U.S. dollar fell even further by mid-month.)

"We will continue to see an accelerating increase of foreign retailers in Canada, but most will come from the U.S., which will be a tremendous challenge for our retailers," added Sharpe. In other words how does a Canadian fashion retailer go up against a Banana Republic, Eddie Bauer or a Wal-Mart?

Canadian attraction for U.S. Amidst the current flurry of U.S. retail activity in Canada, there is some pure acquisition play. Warrendale, Pa.-based American Eagle Outfitters Inc., for example, recently bought the assets of Canadian specialty clothing chain Dylex Limited, which operates 172 stores, most of them in Ontario.

For the most part, retailers such as Old Navy, which operates 12 stores in the Greater Toronto area, casual clothing Pacific Sunwear and Williams-Sonoma with its Pottery Barn and Pottery Kids Barn home furnishings stores, are investing millions of dollars in preparing leased premises while bracing for huge marketing expenses.

Old Navy follows the blazed trail of a 1990s-era invasion of the Canadian market by sister companies The Gap, Banana Republic, Eddie Bauer, The Home Depot and Wal-Mart Stores Inc.

Mitchell Goldhar, president of Toronto-based First Professional Management Inc., which has developed most of the 168 Wal-Mart stores across Canada, told the ICSC conference attendees that Canada should be happy the country attracts only the best [U.S.] retailers. "Most national retailers in Canada over the next five years will be American-owned. As a result, there is going to be a thriving retail autopsy business in this country," he predicted.

According to Goldhar, Wal-Mart, the quintessential American corporate powerhouse, isn't the only source of First Professional's big-box/shopping center empire.

Canadian chain goes belly-up Goldhar also stuck to another prediction he made a few years ago - that both the number of national department store chains and the amount of retail space per capita in Canada would shrink. Nothing proved him right more than last year's bankruptcy of the Eaton's department store chain of Toronto, and its 64 stores across the country, which left only two national department store chain survivors in Canada.

"That's an expression of the economic state of our country," (the decline of department store space), added Goldhar. "We over-estimated the amount of disposable income and money that average Canadians have in their wallet. It's also a heavily taxed population, so the likes of Wal-Mart and Costco, which are not selling overalls anymore, are doing very well."

Shopping center owners are spending millions of dollars reconfiguring empty retail spaces in the wake of Eaton's crash. Incoming tenants, including a number of U.S.-based retailers, are spending millions in order to occupy many of the former stores.

Alan Barocos, president of real estate for Old Navy and an ICSC conference panelist, says that Old Navy's management is firmly committed to its first foray into the Canadian market.

Fellow panelist Ronald Feldman, vice president of real estate for Boulder, Colo.-based grocery chain Wild Oats Market Inc., said that the specialty-food store will open a store in Toronto in the spring of 2001. The grocer has already expanded its 111-store operation of U.S. stores into British Columbia, by acquiring the Caper Community Markets stores.

U.S. investments head north Feldman says he is bullish on Canada because he considers the urban cultures and markets in both countries to be almost identical (except for French-speaking Quebec, which is different from other Canadian provinces).

Panel moderator John Marino, president of Snowcap Investments Limited of Toronto, and an ICSC Ontario division director, caught the spirit of the resurgence of American investment interest in Canada's retail sector.

"It's true, there are many similarities between conducting business in Canada and the U.S.," said Marino, "which is one reason they come to Canada. Also, Canadian developers pursue American retailers so aggressively, often giving them priority as tenants for their centers.

"Our developers want them because Canadian consumers want the products American retailers offer because they're familiar with U.S. brands," added Marino.

Marino is convinced that trend will continue through the end of this decade. "Within five years it will be very difficult to distinguish a mall in Canada from one in the U.S.," he said. "It already feels that way."

In the meantime, is there something the Canadian shopping center industry does better than its American cousins? There is, according to Richard Sokolov, president and COO of Indianapolis-based Simon Property Group, who is also a former ICSC chairman and trustee and was a panelist at the conference.

"Toronto's Cadillac Fairview Corp. and Cambridge Shopping Centres Limited, as well as other Canadian developers, are ahead of the U.S. in providing access to their malls," said Sokolov. "We went to Canada and took a great deal back in terms of signage programs. We are just now starting this in the U.S."

Branding counts On the subject of branding, Sokolov noted that brands are not built overnight. "They take a great deal of time and money to attract any consistency of product. Last year we sold $200 million worth of Simon gift certificates, so we're establishing a product, making money on that product and the brands contribute to that success," he said.

Department stores in the United States also are developing their own private label brands so as not to be overshadowed by small shops, which are basically their own brands. In other words, branding is here to stay.

The panel inevitably ended with a call for predictions. "We will have continued department store consolidation, from 14 in the U.S. down to five in as many years," Sokolov forecasted.

"We will also become a wireless society in the near future," added Sokolov, "which will have a fundamental impact on how we shop."

Can Canadian high-end fashion retailers and an American natural/organic foods supermarket co-exist in a sophisticated but troubled urban Toronto mall built by an international business enterprise based in Paris?

We'll know a year from now when Whole Foods Market Inc., an Austin, Texas-based chain, opens its first store in Canada in the Hazelton Lanes shopping center. The center was developed 25 years ago in a ritzy downtown Toronto neighborhood by William Louis-Dreyfus, chairman of New York-based Louis Dreyfus Group. (If the name seems familiar, it's because his daughter Julia played Elaine in the smash-hit comedy series "Seinfeld.")

In the mid-1980s, the future appeared promising for the 200,000 sq. ft. retail center, even to the point of expansion. Unfortunately, the mall suffered from too many owners and too many competing neighborhood retail locations.

Max & Co. Development Inc. of Toronto and a group of Hong Kong real estate investors and property managers bought Hazelton Lanes for nearly $15 million last summer and plan to spend another $10 million on a complete remake, including the tired-looking "Main Street" exterior.

Fashion will remain the focus, but 45,000 sq. ft. of retail space has been leased to Whole Foods Market, which Max & Co. president Stephen Chan says is "to food stores what another Texas company, Neiman-Marcus, is to department stores." The food chain's 117 stores in 22 states rang up sales of $1.57 billion last year.

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