Canadian Tire Corporation, Limited Strategic Analysis
Company Overview
Canadian Tire Corporation, Limited is a retail firm in Canada that sells a wide range of products including home products, sports and leisure accessories, and automotive products. A number of the stores run by the company also sell food products and toys. The main retail operations run by the company include: Canadian Tire, which is the core business and runs vehicle repair garages in all stores; then there is the Canadian Tire Petroleum; PartSource, which specializes in the sale of accessories and spare parts for vehicles a clothes retailer known as Mark’s; FGL Sports, on the other hand, runs stores that retail sportswear and general sporting goods. The company’s headquarters are in Toronto, Ontario. (wikipedia.org, 2018)
The company runs a number of divisions the biggest being the Canadian Tire Retail that engages in the sale of a wide range of merchandise including vehicle parts and accessories, housewares, and sporting goods. The company also runs an online store that was launched in 2000. Through the online platform, customers can order their preferred goods online after which they are delivered to them. PatSource is another division of the company that specializes in the retail of automotive parts in Alberta, Saskatchewan, Manitoba, Ontario, and Nova Scotia. The company also runs a financial services division that operates the Canadian Tire Bank. Other divisions include Canadian Tire Petroleum, Mark’s, FGL Sports Ltd, and Nelly Hansen (wikipedia.org, 2018)
Canadian Tire Corporation Mission and Vision
The company’s current mission is to ensure customers, employees and shareholders’ lives are enriched by the services offered by promoting active lives and healthy living through its sports products retail business, and the offering of value in all products including apparel, vehicle parts, and financial services.
The company’s vision is to maintain innovation and growth in all its businesses by achieving great results and influencing people in many positive ways each day (Diana’s E-Portfolio, 2014).
Canadian Tire Strategic Objectives
1. Achievement of sustainable growth through the strengthening of the company’s brands and the enhancement of the customer experience by expanding e-commerce and enhancement of the smart store format (CTC, 2018)
2. Increase operational efficiency in core business by focusing on the processes of merchandise procurement, and the optimization of product assortment in 2018 (CTC, 2018).
Analysis of the Mission, Vision, and Strategic Objectives
From the characteristics of a good mission statement, it is clear that a mission statement is supposed to mention something about the kind of products and services offered and the types of customers targeted. This can be clearly seen from Canadian Tire’s mission statement as it defines the products and services offered. By mentioning products and services, there is an indirect reference to the customers targeted as sports accessories would target people interested in sports, car parts would target people owning vehicles, and financial services would focus on people in the corporate sector who are most likely interested in matters to do with finance and access to credit.
The vision, on the other hand, should reveal what the company sees itself in future. The vision statement presented satisfies this criterion in that it is focused on a good thing that the company wishes to carry into the future. That is innovation.
SMART Analysis of the Strategic Objectives
Specific: Both strategic objectives are specific in that they clearly identify exactly what should be focused on in driving the company’s competitiveness. For example, the first objective points to e-commerce, and smart store formats as ways through which customer experience can be enhanced.
Measurable: While the second objective is measurable the first one does not give a clear method by which brands can be strengthened hence it is not measurable.
Achievable: Both objectives are achievable because the company has the required resources to implement each of the plans stated.
Realistic: Both objectives are realistic because they are within the capabilities of the company.
Time-bound: The first objective tends to be unclear in terms of the time involved. The second, however, is very clearly defined as it clearly states that the optimization of processes should be complete by the end of 2018.
External Analysis
Political Factors • Political stability in the country is one of the greatest drivers for success in the Canadian retail industry.
• The strict regulations on health, safety, and environmental sustainability are a significant contributor to the costs incurred by retail companies in the country.
• The proposition by the liberal government to increase the Child Benefit Grant (Toneguzzi, 2017) means that people in the country will have more money to spend on retail products. This promises to increase sales for the company.
Economic Factors • According to Toneguzzi (2017), the retail sector has seen tremendous growth in the recent past. Predictions indicate that revenues in the sector will grow by over 7% in 2018.
• The strengthening Canadian dollar will, however, affect Canadian Tire negatively since it will lead to a reduction in cross-border sales
Social Factors • There is a general increase in population in Canada, which presents a very promising future for Canadian Tire Corporation as demand for retail products is increasing.
• In addition to the growing population, Toneguzzi (2017) points out that unemployment rates are decreasing which is an indication that people have much more income to spend on products such as vehicles and fashion.
• The increased attention to healthy-living in Canada will see an increase in the demand for sports accessories, a trend that is very good for Canadian Tire Corporation.
Technological Factors • E-commerce presents a big challenge for firms in the Canadian retail sector. Online retailers like Amazon present a big challenge to traditional retailers such as Canadian Tire.
• In future, technology will play a progressively bigger role in the retail industry. According to Bodley (2017), presents research showing that 50% of Canadians under 35 make at least one online purchase every month. That means that Canadian Tire must expand its e-commerce platforms so as to take advantage of more technology-driven demand in future.
Environmental Factors • With the aim of promoting environmental sustainability, the retail sector in Canada is faced with increased pressure to adhere to sustainability policies such as the use of renewable energy sources and reduction of carbon emissions. Implementation of such programs increases costs hence affecting profitability.
• With the same objective of environmental conservation, the retail sector is required to stock goods that are less polluting (ECO Canada, 2010). For this reason, supply chain management becomes very significant for firms in this sector
Legal Factors • Due to the fact that the company operates a number of different businesses, it exposed to regulations under the oil and gas regulations, textiles regulations and financial and money service regulation (GC, 2018).
• What complicates matters even further is the fact that Canada is a federal nation that has states with different laws. All these affect the company’s operations in the different states.
Trend’s that Will Affect Canadian Tire Corporation’s Strategic Direction
The Growth of the Retail Sector
The expected growth in the retail sector presents a very big opportunity to the company. This growth promises to significantly increase the company’s revenue in the coming years. However, the strategic actions taken will determine whether the company will actually benefit from this trend or it is competitors who will benefit.
The E-Commerce Challenge
Despite the fact that e-commerce is mostly associated with positive business outcomes, it presents a very big threat to firms whose model works with the traditional physical stores. This means that companies like Amazon and other online retailers will always have an upper hand especially now and in the future when more and more people are using online platforms to purchase almost all items. For this reason, it is imperative that Canadian Tire Corporation, Limited must use its resources to expand its e-commerce platforms. This will enable the company to be in a better position to take advantage of the increasing demand for such platforms.
Healthy Living in Canada
The increased interest in health in the country presents the company with a good opportunity owing to the fact that it has retail outlets specializing in the sale of sportswear and general sports equipment. This opportunity can be taken advantage of by combining the strategic action proposed above under the e-commerce challenge and the expansion of the sports accessories retail business. In this context, the company should establish a distribution center for sports accessories and then start an online platform that is dedicated to sportswear and equipment. Such a move will make the specific brand be identified as the go-to brand when it comes to the need for sports equipment and accessories.
Key Industrial Pressures in the Canadian Retail Industry
E-Commerce
E-commerce has started causing a major disruption in Canada’s retail sector. As of March 2017, sales on e-commerce platforms reached around C$1.2 billion. With more and more people preferring to purchase items online, there is increased pressure for traditional retail outlets to adopt e-commerce as a means of reaching more and more customers (ITA, 2017).
High Costs
The retail sector in Canada faces many costs most of them resulting from the increased pressure from the government for retailers to ensure sustainability in their activities. For that reason, profit margins for retailers are very small with data from 2015 showing that retailers made just 2.3% profit on their sales (BDC, 2016). As a result, retailers in Canada are under the pressure to find cost reduction methods that will enable them to enjoy decent profits.
Strengthening of the Canadian Dollar
According to Smith (2018), forecasts indicate that the Canadian dollar will continue strengthening against the US dollar throughout 2018. Such a situation will have a negative impact on cross-border trades as products from Canada will seem more expensive while those from the US will seem cheaper.
Porter’s Five Forces for the Canadian Retail Industry
Industry Rivalry
Nguyen (2016) points out that there is very drastic competition in the Canadian retail sector. This competition is attributed to the fact that most of the known players have reinvented their physical stores such that they are now more appealing to customers and also, most of them have introduced online stores that enable them to reach even more customers. In addition to the local competition, there is increased competition from American retailers such as Amazon. One of the trends driving change especially in the retail of fashion products is the digitization of the stores which allows customers to fit clothes and get suggestions for better clothing items from a screen in a dressing room. The adoption of this kind of technology promises to put some retailers ahead of others dealing in fashion merchandise. This is also a real threat to the apparel division of Canadian Tire Corporation.
The threat of New Entrants
The industry has seen a number of very strong new entrants such as Uniqlo and Saks Fifth Avenue (Nguyen, 2016). The barriers to entry in the retail sector in Canada are quite low meaning that anybody with sufficient amount of capital can enter the market and become a very strong competitor. Furthermore, the barriers to entry are further lowered by the increasing popularity of online stores. With digital technology, all that is required is a single store where the goods are kept and a reliable delivery service. For that reason, e-commerce has made entry into the retail business relatively less costly than in the past. That means that the current players face a greater threat of new entrants than in the past. However, looking at each of the business units run by Canadian Tire Corporation, it is clear that the threat of new entrants is less in the petroleum and financial service business due to the higher barriers to entry in these sectors.
Threat of Substitutes
Because the industry under consideration deals with general merchandise from different companies hence different brands, there is no threat of substitutes on the level of the brands for specific items. However, if businesses under the Canada Tire Corporation are taken as brands and then other retailers such as Amazon taken other brands, then there is a very big threat of substitutes in that context. This is because there are many competitors in all the business divisions operated by the company. As a result, there is a real danger that customers might shift from one company to another depending on their preferences.
Bargaining Power of Buyers
The existence of many competing businesses in all the divisions run by Canadian Tire Corporation implies that the buyers have a high level of bargaining power. This supports the previous discussion that showed that the players in Canada’s retail industry enjoy very low-profit margins. This situation arises due to the fact that buyers will always look for the best price while making their purchasing decisions. The existence of many competitors means that customers have the ability to choose from a wide range of retailers. This means that retailers do not have the power to set their prices higher as this would lead to customers opting for products from other competitors. This situation is made worse by the fact that with the internet, consumers are always aware of the best prices of a wide range of commodities even before they enter a store.
Bargaining Power of Suppliers
There are very many suppliers in the retail industry. Competition between these suppliers means that firms in the industry have the ability to affect their operations. As a result of this bargaining power in general merchandise, firms such as Canadian Tire Corporation enjoy great benefits including getting products at the best price possible. However, since the company operates a number of businesses, the bargaining power of suppliers varies depending on the specific product. For example, suppliers of the petroleum division enjoy a relatively high bargaining power due to the fact that there are few suppliers of petroleum and petroleum products. Also, vehicles spare parts come from the vehicle manufacturers themselves. This means that for parts of, say, Toyota, there is only one supplier which means that the car manufacturers, who are the suppliers, in this case, enjoy a high level of bargaining power against the company.
Analysis of the Impact of Key Industrial Pressures on the Five Forces
Force Key Industrial Pressure Impact
Industry Rivalry E-Commerce Will increase industry rivalry as it will allow foreign firms to compete in the Canadian market more easily
High Costs They will result in increased rivalry due to the fact that high costs in the local market will make products in foreign markets seem cheaper hence more attractive to the customer
Strengthening of the Canadian Dollar Goods from foreign markets will seem cheaper than local goods. For that reason, rivalry from international players such as Amazon will increase in the country as its products will have more demand.
The threat of New Entrants E-Commerce E-commerce will enable new entrants to find it much easier to enter the market due to the fact that online platforms require less capital to start and run
High Costs These will have no impact on the threat of new entrants because any firm attempting to enter will be subjected to the same high costs.
Strengthening of the Canadian Dollar This will have no impact on the threat of new entrants because a stronger Canadian Dollar will not make it any easier for new local firms to enter the market
Threat of Substitutes E-Commerce E-commerce will favor the establishment of new firms which will have the effect of increasing the substitutes available for customers.
High Costs High costs in the local market will give retailers from international markets an upper hand over local retailers. For this reason, there will be more substitute products from the international market.
Strengthening of the Canadian Dollar Strengthening of the Canadian dollar will result in products from other markets to become cheaper relative to local products. This will increase the demand for substitutes from other markets such as the US.
Bargaining Power of Buyers E-Commerce E-commerce will increase the bargaining power of buyers due to the fact that it will enable them to have access to information on the best market prices. As a result, no retailer would want to charge higher prices as this would make them lose market to competitors
High Costs This has no impact on the bargaining power of buyers since buyers respond to prices of the final products and not the costs incurred.
Strengthening of the Canadian Dollar Strengthening of the Canadian dollar will cause an indirect increase in the bargaining power of buyers against local retailers. This increase will, however, depend on whether or not rivals in other markets will bring more products to Canada at lower prices.
Bargaining power of Suppliers E-Commerce E-commerce will have no impact on the bargaining power of suppliers because it is only relevant in sales and not in the acquisition of products from suppliers.
High Costs High costs incurred by the retailers will have no impact on the bargaining power of suppliers because the costs affect profit margins and not supply chain operations.
Strengthening of the Canadian Dollar Strengthening of the Canadian Dollar will have no impact on the bargaining power of suppliers because the strength of the currency is independent of the activities of suppliers and the firms in the industry.
Conclusion
During the process of accomplishing the company’s mission, through the improvement of the company’s internal resilience, Canadian Tire Corporation Limited’s administrators needs to constantly revise and formulate new strategies, thereby effectively facing the new population, changing technologies, public policies, economics and other factors that affect the company’s development in the ever-changing social form, finding development opportunities and risks, effectively resolving risks, using opportunities to strengthen development and eventually accomplishing the company’s mission.
References
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Bodley, D. (2017, June 12). Will Canadian Retailers Meet Demand as E-Commerce Takes Off? Retrieved May 13, 2018, from Boston Consulting Group: https://www.bcg.com/publications/2017/retail-technology-digital-canadian-retailers-meet-demand-e-commerce-takes-off.aspx
CTC. (2018, February 14). Canadian Tire Corporation, Limited 2017 Annual Information Form. Retrieved May 13, 2018, from Canadian Tyre Corporation, Limited: http://q4live.s22.clientfiles.s3-website-us-east-1.amazonaws.com/405442328/files/doc_financials/en/2018/02/English-2017-Annual-Information-Form-(Final).pdf
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ITA. (2017, August 14). Canada eCommerce. Retrieved May 13, 2018, from International Trade Administration: https://www.export.gov/article?id=Canada-eCommerce
Nguyen, L. (2016, December 14). Canadian Retailers Must Disrupt – Or be Disrupted. Retrieved May 13, 2018, from Toronto Star Newspapers Ltd.: https://www.thestar.com/business/2016/12/14/canadian-retailers-must-disrupt-or-be-disrupted.html
Smith, F. (2018, February 08). Canadian Dollar to Strengthen on Further Interest Rate Hikes: Reuters Poll. Retrieved May 13, 2018, from Reuters: https://www.reuters.com/article/us-forex-poll-canada/canadian-dollar-to-strengthen-on-further-interest-rate-hikes-reuters-poll-idUSKBN1FS1UE
Toneguzzi, M. (2017, November 08). Canadian Retail Industry Sees Strong Gains in 2017: Report. Retrieved May 13, 2018, from Retail Insider: https://www.retail-insider.com/retail-insider/2017/11/colliers-report
Wikipedia.org. (2018). Canadian Tire. :
https://en.wikipedia.org/wiki/Canadian_Tire [Accessed 19 May 2018].
