Capstone Project: Canadian Tire

Canadian Tire Corporation is a one of the Canada’s largest retailers that provide a large variety of products, including tools, hardware, spare part for automobiles, and other products. It was founded in 1922, and its head office is in Toronto, Ontario. Canadian Tire is publicly traded at the Toronto Stock Exchange (TSE).

The paper analyses the performance of the corporation, its financial results and recent acquisitions. Certain recommendations for the possible market situations are made. Strengths and weaknesses are determined, and ways to enhance the weak aspects of the corporations are offered. The possible scenario of acquisition as the way of expanding the business is discussed.

Mission and Vision

Canadian Tire’s mission and vision can be formulated as the pursue of being “the first choice for Canadians in automotive, sports and leisure, and home products, providing a total customer value through the customer-driven service, focused assortments, and competitive operations” (Canadian Tire corporate web page). The mission is not laconic or easily remembered as many successful companies have the following mission, as well. However, Canadian Tire performance has demonstrated that the mission is being efficiently pursued.

Canadian Tire is the largest retailer in Canada. It is worth noting that it is stated that 90% of all Canadians live in close proximity of a Canadian Tire store; therefore, approximately 40% of Canadians use the corporation’s services regularly. There are 487 stores in Canada, which are owned and operated by an associate dealer. However the ownership of the buildings and lands is preserved by the company and may be leased. All the merchandise is owned by the dealer. The majority of stores specialize in a certain category, which can be automotive services and spare parts, tools for household, hardware, sporting goods, as well as seasonal products.

In May 2011, Canadian Tire expanded its retail sector through the acquisition of the sporting goods retailer Forzani Group. Such a considerable acquisition was first in the decade; though, the previous one was carried out in 2001.

The fulfillment of the mission is mirrored in the following strategic objectives of the company and the strategies that will result in the accomplishment of the tasks.

  1. Strengthen core retail:
    • To continue to open CTR stores where the new concept is implemented, including opening of 90 new Smart stores, 3 new Small Market stores, and replacement or expansion of other 10 Smart Stores and 2 Small Market stores.
    • To apply business strategies that ensure satisfaction of customers is Canadian Tire stores; to carry out training and development programs of personnel; and to carry out the development of merchandising and marketing strategies in the Living category.
  2. To apply the synergy effect of all business parts to support and develop the core business:
    • To access and carry out an enhanced loyalty program and apply new CRM programs in connection with existing marketing processes.
    • To expand e-commerce research the possibilities of integration of different parts of business; to enhance the design of the online shop, increase the web presence; and to use banner advertisements.
    • To develop the network of stores to enhance customer
      experience.
    • To increase the efficiency of the retail sector through integration and development of FGL Sports.
    • To increase the services’ portfolio of Financial Services in order to maximize profits from financial operations.
  3. To increase the efficiency of corporate’s performance:
    • To focus on key aspects that increase productivity; to encourage efficient initiatives; to access and develop the productivity of merchandising in order to ensure future benefits; to apply certain initiatives within the CTR Change Program.
    • To implement the strategy of business sustainability and enhance key measurements and indexes of sustainability metrics; to carry out control, monitoring and reporting of the sustainability; to use new business practices to decrease costs and to increase revenues; as well as to increase return on invested capital (ROIC) in the retail sector.

In 2003 Canadian Tire introduced new-format stores, as well as built new stores, making the most modern network in the country. Since then, two newest store formats - the Smart store and the Small Market store have been introduced. Currently, the largest Canadian Tire store is located in Dartmouth, Nova Scotia, and includes Mark's Work Wearhouse. Nowadays there exist new-format Canadian Tire stores also in indoor mall locations, such as Place Vertu in Montreal (Canadian Tire corporate web page).

Financial results of the company in 2011 in comparison with the 2010 are shown at the table:

C$ in millions

2011

2010

% change

Revenue

10387.1

9213.1

12.7

EBIDTA

1.508.2

996.6

6.2

Income before income taxes

629.9

586.8

7.3

Net income

467.0

444.2

5.2

Cash generated from operating activities

1405.5

729.5

92.7

Capital expenditures

364.7

339.8

7.3

According to the information given above, the company shows positive dynamics in all of the main financial indexes; moreover, the rate of growth of capital expenditures do not exceed the rate of growth of net income, which guarantees normal functioning of the company.

Corporate Landscape and SWOT Analysis

“No single retailer competes directly with Canadian Tire Retail (CTR) across all of the Company’s categories of product and service offerings, reflecting the Company’s unique positioning” (Canadian Tire corporate web page). Mass-merchants and independents competing in this category include The Bay, Walmart, Home Outfitters, Home pot, DeSears, Lowes, and Home Hardware.

Canadian Tire Petroleum is one of the Company’s core differentiators. The Company leads all mass-merchants in this category. The main source of competition for this category is from independent retailers, national and regional parts and tires specialty shops, and automotive dealerships. Competitors include: Kal Tire, Uni-Select, NAPA, Fountain Tire, Mr. Lube, United Auto Parts, Car Quest,, and Active Green & Ross (Canadian Tire corporate web page).

In the upcoming years, the Company anticipates that it will face an increased competition from new entrants and new opportunities from industry consolidation. These include:

  • Target entered Canada in 2012 via its acquisition of Zellers property leases, with operations to begin in 2013;
  • US-based retailers have already been in Canada (including Walmart, Home Depot, and Lowes) are expected to expand further their store networks in Canada;
  • New retailers are expected to enter Canada in the coming years, which could include J.C. Penney, Kohl’s, Nordstrom, and Dick’s Sporting Goods; and US/international retailers that do not have bricks-and-mortar stores in Canada but are capturing Canadian retail sales through e-commerce sites, such as Amazon and those belonging to various apparel retailers.
  • Canadian Tire Corporation is a huge corporation of nation-wide importance, with immense client base and high profits, which enables it to exercise all the advantages of the big company (economy of scale, expensive advertising campaigns, etc.)
  • Its business is diverse as it not only offers automotive parts, but also supplies service stations, in fact, covering all the needs, connected with the hard goods, that the customer may have.
  • Apart of hard goods, the company offers accessories, apparel, and the most necessary services, therefore ensuring the popularity among the consumers and their treatment of the company as the supplier for the goods of high necessity.
  • The strength, that was mentioned above results in the fact that consumers usually demonstrate considerable loyalty to the company. The loyalty program of the company monetizes this loyalty.
  • Company is financially stable and independent from external creditors due to the Canadian Tire Bank. Another profit-gaining activity is gaining rewards from the bank in case the credit cards are used for payments.
  • Canadian Tire operates its own web page, which enables online shopping (the detailed analysis of the web page and the Internet presence will be conducted later).

Strengths:

Weaknesses:

  • The company is too connected to the Canadian market and clients’ base; therefore, the expansion to a global market is hurdled.
  • Due to the recent economic situation, the prices have been significantly increased recently.
  • According to the various reviews of the clients, the quality of the services has decreased and it cannot be compared to the one Canadian Tire had in the past.
  • The company did not meet the needs of the culturally and ethnically diverse population.
  • The advertisement of the gas station is insufficient and not efficient enough.

Opportunities:

  • Canadian Tire can take into account the cultural and ethnic diversity of the population and carry out the expansion in the new cultural segments of the Canadian market.
  • Currently, franchising is used in the company; however, it is still possible to increase the scale of franchising.
  • Canadian Tire should use the frustration of the petroleum market customers and attract them through increasing the gas bars rewards.

Threats:

  • The main threat for the company is generated by the competitors. Companies, like Home Depot, offer the same type of products and services that Canadian Tire does.
  • Moreover, smaller companies show the better customer service and quality of goods as it is easier to apply efficient quality control and training programs for employees in a smaller-scale company.
  • The word of mouth marketing strategy is more efficient than classic TV commercials, which are expensive. However the reputation must be preserved trough the the massive ordinary advertisement.
  • There are regular complaints about the customer service. The following fact impacts the reputation and decreases the positive effect of the word of mouth.

Appropriate Strategies

Taking into account the broad market scope and existing expansion opportunities of the company, two basic strategies are possible. The diversification strategy is a development of new products, as well as new markets, including not just the differentiation of the goods, but also the distribution of the entrepreneurial activity on completely new and not related to the main activities of the company (Porter, 1998). This strategy continues the established practice of introducing new types of products to the customer covering every need the household can have. Applying the diversification allows Canadian Tire to reduce or allocate risk and avoid stagnant markets in order to receive financial benefits from working in new areas. However, in a big corporation, like Canadian Tire, the problem of maintaining all parts of the diversified business may lead to the increase of the management group and decrease the efficiency of the administration.  Taking into account the following fact and the existing experience of maintaining several businesses, this issue is not relevant to Canadian Tire.

The strategy of internationalization allows the development of new foreign markets, including the expansion through not only the export of goods, but also through the export of capital, when enterprises are created in the former countries-importers of the goods, which allows to avoid restrictive entry barriers and taxes (Ferrel, 2010). Moreover, it is possible to use the existing advantages (e.g., cheap labor force or local raw materials). Since Canada, compared to other countries such as China and USA, has a smaller market due to less population, , Canadian Tire has the opportunity to expand in the foreign markets. Though it is complicated because of high competition and cultural differences in those countries, the company can start to expand into multicultural population of the country. In the future, the company may use this experience when it conducts further expansion into other countries.

Applying the differentiation strategy must support the current positive trend and lead to the preserving the reputation and target audience in Canada, while internationalization will be carried out using the existing profits in order to increase them when certain foreign markets will be entered.

Merger or Acquisition

Canadian Tire has considerable experience in the acquisition carried out during recent years. Therefore, the entry to the foreign market may be rapidly carried out through the acquisition of the local retailer. The scenario is appropriate both in the USA and other countries as there are not only big retailing corporations on the market. For example, the acquisition of several retailers in the USA allows creating one network of retailers and then incorporate them into the structure of Canadian Tire.

Nowadays, the three variants of the acquisition are the most common: 1) to carry out the procedure of bankruptcy of the company and then purchase the ownership of its assets; 2) to establish control over the enterprise administrator or representative of the owner of control packet of shares; 3) buy a controlling package of shares of the given organization (Williamson, 2003). Taking into account that Canadian Tire acquires the local retailer only, the first and second methods can be applied. However, the most profitable procedure is that of a bankruptcy of the company followed by the purchase of its shares. Moreover, such a method is used, when the holders of the controlling package of shares do not have the desire to sell it to the third parties or organizations.  In fact, the Canadian company can face such oppression.

When conducting the procedure of a bankruptcy, Canadian Tire can purchase the company's debts, usually on an installment basis. The consequence of the previous operation is the appointment of an interim manager, who, in fact, represents the interest if the Canadian corporation. Also, it should be added that acquisition techniques can bring benefits not only to the company that initiates the acquisition, but also to the local retailer, and even to the region, on the territory of which the company is located.

Motivation of the Personnel and Ethical Business Behaviors

The competitive landscape is important in the development of the corporate strategy; however, other factors must be considered in order to achieve success. As the lack of qualified customer service is the most obvious and the most dangerous weakness of the corporation, certain measures must be applied in order to decrease the influence of these factors. The most important goal is to increase the motivation of employees in order to maximize their efforts to satisfy the customer, which can be achieved through the implementation of development and training programs, workshops, seminars, etc. (Carbonara, 2012).

The motto of the Canadian Tire founder, A. Billes, was “Strive always to make things better” (Canadian Tire corporate web page). The following motto is used in the corporation nowadays; therefore, the corporate success depends on the ability of encouraging the personnel to maximize their efforts in order to satisfy customers. Today, the maximization of efforts allows retailers to be more profitable and flexible in the future. This approach mirrors in company’s understanding of the customer and the way of conducting operational business processes.

With the development and expansion of the corporation, employees must develop, as well. Therefore, the main task of company’s culture is to ensure the best work conditions in the inspiring atmosphere, which is ensured by the likeminded colleagues and efficient leaders who can provide an example. This atmosphere is created through training and development opportunities to help personnel reach their career potential. The rewards must be focused on employees’ health, wealth, and well-being so they can maximize their efforts to satisfy the customers’ needs.

However, currently, Canadian Tire lacks sufficient training programs that would increase employees’ motivation and lead to the satisfaction of the customers. Certain methods that are new for Canadian Tire can be applied to stimulate the employees’ commitment. Employees must feel recognition of their contribution to the results of the work, have a well-deserved status. The layout and size of the cabinet, participation in prestigious congresses, the function of the representative of firm in important negotiations, a trip abroad, and unusual designation positions - all  should underline the position of the employee in the eyes of colleagues and stakeholders (Carbonara, 2012). This method should be applied delicately as partial or complete withdrawal of the previously granted status that leads to extremely violent reactions.

Unexpected, unpredictable and irregular promotion motivates better than projected one, when they practically become a constant share of wages. Positive reinforcement is more effective than negative and should be immediate, resulting in immediate and fair response to the actions of employees (Carbonara, 2012). They begin to realize that their extraordinary achievements are not only seen, but also significantly rewarded. The accomplishment of a certain goal and unexpected remuneration should not be divided for a long period of time. Finally, promotions and rewards should eventually be implemented in life and not remain in the form of promises. These bonuses are appropriate as the company demonstrated profits in the previous year and the trend is positive.

Conclusion

After the research had been conducted, it was determined that Canadian Tire demonstrates a positive trend of increasing profits and stable performance. However, certain weaknesses were described and the solution to those issues allows expanding the business and entering foreign markets. The procedure of acquisition was described as one of the way of expansion.

The system of motivation of employees was discussed, and the possibility of its implementation was proved by the financial results of the company. The general conclusion of the existence of the positive prospect for Canadian Tire can be made.

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