The Swarm From America
Clausewitz's theory of war subscribes to the notion that victory is achieved when the victor's public policy at home becomes the public policy of the vanquished, even if it involves the total annihilation of the foe.
It seems to me that the Clausewitz's theory of war has entered the corporate environment, through assaults on national companies and corporate institutions. In the world of big business, if it takes a scorched earth to do it, so be it.
Two years ago, the Canadian retail sporting goods market was awaiting a full-scale assault from two American giants-SportsMart and Sports Authority-experts in the use of mega box store retailing.
The fears were legitimized when one well-known Canadian retailer decided to fight fire with fire. They say imitation is the sincerest form of flattery, but it can also be a death knell if not done properly. This chain placed a warehouse store within walking distance of one of their retail outlets. In fact, customers walked into the retail store, priced items and then scurried off to the warehouse to make their purchases. Needless to say the retail chain is now facing bankruptcy. Another casualty in war.
With the market being saturated by the big chains, both Canadian and American, and the independents who choose to try and remain, we are in the midst of a ferocious battle in terms of allocation and dislocation of consumers' buying power.
One mistake made by one of the Canadian chains was an attempt to belittle the mega box warehouse's lack of service and expertise in the equipment they sell. Focusing one's efforts solely on the shortcomings of a foreign company becomes a self-fulfilling prophecy. The foreign company improves their shortcomings and the Canadian company, not only has nothing left to attack, but has not progressed to strengthen their position.
Business dealings with Canadian retailers are tough. For example, a Canadian retailer will force a supplier to pay for advertising. Foreign companies wishing to make inroads into Canada may not make these demands. Logistically, if a foreign company can win over a supplier, it can lead to the devastation of the local competition.
A foreign company also carries an innate advantage over a Canadian chain. The foreign company, by its very nature can provide access to international markets, something a Canadian retailer cannot. The Canadians will try to respond by including multi-national brand names in their corporate vision.
Essentially, large business dealings become a co-fraternity of power. You don't shut someone out completely, you just reduce their ability to have an advantage. A huge American chain says to a supplier: "My revenues are $3 billion a year, compared to $200 million for a local chain. I'm not asking you not to do business with them, just ship less every year." A corporate advantage.
It is fundamentally important to fragment and saturate the sporting goods market. Confusion disenfranchises the consumer. This fact puts the independent owner in a precarious situation of surviving and competing in an unhealthy environment.
However, survival can prove to be the very catalyst that catapults the Canadian sporting scene into a new level of consciousness, that may finally challenge the Canadian character. The generic brand industry in sporting goods is still in its infancy. One distributor refers to it as "a cancer waiting to spread".
The independent store owners and small manufacturers have found a common ground. Big manufacturers align themselves with big retail chains on a volume basis. This leaves the independents to differentiate themselves from the large chains by the products they sell. Even though the large manufacturers and retailers act as battering rams, the goal for the independents must be a hit and regroup strategy in changing the perceptions around brand name products.
It was interesting to read Forzani group Chief Financial Officer Hamil Hill state that small mom and pop shops, which comprise about 50% of the Canadian market are the most likely to be squeezed out of the market. Furthermore, Jim Peters, Senior Vice President of SportsMart indicated the Americanization of Canada is going on and "we're pretty excited about it".
Unfortunately these two individuals have failed miserably in analyzing the strength and character of the independent store owners. In fact the independents owe their existence to poverty. Most came from humble backgrounds. They have achieved success by acquiring a bunker mentality which is quite unique from any other industry. For example, one independent retailer told me he used to get sports equipment 35% below manufacturer's list. "Not even the big chains get 35% off. If they want to match prices, or double your money back, I say good. Frankly it creates jobs. I had two men go to all of the big chains to buy products at 35% below cost. You know they had to match my prices". The beauty of the independent is that they do interact and evolve into sustaining a positive environment for new and innovative products that far exceed the big chains.
Moreover, the creation of new markets usually involves the ambition of one individual who acts as a catalyst to build a better mousetrap.
If one ventures outside the major urban centres in southern Ontario, it seems that time has stood still. Usually you have one or two sports stores in a town. Some of these stores have a history which reflects the community and country in which they reside.
I suggested to one retailer that it may be tough surviving when the mega stores come to town. I noticed he seemed puzzled at my suggestion. He told me he knows the people in the community and he knows their families. His grandfather started the business over 60 years ago. When his grandfather died his father took over. When his father went to war, his mother ran the store. When his Dad returned, the son joined the business, and the business will pass on to yet another generation. The imposition of size may not necessarily reflect the tastes of the community.
This retailer told me that when his dad returned from the war, he talked about soldiers from other countries coming to him and telling him that Canada was what they wanted to be like. A society that looked after their own. Canada represented everything that freedom was to them. In many ways it still does.
In the period following a war, lands and people lay in ruin, sometimes for many years. But soon a single flower will bloom, and others will follow. The losers become stronger, having learned from the experience. The winners will proceed on to what they think are bigger and better things, not stopping to reflect on their mistakes until it is too late and they become vanquished. Remember folks, Goliath was the odds on favourite.