Canadian Tire Corporation, Limited

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Canadian Tire Corporation, Limited

2180 Yonge Street
P.O. Box 770, Station K
Toronto, Ontario M4P 2V8
Canada
Telephone: (416) 480-3000
Fax: (416) 544-7715
Web site: http://www.canadiantire.ca

Public Company
Incorporated: 1927
Employees: 8,300
Sales: CAD 8.39 billion ($6.97 billion) (2004)
Stock Exchanges: Toronto
Ticker Symbol: CTR
NAIC: 441310 Automotive Parts and Accessories Stores; 441320 Tire Dealers; 444110 Home Centers; 447110 Gasoline Stations with Convenience Stores; 448140 Family Clothing Stores; 454111 Electronic Shopping; 811191 Automotive Oil Change and Lubrication Shops; 811192 Car Washes

Canadian Tire Corporation, Limited is one of the leading retailers in Canada. The company, aided by associate dealers, franchisees, and agents, operates the flagship Canadian Tire chain, which includes more than 450 stores from coast to coast. These stores offer a wide selection of automotive parts, accessories, and services; sports and leisure products; and household goods. About 85 percent of all Canadians live within a 15-minute drive of a Canadian Tire store; nine out of ten adult Canadians shop at one of these outlets at least twice a year; and 40 percent of Canadians shop at Canadian Tire every week. The company also offers online shopping via the Canadian Tire web site and runs the 40-unit PartSource automotive parts specialty chain. The Canadian Tire Petroleum unit is the nation's leading independent retailer of gasoline with about 250 gasoline filling stations, some of which include a convenience store and/or a car wash. Canadian Tire Financial Services finances and manages the Canadian Tire Options MasterCard program, which has more than 3.1 million cardmembers; markets insurance and warranty products; and offers emergency roadside assistance through the Canadian Tire Auto Club. The company also owns Mark's Work Wearhouse, operator of around 320 men's and women's clothing stores, including approximately three dozen L'É quipeur stores in Quebec; these outlets specialize in business casual and weekend clothing and workwear. Canadian Tire Corporation is a true national institution, so much so that it issues its own "money," was celebrated on a Canadian postage stamp, and has won the nation's highest honor, the Order of Canada. Martha Billes, a daughter of one of the company cofounders, is the controlling shareholder, owning a stake of more than 60 percent.

Early History

Canada Tire was started in 1922 by brothers John W. and Alfred Jackson (A.J.) Billes. The budding entrepreneurs invested their combined savings of CAD 1,800 in an automobile service garage and auto parts depot in Toronto. The company—Hamilton Tire and Garage Limited—stocked a small inventory of repair and replacement goods, including tires, batteries, and automobile fluids. Although the automobile industry was still in its infancy, the Billeses believed surging automobile sales at the time indicated a bright future for their business. Later that year, in fact, Toronto hosted its first "Closed Car Show," in which windshield wipers, automatic starters, and other new car parts were introduced.

The Billeses experienced what could have turned out to be a major setback shortly after they opened their shop: A bridge that routed traffic past their garage was shut down for repairs. To overcome the problem, the brothers converted the garage into an overnight parking facility and took turns sleeping in the garage at night. Then, early in 1923, they moved the entire operation to a better location. The new shop included retail goods and a gas pump. The success of that outlet encouraged the Billeses to open a second retail store nearby. Early gains were largely attributable to A.J.'s marketing savvy. He began offering free road maps in the company's promotional flyers, for example, because maps were rare at the time and valued by customers.

In 1927, after four years of rising sales, the Billeses changed the name of their enterprise to Canadian Tire Corporation, Limited. That same year, A.J., building off of his successful road map idea, decided to test a mail-order offer to car owners in southern Ontario and New York state. Response to that effort, in turn, led him to publish a full catalog in 1928 that featured Canadian Tire's retail offerings and allowed customers to order by mail. Thus, the company became a pioneer in the mail-order and catalog auto-parts retailing industry. Indeed, Canadian Tire's mail-order sales swelled in the late 1920s and early 1930s. Even during the Great Depression the company continued to post gains as a result of its low prices, high-quality merchandise, and an emphasis on customer service. Importantly, shrewd marketing always played a role.

Throughout the 1930s and into the 1960s, in fact, Canadian Tire was a leading innovator in its industry. Among A.J.'s most brilliant marketing schemes was Canadian Tire "money," an innovation he concocted in the 1950s. A.J. knew a lot of money could be made from the sale of gasoline from his store pumps. Because of pressure from the big oil companies, however, retailers such as A.J. were unable to lower their prices to undercut competitors. A.J. got around that hurdle by giving his gas customers coupons that they could use for merchandise in his stores. The scheme was a major success and continued to be used, in some form, for several decades. Another of A.J.'s innovations was clerks on roller skates. When A.J. expanded one of his stores into a vacant supermarket he became concerned that the longer aisles would slow down his clerks. Besides speeding up the clerks, the roller skates served as an entertainment gimmick that drew customers.

Among other firsts, Canadian Tire introduced the unconditional tire guarantee in 1931. Until that time, tires were guaranteed only against manufacturing defects. A.J. decided to begin offering an unconditional "Super-Lastic" tire guarantee that would cover the tire for almost any mishap. "In those days the guarantee on tires was only for defects and workmanship," A.J. recalled in company annals, "but customers would come in with a shard of glass or a stone bruise, saying well, I didn't do that. So I introduced the first one-year unconditional tire guarantee. People came in looking for a fight, and there wasn't one." Canadian Tire also helped pioneer the profit-sharing concept, giving workers a stake in the profits of the business and generating employee motivation and loyalty.

Canadian Tire expanded in the 1930s as business grew. In 1934 the company opened an associate store in Hamilton, Ontario. That store was the first in what would become a huge chain of stores that spanned Canada. Although Canadian Tire automotive lines were already stocked in other stores, the new outlets gave the company higher profit margins and more control over its products. As the chain expanded, Canadian Tire's stores and mail-order catalogs began featuring a wide range of parts and supplies—many under the Canadian Tire brand name—including motor and chassis parts, radio equipment, and hundreds of miscellaneous accessories. In addition, Canadian Tire was beginning to branch out into sporting goods such as camping equipment. Gains at the new store spawned a flurry of expansion during the mid- and late 1930s. By 1939, in fact, Canadian Tire was operating an impressive 71 stores in addition to its thriving mail-order business.

Postwar Expansion

World War II caused shortages of many goods, and Canadian Tire was forced to change many of its operating procedures. Nevertheless, the company managed to adapt and even to sustain its healthy growth rate throughout the war years. By 1946, in fact, Canadian Tire had boosted its total number of outlets to 116. As a result of spiraling demand during the postwar economic boom, moreover, sales soared. Canadian Tire built a giant new warehouse that was averaging 57 tons of new inventory daily by 1952. By 1956 even that facility had become too small to serve the company's 160-plus outlets, so Canadian Tire built a large new distribution center. Before the center was opened, President John W. Billes passed away. His brother, A.J., succeeded him.

Canadian Tire continued to prosper under A.J.'s ten-year stint as president. Warehouse and distribution centers were expanded, and the company's network of retail outlets increased to a total of 225 by the mid-1960s. A.J., always open to new ideas, was among the first retailers to use new electronic equipment and computers to handle accounting, inventory, and invoicing tasks. Canadian Tire flourished under his leadership, becoming one of the most successful retailers in Canada. Later, looking back on his career and life, A.J. would give much of the credit for the company's success to his employees: "If asked what has been my life's most rewarding experience, it is good health, strength, and a destiny which afforded me the opportunity to assist our corporate people in recognizing and more fully exploiting their God-given talents, both for their own betterment and for that of others around them, and while in the process, building a business wherein the spirit of enlightened self-interest continues."

Company Perspectives:

Canadian Tire is a growing network of innovative, interrelated businesses achieving extraordinary results through extraordinary people. We help Canadians make a great start in their lives every day by providing them with essential products and services. Canadian Tire customers shop in our retail stores, fill up their cars with gas and choose convenience items at our gas bars, get their vehicles washed at our car wash outlets, find specialized automotive parts at PartSource, choose clothing at Mark's Work Wearhouse, enjoy the convenience of our universally accepted Canadian Tire Options MasterCard, and benefit from the added value of Canadian Tire "Money."

A.J. stepped aside in 1966; J. Dean Muncaster succeeded him. Muncaster had started out working in a Canadian Tire store before working his way through the executive ranks. Under Muncaster's direction Canadian Tire continued to expand. The company began its own long-distance hauling operation in 1967, which would balloon in size to include more than 700 transport units by the 1990s. A second major distribution facility was built in 1973 to feed the growing Canadian Tire retail chain. In 1979, moreover, the company completed a giant 65-million-cubic-feet, computer-controlled, high-rise warehouse and distribution center that was among the largest of its kind in the world. That facility helped to support the company's new Auto Parts Depot division. The Auto Parts Depot, on the cutting edge of just-in-time techniques that would emerge in the 1980s, provided speedy daytime and overnight delivery of auto parts to Canadian Tire outlets.

1980s to Early 1990s: Failed U.S. Ventures,
Heightened Competition at Home

During the late 1970s Canadian Tire upgraded its existing stores and expanded into British Columbia with a new store format. Then, in 1982, Canadian Tire reached outside its national borders when it purchased the assets of White Stores, Inc., of Wichita, Texas, for $144 million. White Stores was a chain of more than 400 automotive retail stores in the United States. Most of the stores were owned and operated by dealers, but some of the outlets were company owned, and Canadian Tire also took possession of the company's warehouse operations. Canadian Tire attempted to convert the stores into a format similar to that used by its Canadian stores. Unfortunately, the venture flopped and Canadian Tire elected in 1985 to sell the entire division. Shortly thereafter, Muncaster resigned. He was replaced in 1986 by Dean Groussman, the former chief executive of White Stores.

By the mid-1980s Canadian Tire was generating more than CAD 2 billion in annual sales and operating nearly 400 stores throughout Canada (not including the U.S. White Stores division). In addition, the company was operating about 115 gas stations. Besides increasing the number of stores in its portfolio during the 1970s and early 1980s, Canadian Tire had introduced a variety of new merchandise. The company had started selling a large amount of sporting and leisure items, as well as hardware, lawn and garden items, inexpensive furniture and other home products, and even luggage. In essence, Canadian Tire was becoming a general-merchandise discount store with an emphasis on automotive products.

Under Groussman's leadership, Canadian Tire continued to expand its store network and distribution facilities. Between 1986 and 1990, in fact, Canadian Tire added about 75 gas stations and 17 retail stores to its group, pushing sales past the CAD 3 billion mark for the first time in 1990. Meanwhile, net earnings gradually rose to nearly CAD 150 million annually in both 1989 and 1990—Canadian Tire was ranked as the 42nd most profitable company in Canada in 1990—and the company's workforce swelled to nearly 25,000. Encouraged by healthy gains at home, Canadian Tire management decided once again to take a crack at the massive U.S. market. In 1991 the company announced its intent to enter the Indianapolis, Indiana, market with four new stores under the name Auto Source Inc.

Canadian Tire had started its Auto Source experiment in 1990, when it opened two stores under the banner Car Care USA. Those stores, which mimicked the successful Pep Boys centers, incorporated 14 service bays and about 18,000 square feet of space for inventory. In 1991, it decided to change the names of those stores and began construction on two new stores. The design of the new outlets was influenced by the growing trend toward superstores. Thus, the new Auto Source outlets boasted 30,000 feet of retail space and 24 service bays. Auto Source planned to open between 100 and 150 additional outlets in the United States by the close of the century, aiming for CAD 1 billion in sales by that time.

During the early 1990s Canadian Tire opened six more Auto Source outlets, for a total of ten, that were soon generating more than CAD 60 million in annual revenues. Like the company's first attempt in the U.S. market, however, Auto Source proved unprofitable. The venture lost CAD 15.3 million in 1992 alone. Company officials explained that the loss was not unexpected considering that it was a new enterprise. In 1993, however, the division's losses increased. Part of the problem was that Auto Source was attempting a start-up in the midst of a U.S. economic downturn. But losses, according to critics, also stemmed from the fact that the company's U.S. support infrastructure was too great for the ten-store chain. Furthermore, the auto parts industry was facing increasing competition from discount stores such as Wal-Mart Stores, Inc., as well as new entrants into the burgeoning automotive discount superstore industry.

Key Dates:

1922:: Brothers John W. and Alfred Jackson (A. J.) Billes purchase Hamilton Tire and Garage Limited, an automobile service garage and auto parts depot in Toronto.
1927:: The Billeses incorporate their enterprise as Canadian Tire Corporation, Limited; first mail-order catalog is published.
1931:: Company introduces its unconditional tire guarantee.
1934:: First associate store opens in Hamilton, Ontario.
1950s:: Canadian Tire "money" is introduced.
1982:: Canadian Tire buys the U.S.-based White Stores, Inc. automotive retail chain.
1985:: The White Stores venture flops and is divested.
1991:: Company reenters U.S. market with the establishment of the Auto Source chain.
1994:: Multiyear store improvement program is launched.
1995:: Canadian Tire announces that it will shutter Auto Source.
1997:: Martha Billes, daughter of A.J. Billes, buys out her brothers' stakes in the company, giving her a controlling 61 percent interest.
1999:: The PartSource chain begins its official rollout.
2002:: Clothing retailer Mark's Work Wearhouse Ltd. is acquired.

In fact, Canadian Tire's domestic operations were also suffering from increased competition, particularly from invading mega-discounters such as Wal-Mart and Kmart Corporation. Indeed, by the early 1990s Canadian Tire was generating only about one-third of its revenues from automotive-related sales. The other revenue was generated from general merchandise. Canadian Tire was Canada's largest hardware retailer, for example, and a leading supplier of sporting goods. Profits from those items were increasingly being pinched by competition from discount warehouse rivals. Partly as a result of that dynamic, Canadian Tire's financial performance deteriorated in the early 1990s. Although the company's revenues grew to CAD 3.2 billion in 1992 and then to CAD 3.6 billion by 1994, its net income plunged to less than CAD 100 million annually in 1992 and 1993.

Revitalized Under Bachand in the Mid- to Late 1990s

Groussman left Canadian Tire in 1992 and was replaced by Stephen E. Bachand, previously an executive vice-president at Hechinger Company, a home center chain based in Landover, Maryland. Under Bachand's leadership, the company began implementing a strategy to help it compete in the new retail environment. That meant eliminating certain inventory items such as furniture and luggage from some stores and focusing on the company's traditional core products: automotive accessories, hardware, and sporting goods. The big superstores that were popping up across Canada carried all of those items and often had larger selections. But Canadian Tire benefited from intense market penetration—about 80 percent of all Canadian citizens lived within 15 minutes of one of its outlets—and was also known for its high-quality products. Importantly, Canadian Tire launched an aggressive renewal program that called for the enlargement of 240 of its 423 stores by 1998.

Canadian Tire's net earnings plummeted to just CAD 5.5 million in 1994, partly as a result of weak gasoline markets that were slowing the company's gas station division. Early in 1995, moreover, the company decided to shutter its Auto Source chain in the United States and completely bail out of that market. All of the U.S. stores were sold by 1996. Despite this setback, early results from the company's store expansion program were positive and management expected to realize substantial gains as it enlarged existing stores.

On April 3, 1995, company founder Alfred Jackson Billes passed away at the age of 93. His professional accomplishments included investiture in 1976 as a Member of the Order of Canada, the highest recognition a civilian Canadian could achieve. He was also inducted into the Canadian Hardware/Houseware Hall of Fame in 1986.

Canadian Tire's store improvement program continued throughout the late 1990s and into the new decade, by which time the cost of the program would top CAD 1 billion. While some existing stores were expanded to conform to a handful of new prototype layouts (later reduced to three), in many cases brand-new stores were built as replacements. By 1999, when the number of completed outlets stood at 188, the program had been expanded: The firm now planned to convert 350 of its 430 stores to the new formats.

As the company saw dividends from the more modern store designs and improvements in customer service, it also made changes in its management and ownership structure. In the late 1980s and early 1990s relations between the Toronto headquarters and the Canadian Tire dealers had been strained—so strained that the dealers had tried to buy the company in 1987 from the three children of A.J. Billes who held a controlling interest. The brothers, Alfred and David, and the sister, Martha, had been locked in a battle for control of the company before agreeing to sell to the dealers. But security regulators blocked the plan, contending that it was "abusive" to nonvoting shareholders. A truce was reached in 1989 that put an end to various lawsuits, but it was not until Bachand came onboard that relations with the dealers began to be mended. Bachand spent much of his first year meeting with and listening to the dealers, and he also started involving them in corporate strategy sessions. Most importantly, he got them to buy into the store improvement program, which began to pay off handsomely for all involved by the late 1990s. Meantime, the unsettled ownership situation reached a resolution as well. In 1997 Martha Billes bought out her brothers' stakes for CAD 45.4 million, boosting her holding to 61.2 percent.

The latter move came as Canadian Tire was celebrating its 75th anniversary, a milestone that Canada Post Corporation marked by issuing a commemorative stamp. It featured the company cofounders, an early Canadian Tire storefront, and a scene meant to be indicative of the relationship between the company and Canadians.

Another significant development in the late 1990s was the launch of PartSource, a new retail concept that was officially rolled out in 1999 after the testing of a few outlets. About 10,000 square feet in size, PartSource stores sold only automotive parts and were aimed at professional automotive installers and serious do-it-yourselfers. The move was widely viewed as a preemptive strike against the possible encroachment of major U.S. auto parts retailers, such as AutoZone, Inc. and The Pep Boys, into the Canadian market.

Remaining a Canadian Icon in the 21st Century

By 1999, under Bachand's leadership, revenue at Canadian Tire had reached CAD 4.73 billion, while profits had improved to CAD 145.9 million. Bachand announced in early 2000 that he would retire from the company, having successfully transformed Canadian Tire into a more modern operation. He had managed to do so while fending off the aggressive cross-border advances of U.S. retailing giants Wal-Mart and The Home Depot, Inc. Succeeding Bachand was Wayne Sales, who had been second-in-command as executive vice-president of Canadian Tire Retail. An American like Bachand, Sales had joined Canadian Tire in 1991, having previously worked in the United States for Kmart Corporation.

Sales oversaw the launch in 2000 of Canadian Tire's "Next Generation" store format, which was designed to be easier for customers to navigate and featured expanded and more upscale kitchen, hardware, and other product lines. Part of the aim with the new format was to attract more female customers. All stores built in 2001 and 2002 were given the new format, and some existing stores were also retrofitted into "Next Generation" stores. By 2002, 290 of Canadian Tire's 451 outlets featured one of the newer store formats. In November 2000, meanwhile, Canadian Tire launched its web site, which already by year's end was one of Canada's top five online retail destinations.

In a move that surprised many, Canadian Tire acquired Mark's Work Wearhouse Ltd. in February 2002 for CAD 110.8 million. Mark's operated about 320 outlets across Canada that sold casual clothing and footwear for work and leisure. Under Canadian Tire, it operated as a separate business unit. In 2004 the company began testing Mark's Work Wearhouse "stores within a store" inside of select Canadian Tire outlets. The addition of Mark's helped boost overall Canadian Tire revenues to CAD 7.86 billion by 2003. Profits by that time had ballooned to CAD 241.3 million, a 22 percent increase in just one year. Also aiding these stellar results were improvements to the product selection at Canadian Tire outlets, the addition of more gas stations and car washes, and the conversion of its customers from proprietary credit cards to a cobranded MasterCard called Options.

Not resting on its laurels, Canadian Tire began testing a new retail format in 2003 called Concept 20/20. Designed to achieve sales 20 percent higher than an older format Canadian Tire store, the new concept featured an updated layout, new and expanded product assortments, a customer care center, new store signage, and a redesigned exterior facade. Some of the 20/20 stores featured a Mark's Work Wearhouse store-within-a-store. The test stores were so successful—achieving 30 percent higher sales—that Canadian Tire announced that beginning in 2004 Concept 20/20 would supersede the Next Generation format as the prototype for the ongoing store improvement program.

For 2004 profits improved to CAD 291.5 million on record sales of CAD 8.39 billion. The company said that strong holiday buying played a significant role in the 20.8 percent increase in profits and the 6.7 percent jump in revenues. CEO Sales told analysts in early 2005 that the company was considering future acquisitions, building on its successful purchase of Mark's. An expansion of the Mark's store-within-a-store initiative was also under consideration because results had exceeded expectations. Canadian Tire, one of a dwindling number of Canadian-owned retailers, confidently looked to the future as an icon of the Canadian business community, and indeed for many Canadians it was an integral part of their lives.

Principal Subsidiaries

Canadian Tire Financial Services Limited; Canadian Tire Real Estate Limited; Canadian Tire Bank; CTC Capital Corp. (U.S.A.); CTC Holdings Inc. (U.S.A.).

Principal Operating Units

Canadian Tire Retail; PartSource; Canadian Tire Petroleum; Mark's Work Wearhouse.

Principal Competitors

Wal-Mart Stores, Inc.; Hudson's Bay Company; Sears Canada Inc.; Costco Wholesale Corporation; The Home Depot, Inc.; Ace Hardware Corporation; True Value Company; The Forzani Group Ltd.