June 1, 2009
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News: Canadian Tire CC Business Drops
One of Canada's most popular retailers was given a $2 billion facelift that hasn’t provided the company with a suitable pay back. Canadian Tire Corporation is a network of interrelated businesses with more than 1,100 general merchandise and apparel retail stores and gas stations. The company is also a major financial services provider and a federally chartered bank. After spending of a great deal of money on store improvements that the company had hoped would pull up declining sales, the company is now looking for other ways to cut costs and avoid additional credit card defaults. The merchant hired Atlanta, GA based BMO Nesbitt Burns to analyze the company's business. According to Wayne Hood of BMO, the results of their evaluation have focused their efforts on the retailer's decline in sales and credit card business. They assigned a market perform investment recommendation to Canadian Tire as they market the company. Mr. Hood stated that the store improvement initiative did not pay off. The retailer, who holds nearly 5 million credit card accounts on the books, actually had a drop in sales after the store improvements.
Despite the fact that Canadian Tire's regular credit card customers curbed their spending; the company experienced an overall increase in sales. However, when you look at the actual sales per square foot, sales declined after the store improvements. Only 20% of the Canadian Tire branded MasterCard customers appear to be using their credit cards, however, are spending a lot more than regular customers. According to Mr. Hood, the average Canadian Tire card balance is $2,100 up 7% from last year. Totally, the retailer’s customers have rung up $3.9 billion on their accounts.
Canadian Tire credit card defaults have risen sharply as well. The sluggish economy and high unemployment has contributed to the high loses. Mr. Hood says the retailer has done an excellent job in managing the card business which has been a major source of income in the past; however, feels the company many need to consider eliminating the store branded card.