EUR 850.00 For Business Accounts Only

Morningstar | Although Its Omnichannel Offering Is Improving, Canadian Tire Still Faces Intense Competition

Despite its iconic namesake brand, Canadian Tire faces intense competition in a changing sector. With shoppers embracing e-commerce, Canadian Tire faces top- and bottom-line strain as online retailers often economically offer a price and selection advantage. While the geographic dispersion of Canadian consumers is a barrier to digital penetration due to shipping speeds and costs (giving Canadian Tire’s extensive store network an advantage), we expect urban and suburban shoppers to further embrace scaled digital sellers (such as Amazon) and large foreign brick-and-mortar chains (such as Walmart) that can leverage their infrastructure to Canadian Tire’s detriment.In addition to improving the in-store experience, management is differentiating by acquiring product brands. The labels bought include proprietary and nonexclusive brands, most recently Helly Hansen, which will continue to be sold at other Canadian retailers and globally. While we believe the benefits of owning broadly distributed product brands are less clear, we contend the exclusive portfolio should combat competition, particularly in the namesake and Mark’s chains, which already see own-brand penetration around 40% and 60%, respectively (the banners constituted 56% and 10% of 2018 retail revenue, respectively). We expect differentiation to be harder at SportChek (16% of 2018 retail revenue), which also operates under the Atmosphere and Sports Experts banners, given the power of sporting goods brands.The diversity of Canadian Tire's offerings tethers performance to the state of the country's consumers. The firm is further exposed to macroeconomic conditions via Canadian Tire Financial Services (which primarily offers in-store financing through credit cards), which we believe could stress results in an economic downturn due to subprime exposure, and CT REIT (which mainly owns stores and distribution centers across Canadian Tire’s banners as well as land for future expansion), which is diversifying into unaffiliated commercial properties.