TORONTO – The head of Canadian Tire wants to get newcomers to Canada more familiar with its little red triangle logo.
Introducing the iconic retailer’s logo, and stores, to those recently arriving in Canada, was one of the main reasons why Canadian Tire decided to enter into a 10-year partnership with Scotiabank, says CEO Stephen Wetmore.
“Most people in the world aren’t familiar with the Canadian Tire type of experience. In many countries, you have to go to five, six, eight stores to find what you would find in a Canadian Tire store,” he said Thursday, following the company’s annual general meeting.
“So the best way to experience Canada, if you ever moved here, is to walk around a Canadian Tire store. You are going to see the seasons, you’re going to see what Canadians do. To make that initial connection is very important.”
As part an effort to build brand loyalty with new Canadians unfamiliar with the bank or the retailer, Scotiabank announced it will buy a 20 per cent stake in the Canadian Tire’s financial services division for $500 million in cash, and agree to provide up to $2.25 billion in credit card receivables financing to the business.
Canadian Tire (TSX:CTC.A), which sells everything from automotive parts to housewares, is counting on connecting with Scotiabank’s (TSX:BNS) customers through special offers to drive up traffic at its stores. One of these deals includes handing out gift cards to recent immigrants, who open up Scotiabank accounts, to spend at the retailer or its apparel brand, Mark’s.
Another offer involves giving $500 in Canadian Tire money to Canadian Tire Options MasterCard holders who switch or take a new mortgage from Scotiabank.
“We’re both working to earn new loyal customers among new Canadians,” said Wetmore. “The potential is unlimited when it comes to the range of products we can offer to each other’s customers.”
The partnership was a “logical” one considering both the brands’ also connect over the importance of sports, with both previously involved in high-profile Olympic sponsorships.
Scotiabank president and chief executive Brian Porter said the deal is part of the bank’s strategy to grow its high-margin credit card business and acquire new customers.
“We’re in the business of acquiring new customers every day and that’s where the we think the value of this transaction is,” Porter said.
Under the deal, Scotiabank will become the exclusive partner for new financial products to Canadian Tire customers. It also includes an option for Canadian Tire to sell up to an additional 29 per cent stake in the financial services business to Scotiabank within the next decade at fair market value. At the end of the term, Scotiabank will also have the choice to back out of the partnership if it no longer considers it beneficial.
Canadian Tire’s financial services division, which includes credit cards, has $4.4 billion in receivables and 1.8 million active customer accounts.
Wetmore said Canadian Tire will use the money from the deal to pay down debt and give the company more flexibility with cash flow.
Barclays Capital analyst John Aiken called the deal “intriguing” but noted it would have a modest impact on Scotiabank’s bottom line in the short term.
“The deal demonstrates Scotia’s willingness to increase its exposure to the Canadian retail landscape as well as its ability to be flexible and creative in attaining these goals,” Aiken wrote in a note to clients.
The announcement came as Canadian Tire reported its first-quarter results and increased its dividend. The retailer said it will now pay a quarterly dividend of 50 cents per share, up from 43.75 cents per share.
Canadian Tire said it earned a profit attributable to shareholders of $70.6 million or 88 cents per share for the quarter ended March 29, compared with $73 million or 90 cents per share a year ago. The retailer said its results were hit by high advertising costs during the Sochi Winter Olympics, and the launch of CT Real Estate Investment Trust (TSX:CRT.UN), which acquired a majority of the company’s property holdings.
Retail sales for the company totalled $2.46 billion, up from $2.43 billion in the first three months of 2013.
Same-store sales were down 0.5 per cent at its Canadian Tire stores, while FGL Sports same-store sales were up 6.4 per cent, while Mark’s gained 2.9 per cent.
Wetmore said the company is continuing to experiment with digital strategies across all of its brands. Customers can now buy up to 90 per cent of its products online, and pick them up at their closest location. No plans have been announced on when home delivery for online purchases will be available.
Next month, SportChek will also do another test on replacing its paper flyers with digital ads on Facebook. Duncan Fulton, the chief marketing officer for FGL Sports and Mark’s, said data so far has shown a double-digit surge in year-over-year sales on digitally-advertised products during two other trial runs.
Fulton said the company is considering using SportChek’s current $20 million advertising budget just for digital ads, but does not foresee ever completely eliminating paper flyers for Canadian Tire. The national chain spends about $100 million a year on its paper flyers, and prints 11 million copies each week to deliver to homes.
Founded in 1922, Canadian Tire has nearly 1,700 retail and gasoline outlets across the country, including various banners under FGL Sports, such as Hockey Experts, Sports Experts, National Sports, Intersport and Atmosphere.
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