Saying they no longer align with its core business objectives, Winnipeg’s North West Company (NWC) is selling 34 of its 46 Giant Tiger stores throughout Western Canada to Ottawa-based parent Giant Tiger Stores Limited.
The transaction is valued at $45 million, with up to an additional $22.5 million on the achievement of certain profitability milestones.
Of its 12 remaining Giant Tiger stores, NWC said it would retain and operate five in northern markets, convert one location in Prince Albert, Sask. to a Valu Lots clearance centre, and close the remaining six stores throughout the second and third quarter.
NWC president and CEO Edward Kennedy said NWC also intended to reduce its operating costs by up to $17 million a year, achieving about 60% of that through staff redundancies—including a reported 130 positions at its head office—and the remainder through “streamlining” initiatives and increased automation.
NWC also said it planned to invest in lower retail food pricing to drive market share growth in Northern Canada, beginning with approximately $10 million in annualized pricing investment over the next 12 to 18 months.
Speaking with analysts on Friday, Kennedy said NWC and Giant Tiger Stores Limited have been aligned in principle on a deal for more than a year. Asked if NWC had contemplated selling the stores to a third party, Kennedy called Giant Tiger a “natural partner” for the transaction on the basis of a longstanding agreement between the two organizations.
“I think conceptually you have to…look at the reality of who’s the best natural partner for this,” he said. “And uniquely, since they’re the franchisors, we have a 20-year relationship,” he said. “And they’ve got a vision for their stores that’s national [and] we’ve got a vision for our core competency, which is more rural.”
The transaction comes as Giant Tiger continues to grow its national footprint, with president and chief operating officer Paul Wood telling Canadian Grocer last year it planned to open between 10 and 15 new stores each year.
Kennedy said the two companies would enter into reciprocal product supply and distribution agreements, with NWC providing food-related products to Giant Tiger and the latter supplying its northern stores with food products and general merchandise spanning categories including home fashion, window coverings, bath and bedding, etc.
“We like the fact that they’re strong and are moving more to be more opportunistic,” said Kennedy, noting that Giant Tiger has also picked up some good house such as Proctor Silex that NWC could tap into.
Kennedy said the original deal with Giant Tiger enabled NWC to drive scale on both the food procurement and distribution side of its business. Giant Tiger is a “unique format” with a strong niche around convenience and discount and a varied product assortment, he said during the analyst call.
However, Kennedy noted the closing Giant Tiger stores and the stores it is selling abruptly lost $8.6 million last year. “They were profitable stores, and they became negative $8.6 million,” he said, telling analysts that its Giant Tiger operations achieved peak profits several years ago.
NWC reported a 3.9% increase in consolidated sales, to $553.1 million, in the fourth quarter, with a 5.2% increase in food sales and a 1.5% increase on a same store basis, led by gains in Northern Canada and Alaska.