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Zumiez Inc., the skateboard apparel retailer


Two more major U.S. retailers have confirmed they will open stores in Canada this year, beating out giant American discounter Target Corp. by almost two years and highlighting the frenzy of foreign demand for domestic mall space.

Express Inc., the sixth-largest American fashion chain, will open its first six stores in Canada this year and a total of 50 in five years, executive vice-president Matt Moellering said.

Zumiez Inc., the hot skateboard apparel retailer that considered bidding for Canadian rival West 49 last year, is also launching its first outlets here this year.

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"Everything we've seen and read from other retailers and the uniqueness of our business model tells us we will be very successful up there," Trevor Lang, chief financial officer at the Everett, Wash.-based chain, told analysts recently. It will start with a "handful" of stores in Canada this year before getting "more aggressive."

The impending entry of new chains underscores the growing appeal of the Canadian retailing landscape in an economy more buoyant than many U.S. and European markets. But it also puts pressure on existing merchants to raise their game and snag quality locations in an increasingly tight retail property market.

"The supply side of the equation is changing," said Donald Marleau, a credit analyst at Standard & Poor's. "It means more selection for consumers in virtually all segments … That's where the Canadian retailers will find themselves walking the tightrope between a potentially difficult cost environment and competition that is just getting more and more intense."

It all points to a challenging 2011 for retailers, Mr. Marleau said. The merchandising market will probably grow modestly by about 3 per cent this year, roughly the same as in 2010, he estimated. At the same time, consumers - grappling with record debt levels - are demanding low prices while retailers struggle with higher costs for goods.

Nevertheless, the economics of Canadian retailing can be attractive. Domestic retailers generated $578 of sales per square foot in malls - excluding department-store anchor tenants - compared with $398 (U.S.) among U.S. mall retailers, according to September figures from the International Council of Shopping Centers.

In a bid to cash in on the Canadian market, Target Corp. of Minneapolis announced last week a $1.8-billion (Canadian) deal to buy most of the Zellers stores and convert many of them to the Target banner by early 2013. Rival Wal-Mart Stores Inc. and home improvement specialist Lowe's Cos. are among U.S. retailers expanding here this year.

"Canadian retailers will just have to be just a bit more focused," said Rick Chad of executive recruiter Chad Management Group. Sears Canada could be hurt the most, he added. Weighed down by weakening results, Sears competes head-on with the newcomers.

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Express of Columbus, Ohio, which runs more than 580 stores catering to twenty-somethings, is set to add further pressure on incumbents. A "rising star" that competes with such upscale fashion chains as J. Crew - which is also launching in Canada this year - and Gap Inc.'s Banana Republic, Express is breathing new life into its operations, said Neely Tamminga, senior research analyst at Piper Jaffray & Co. in Minneapolis. It has a formula of testing out-of-season products to keep on top of trends and minimizing the need to slash prices on unpopular merchandise, she said.

"In 2011 and beyond, Express stands to break through its historical peak of $344 (U.S.) [sales per square foot]and move closer to a peer average of $419," she said.

Lorraine Hutchinson, an analyst at Bank of America Merrill Lynch in New York, predicted that Express will adjust to the Canadian retail landscape by tweaking its logistics, labelling and promotions for the market. "We expect Express to easily adapt to these changes and run a profitable business in Canada," she said.

Zumiez, the leading U.S. action sports apparel retailer, enjoyed a 9.2-per-cent jump in December same-store sales, which was below analysts' consensus estimate of 11.2 per cent but still "a great holiday season," said analyst Jennifer Black, president of Jennifer Black & Associates in Lake Oswego, Ore.

Zumiez's results are being bolstered by an improved e-commerce site and burgeoning lines of edgy fashions, she said. "The company's unique and exclusive product offerings make [their stores]a clear destination in the mall."

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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