Is Canadian Tire Corporation Limited About to Get Crushed?

One of the world’s biggest sporting goods retailers is coming to Canada. Should Canadian Tire Corporation Limited (TSX:CTC.A) shareholders be worried?

| More on:
The Motley Fool

Decathlon, the world’s largest sporting goods retailer, is opening its first Canadian location April 21 in Brossard, Quebec. With plans for a second location in Quebec City in 2019, should Canadian Tire Corporation Limited (TSX:CTC.A) be worried about the French retailer’s push into Canada?

You’d better believe it.

The best thing the company ever did was buy Forzani Group for $770 million in 2011. The acquisition essentially gave it the lion’s share of the Canadian sporting goods market. Without any real competition, Sport Chek and its other sporting goods concepts flourished.

In the fourth quarter ended December 30, 2017, Forzani, now known as FGL Sports, had same-store sales of 5.8%, which is 70 basis points higher than the same quarter a year earlier.

Sure, the Canadian economy was reasonably healthy in 2017, but if you look at FGL Sports’ annual same-store sales over the past five fiscal years, they’ve averaged 5.4%, which doesn’t indicate an ailing retailer.

What does Decathlon bring to the table?

Decathlon brings an operation of over 1,100 stores in 30 countries employing 78,000 people and generating approximately $15 billion in annual revenue. Its annual sales selling sporting goods are higher than what Canadian Tire generates from all six of its operating banners.

So, yes, this should be a little concerning. Of course, Canadian Tire had some warning. The news of Decathlon’s arrival first hit the newswires last August, when the Daily Hive mentioned the retailer had put up a Canadian website and would be launching its first store at the Champlain Mall in the spring of 2018.

Driven by innovation, Decathlon is said to design and manufacture more than 2,800 new products annually for its 20 in-house brands, and while Sport Chek has several of its own private-label brands that generate approximately 7% of its overall revenue, the French retailer takes it to an entirely different level.

Its Brossard store will be 45,000 square feet, which is smaller than some of Sport Chek’s flagship stores like its Sherway Gardens location at 75,000 square feet, but you can be sure that Decathlon’s prices will be lower than those found at Sport Chek.

Retail industry experts are buzzing about Decathlon’s entry into Canada, and not in a good way if you’re a Canadian Tire shareholder.

“It’s been a long time that I’ve heard so much buzz about a retailer entering Canada. I daresay since Target, but in very different circumstances,” said Carl BoutetMontreal-based retail strategy consultant. “Decathlon is recognized as a formidable, vertically integrated retailer that will force other sporting good retailers to up their game.”

Let the games begin

I’ve always found Sport Chek stores to be poorly managed, so I expect Montreal-area consumers are going to be in for a treat when Decathlon opens in a couple of weeks.

Sport Chek might have a significant advantage over Decathlon at this stage of the game, but it had better not sit on its laurels, or its near-monopoly position will be snatched from under it. 

And that would be very bad for Canadian Tire stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

More on Investing

growing plant shoots on stacked coins
Dividend Stocks

4 Ways to Grow $100,000 Into $1 Million in Retirement Savings

Anyone can build a million-dollar retirement portfolio. Here are four ways you could practically grow $100,000 to $1 million.

Read more »

Pot stocks are a riskier investment
Cannabis Stocks

Steer Clear: This Stock Spells Trouble

A newly listed cannabis stock is outperforming in 2024 but investors should stay clear to avoid trouble and losses.

Read more »

Red siren flashing
Energy Stocks

Buy Alert: 4 Reasons Why TC Energy Stock Is a Must-Own Now

A large-cap energy stock is a strong buy today for four compelling reasons.

Read more »

Shopping and e-commerce
Tech Stocks

Is Lightspeed Commerce Stock a Buy Now?

Despite the near-term weakness, I am bullish on Lightspeed due to its solid fundamentals, healthy growth prospects, and attractive valuation.

Read more »

A shopper makes purchases from an online store.
Dividend Stocks

3 Reasons to Buy TFI Stock Like There’s No Tomorrow

TFI stock (TSX:TFII) had a hard 2023, but now it's set up for a solid 2024, with an acquisition that…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

5 Secrets of TFSA Millionaires

These lesser-known secrets can help you set up the perfect long-term portfolio and achieve a million-dollar TFSA!

Read more »

Canadian stocks are rising
Dividend Stocks

iShares S&P/TSX Capped REIT Index ETF (TSX:XRE): Why I Like this ETF Better Than a Rental Property

XRE is a great ETF for gaining exposure to the Canadian real estate sector.

Read more »

analyze data
Dividend Stocks

How to Build a Powerful Passive-Income Portfolio With Just $20,000

These fundamentally strong TSX stocks have paid and increased their dividend in all market conditions. Add these stocks to build…

Read more »