America Invades Canada: A Retail Onslaught!

Ever since the American army invaded Canadian territory two times in less than forty years – first in 1775, during the war for American independence, and then again during the Napoleonic War of 1812 – the northern neighbor of the United States has been a bit jittery about being over run by the world’s most powerful nation.

The Canadians have struck back from time to time, of course. During the 1990s, for instance, the brief establishment of a Southern Division of the Canadian Football League (CFL) threatened America’s powerhouse National Football League. In fact, the emergence of the CFL’s champion Baltimore Stallions in 1995 shook two nations, as Canadians found it unnerving to applaud an American champion of their Canadian sports league, and as American football fans found themselves torn between their own home grown league and a foreign rival for their affections.

The CFL’s incursion into the United States didn’t last very long; the following year, the NFL arranged for its Cleveland franchise to move to Baltimore, and (fearing direct competition with a far stronger rival) the Stallions moved north to Montreal. The other CFL franchises in the United States simply folded, and the Canadian sports incursion into the United States faded away.

This past month, though, the Americans struck the Canadians again! Not with their military forces or professional sportsmen, but with their mighty retail industry organizations  instead.

New Targets and More Walmarts

Walmart, America’s largest discount retailer, has operated stores in Canada since 1994 when it purchased the Woolco store chain; it has since grown to become the largest discounter in Canada. In fact, Walmart Canada has even been able to expand in areas that have eluded it in the United States; for instance, Walmart convinced Canadian regulators to permit it to launch its own banking institution, a request that was denied by regulators in America.

A single retailer – even one as powerful as Walmart – may not necessarily qualify as a full blown invasion, but two gigantic store chains are a different matter. Thus, the retail sector was abuzz earlier this month when Target, Walmart’s tenacious rival in the United States, announced its entry into the Canadian market with its $1.8 billion purchase of the lease agreements of Zellers, the second largest discount store chain in Canada. Over time, as the leases expire, Target plans to convert most of the locations to its own branded establishments.

In other words, the two largest discount retail store chains in the United States are well on the way to becoming the two largest such chains in Canada as well! And in response to Target’s announcement, when Walmart announced its own $500 million expansion plans for additional Supercenters in Canada, America’s retail conquest of its northern neighbor appeared to be inevitable.

Meanwhile, Retrenchment in the States

This figurative Gold Rush of American retailers into the Canadian market is particularly striking in contrast with their own development plans in the United States. Just this past week, for instance, Walmart shocked its foes by unexpectedly abandoning plans to develop a new center in Virginia on the eve of the launch of a legal appeal of a previous decision that favored the retailer.

Apparently, Walmart had secured the requisite legal permissions to develop a site in Virginia’s Orange County, a site that is contiguous to a protected Civil War battlefield. Although some local residents welcomed the store because it offered a much-needed boost of economic activity, a loosely defined group of local residents, small businesses, and site preservationists were about to petition the courts to reconsider those permissions.

Why would Walmart abruptly walk away from a set of legal permissions that it had already secured, thus abandoning an expansion strategy that has served it extremely well during its decades of immense growth in America? Although a spokesperson for the retailer claimed that its business executives had simply changed their minds about the opportunity, it is quite possible that Walmart has decided to focus on the greater potential of the Canadian market instead of the American market.

Eurosclerosis in America?

Although economists in the United States have long taken note of their nation’s loss of economic capital to newly emerging countries, the loss of such vital resources to its northern neighbor is a relatively new concern. And it is a highly worrisome one at that; after all, how can America expect to compete for the investment capital of foreign corporations when it is struggling to remain at the center of the development strategies of its own home grown retail organizations?

Back in 1985, German economist Herbert Giersch invented the word Eurosclerosis to describe the inability of the European democracies to sustain significant economic growth in the face of high taxation rates, a generous social safety net, and extensive government regulation policies. Has the United States reached the point where Amerisclerosis has become a concern as well?