TBS: Transforming Retail in Small-Town Canada

“Assortment-driven shoppers may not find everything they are looking for because of the limited selection in a 10,000-square-foot box store, but those looking for quality products and good prices can find just about anything they actually need,” he said.

Headquartered near Toronto in Mississauga, Ontario, TBS is currently set to complete its openings of 65 former Saan stores, bringing its total store count to more than 250 stores operating in every Canadian province except Quebec. The typical TBS store is about 10,000 square feet, but locations vary in size from 4,000 to 30,000 square feet. Long ago, TBS was the Canadian general merchandise division of Woolworth’s, but it has been on its own since Roellinghoff led a group of investors in a buyout in 1999.

At the time, TBS had 85 locations and was stuck in a niche between large discounters like Walmart and dollar stores like Dollarama. The idea was to find a new way to do business by concentrating on smaller Canadian towns and trying to make the TBS shopping experience an alternative to large discounters, combining a convenience assortment of products with an “opportunity buy” environment. Walking into a typical TBS, customers can expect 40% domestic replenishable items and 20% seasonal products (mainly imports); the rest are discounted “opportunity buy” items brought in from Canadian and US wholesale and manufacturing sources, allowing TBS to offer brand names at good prices.

“Customers in small towns get exposure to a pretty unusual value proposition, combining that convenient shopping experience with access to basic everyday needs,” Roellinghoff said. “We don’t focus on fixed or limited price points. We focus on what the customer needs from us, bring it in at a fair price, and hopefully sell it quickly.”

Due to differences in size and location, each TBS has a fair amount of freedom to operate in a way that suits its individual customer base. Although district managers dictate parts of the layout from the corporate office, there is flexibility provided to each store manager on how to structure merchandise to develop a market-driven shopping experience. Much of the company’s success in this area stems from low turnover in middle and store management.

“Part of that is a function of being in smaller towns, but it is also due to a culture geared around mutual respect, as well as training and development. We’ve had a bonus structure since the beginning for everyone from the president to part-time associates, so we all participate in the success of the company,” Roellinghoff explained. “Also, the focus here is on the inverted pyramid. We are not a command and control organization, but we are focused on results.”

TBS maintains supply chain relationships through a thoughtful balance on satisfying long-standing partners while constantly looking for new vendors. Roellinghoff said that balancing act is critical because the company’s responsibility to customers demands that its stores provide the best value possible.

Pursuing opportunity

When TBS first ventured out alone, it instantly tried to create a culture of growth. That growth was purposefully slow at first as TBS focused on organic expansion, but in the last few years, the company has become more aggressive. It took nearly ten years for TBS to grow from 85 stores to about 180, and the increase to 250 came about because another Canadian general merchandiser, Saan Stores, went into bankruptcy and was put into receivership by creditors last August. TBS leadership had been in acquisition discussions with Saan and acquired 73 leases from the receiver.

Of those leases, 65 were scheduled to open before Christmas 2008, with the rest coming online after the New Year. TBS didn’t acquire Saan’s inventory, so locations were empty, and while it has been a race to get new stores open, the work of internal constituents and external stakeholders, particularly the vendor community, gave the company a leg up. Many former Saan employees came on board with TBS, and the new stores have a slightly larger average size of about 12,500 square feet. This allows the company’s buyers to bring more quality, affordable merchandise into the stores.

“The benefit of organic growth is that it is controlled and disciplined. But I prefer growth through acquisitions,” said Roellinghoff. “Even though acquisitions require fast movement, we can harness our resources at once, so it isn’t more difficult for us in the long run.”

The company recently introduced a new concept store called TBS Express. The 5,000-square-foot pilot store opened in Teulon, Manitoba in August. The idea is to make smaller stores as shoppable as the larger locations. TBS brought in an outside consultant to think through the customer shopping experience and edit the product assortment carefully to reduce clutter without negatively impacting sales.

The TBS Express footprint allows the company to target two distinct markets. The first is mature, downtown urban locations where affordable larger locations are difficult to find; the second is very small towns where a stable population exists but can’t support a 10,000-square-foot store.

Currently, the company is working with another consultant to develop a long-term Internet marketing strategy. Although TBS has no plans to migrate into US markets, Roellinghoff sees expansion opportunities on the horizon across all of Canada, including Quebec. And with many of the former Saan stores in excess of 20,000 square feet, there is an opportunity for TBS to develop destination locations.

Roellinghoff is concerned about Walmart owning in excess of 50% marketshare in Canada and moving into secondary markets aggressively, as well as the reality that a larger economic slump could eventually reach TBS’ doors. He also thinks the industry should do more to make retail work a career of choice for the younger generation. But as one of Canada’s fastest growing national retail chains, TBS is in position to control its own destiny despite challenges in the market.

“The early success of our new stores is a strong signal that customers appreciate our mix of quality merchandise and low prices,” said Roellinghoff. “During uncertain times, consumers are shopping closer to home and appreciate now more than ever the value offering of our particular combination of brand names and affordable prices.”