TORONTO-The second try wasn't the charm for Canadian Tire Corp. Ltd.'s attempt to break into the U.S. market. In December, the Toronto-based retail giant announced it was closing its 10-store Auto Source chain in the U.S. in late January after mounting losses during the three-year venture.
The retailer has decided to divert its investments to completing a five-year plan to expand and/or relocate about half of its 425 retail stores in Canada by 1998.
The Auto Source automotive parts warehouse concept was Canadian Tire's second attempt to get a foothold in the U.S. The firm closed an acquired home-and-auto supply chain in Texas in 1986.
Auto Source outlets inventory 18,000 different automotive parts, accessories and tires and contain up to 24 bays that offer a complete range of repair and maintenance services. The company operates two outlets each in Indianapolis; Louisville, Ky.; and Cincinnati, Columbus and Dayton, Ohio.
The chain, which debuted in Indianapolis in 1991, had been losing money for otherwise profitable Canadian Tire. Auto Source lost about $20 million in 1993 and $13.1 million during the first nine months of 1994.
Alan Goddard, vice president of corporate affairs for Canadian Tire, said the principle problem with the venture was that the stores were attempting to draw consumers from too broad an area. While the stores had strong sales performance, they failed to draw enough customers from the large geographic areas to support the operations, he said.
Canadian Tire said the losses from the U.S. operation will impact the parent company's consolidated net earnings for 1994, which will also take a charge of about $68.7 million against the investment. Canadian Tire operates 425 stores throughout Canada.
Mr. Goddard said the firm could return to the U.S. in the future.
The closure came as no surprise to David Brodie, an analyst with Wood Gundy Inc. of Toronto.
Auto Source was not making any progress and the decision came down to ``fish or cut bait,'' he said.
During the third quarter of last year, Mr. Brodie suggested that closing the Auto Source operation would have a positive impact on stock prices. As it turned out, the December announcement nudged up the price of Canadian Tire stock, he said. The year-end charge and losses are expected to only produce about a 5-cent drop per share for 1994, he added.
Mr. Brodie doubted Canadian Tire will try another U.S. venture soon due to its ambitious plans to expand. Currently Canadian Tire stores do not have enough floor space to capitalize on an array of products and ``they can't afford to have someone outflank them with assortment (of products),'' Mr. Brodie said.
With the arrival of Bentonville, Ark.-based Wal-Mart Stores Inc. in the Canadian market last year, Canadian Tire has been engaged in an aggressive pricing war with the giant retailer, he said.