Reitman's Spatial Preemption

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Management 711: Professor Louis Thomas

NAVI HEHAR
Student #17910197

REITMANS (CANADA) LTD.:
SPATIAL PREEMPTION IN CANADIAN RETAIL

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Executive Summary

Reitmans is the largest specialty retailer of women’s apparel in Canada.  Founded in 1920 as a single store selling women’s apparel, Reitmans has grown into a publicly traded women’s apparel retailer with almost 1,000 stores coast-to-coast across Canada and annual revenue exceeding C$1 billion. Trendex estimates that Reitmans has a market share of approximately 11% in the Canadian women’s apparel market, and a market share of approximately 25% in plus-sized women’s apparel. I believe this level of concentration is unprecedented for a mature western market, and is far higher than US specialty apparel retailers such as Gap Inc. or Spanish giant Inditex. Furthermore, Reitmans has managed to capture this market share while maintaining very high profit margins and a return on equity that greatly exceeds 20% while having never reported an operating loss.

I plan to understand why.

This paper will examine my theory on how Reitmans, and many other low-cost specialty retailers such as Gap Inc. and Inditex, utilized Judo entry techniques to capture a large share of the mature women’s apparel retail market from incumbent department stores. I will propose a thesis on how Reitmans has utilized a Stackelberg leader position to create low customer acquisition costs in order to gain a large share of the women’s apparel market (particularly in plus-sized clothing), and has used spatial preemption techniques in order to maintain (and grow) an unprecedented market share of the Canadian women’s apparel market, and particularly in the mature / plus-sized apparel segment.

Finally, I would like to propose my theory on the question, “if Reitman’s strategies are so successful, why haven’t US-based retailers also done the same thing?”.

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Reitmans (Canada) Limited

Founded in the 1920s by the Reitman family in Montreal, Reitmans (Canada) Limited (TSX: RET.A) (“Reitmans, or the “Company”) is a publicly traded retailer of women’s apparel in Canada with over 900 stores across the country. The Company’s focus is on providing apparel for mature and plus-sized women at an affordable (low to moderate) price point, primarily through stores in malls and power centers. Reitmans has annual sales exceeding C$1 billion and operates 929 stores across the country.

The Company operates seven banners focused on women’s apparel spanning a target market of 18- to 60-year-olds, including pregnant women and the plus-sized market. Reitmans focuses on providing low-to-moderate priced fashions for the working mother or young woman. One unique aspect of the firm’s strategy is the location of its stores; Reitmans will often “cluster” its various brand formats within the same shopping mall or power center, giving it considerable negotiating leverage over mall owners and a retail presence across a broad spectrum of female age groups, body types and price levels. Reitmans also invests heavily in advertising, particularly on its flagship “Reitmans” banner, and sells only its own private label designs in all of its retail segments.

Summary Matrix of Reitmans Brands: 2007 Scotia Capital Research Report [pic]

Description of Brands (ordered by date launched or acquired)

As at April 4, 2009, the Corporation operated a total of seven retail store banners which are profiled below. The majority of the Corporation’s stores are located in enclosed shopping malls which are situated both in central and suburban metropolitan areas and in smaller towns in Canada. Over the years, Reitmans has gradually expanded its product portfolio to include segments closely competing with its core Reitmans banner. The Smart Set banner was introduced to pursue a slightly younger demographic than Reitmans, while Penningtons pursued casual clothing for plus-sized women across the broad age spectrum...
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