How Zellers failed

Hani J. Zayadi was once the wunderkind of Canadian retailing. In 1987, at age 39, the Thomson family tapped him to run its Zellers chain, where he introduced the "Lowest Price Is the Law" marketing campaign and Club Z. Sales soared. Two years in, he was lured west to save the Woodward's chain, and later to Australia for another rescue mission. Now 63, Zayadi is semi-retired, and splits his time between Vancouver and Palm Springs, where John Daly caught up with him to get his take on Hudson's Bay Co.'s recent sale of up to 220 Zellers stores to Target.

Pretty much every major Canadian department store chain has either failed or been taken over by U.S. owners-Simpsons, Eaton's, Woodward's and so on. Why? If I think broadly about the reason, it would be a combination of proximity and scale. It's an easy leap for U.S. retailers to come across the border, and they can leverage their scale in a smaller market. Zellers' volume today isn't much different than when I left in 1989-about $2.5 billion a year. Walmart Canada has grown to about $16 billion. Before Walmart arrived, Zellers' marketing campaign had two anchors: "the Lowest Price Is the Law" and Club Z. But Walmart took that positioning away from them-the lowest price.

A lot of those chains were controlled by families. Was there a failure of leadership? That would be simplistic and somewhat unfair. It's more a worldwide trend over the last several decades. Most retail empires were built by families, which often translates into large real estate holdings as well. But as scale and leverage have become important, most of them have gone public. And the families get diluted, and the companies merge with others, and so on.

Should Canadians be concerned about American domination? I'm not and never have been. We're part of a global marketplace. Most retail products in Canada, as they are in the U.S., are imported from elsewhere. We can share in the growth and benefits of any of those takeovers in many ways. We get jobs. We get more competition. We can invest-these are public companies.

Target is about one-sixth the size of Walmart. From a shopper's point of view, what can Target offer that Zellers couldn't? After Walmart arrived, Zellers tried everything. It tried to go head on-that wasn't very smart. It tried to go a little bit upscale-that didn't work, either. Target has taken a position that: "We're not Walmart. We will meet them on some of the basics-paper towels, diapers-but we're going to be a little more upscale when it comes to apparel and home fashion. We're going to have a different feel in our stores."

So, they've found several niches? They have a combination of niches, which gives them a different customer positioning. But the U.S. has many, many segments. They have high, high department stores, such as Saks and Bloomingdale's. Then they have a set just below that-Nordstrom and Macy's. They go lower again with Sears and JCPenney. Then they go into the Target level, then Walmart. Even below that, they have some really deep discounters. You don't find that in Canada.

What does this say about HBC's future? It's a wonderful opportunity for them if they focus on being a great department store. Canada is probably the only Western economy that doesn't have one. I believe in the leadership at the Bay right now, and there's no store to compete with them. They can just concentrate on being the best department store in Canada, and not worry about Walmart and Target, or about Zellers. It's not their customer.