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Nov 3, 2017

Why Canadian Tire’s risk of being ‘Amazoned’ may be lower than you think

A Canadian Tire store in North Vancouver

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There's little doubt retailers around the world are concerned in some way, shape or form about Amazon stealing sales, but some analysts and shareholders think Canadian Tire has a couple tricks of its own to help it avoid being "Amazoned."

One BMO Capital Markets analyst thinks Canadian Tire's store locations and in-house brands such as MotoMaster and Mastercraft could work to insulate the company from losing market share to the e-commerce giant.

"Canadian Tire is one of the oldest surviving retailers in Canada and, as a result, has developed a strong base of retail locations that offer a convenient shopping trip for most Canadian consumers," Peter Sklar wrote in a Nov. 1 note to clients. "We find many of Canadian Tire's private-label brands have such strong awareness that many Canadians believe they are national brands."

Wickham Investment Counsel Portfolio Manager Sean Pugliese agrees in that investors might be overreacting to the perception of the Amazon threat.

"[Canadian Tire sells] many goods that customers like to see/feel/touch or like to speak to a knowledgeable customer representative about," he told BNN in an email.

Canadian Tire is a core holding for his firm.

The business model has a little bit of a "uniqueness" to it, Brittany Weissman, an analyst at Edward Jones, told BNN in a phone interview. She says the fact that the company has its auto service segment is a plus in terms of keeping consumers coming back to its stores, but admits it might not be enough to fully offset the overall digital threat.

Further developing its online presence and boosting e-commerce sales is one of the company's core focuses this year.

The retailer is aiming to reach an annual three per cent sales rise at Canadian Tire stores open at least a year, an increase of five per cent at Mark's Work Warehouse and an ambitious nine per cent at FGL Sports, which owns banners such as Sport Chek.

While some headway has been made on its digital strategy, one retail expert thinks there's still work to be done.

"[Canadian Tire has] done little to become a true online competitor," Doug Stephens, founder of Retail Prophet told BNN in an email. "Perhaps the most glaring example is that while one can shop on the Canadian Tire website, the company still isn't shipping purchases but rather insisting that customers pick up their order at a local store - defeating any sense of convenience."

The retailer has only begun to dabble in home delivery.

Investors will likely get an update on the company's digital efforts when it reports third-quarter results on Thursday.

Regardless, Sklar says the retailer has already been showing resilience to the “Amazon effect.”

"Contrary to conventional thinking, Amazon.ca already has a credible offering in the core Canadian Tire offerings, yet Canadian Tire's [comparable sales] have been holding up,” he said. "We believe the company will prove to be more immune to the threat of Amazon than investors anticipate."