President & CEO's MessageWhile our financial results were mixed, 2013 was very productive on setting priorities and getting our business back to delivering superior returns.
Our people worked exceptionally hard, with focus and enterprise that matched up to the best work in retailing today. We learned a great deal about what we do well, what we need to do better and what we need to simply stop doing, so that we win for our customers, every day.
In late 2012, we completed the sale of six underperforming Giant Tiger ("GT") stores, leaving us with a healthy core of 31 locations to build from. Within the western Canadian market we faced competition from new discount food space with no offsetting growth in consumer demand. Under this pressure, the GT advantages stood out: convenience, unwavering commitment to great prices and the newness of our apparel and niche hardlines categories. GT delivered one of its best profit years ever and demonstrated the resiliency we expect from all of our banners.
In addition to Giant Tiger, our Alaska Commercial (“AC”) store division stood out in 2013. The Alaskan economy picked up momentum through the summer and our buying teams delivered great seasonal programs. Over the past 10 years, AC’s operating margin growth has averaged in the mid to high single digits. We have consistently added new stores through community partnerships and we’ve helped bring a needed retail service to lower income rural Alaskans. During this period, AC has been led by Rex Wilhelm, President and Chief Operating Officer of The North West Company (International) Inc. (NWCI). This spring Rex will be transitioning to a part-time role as Vice-Chairman, NWCI, after 30 years of service. I and all Nor‘ Westers are indebted to Rex for the contribution he has made and will continue to provide in his new position.
In the first quarter we opened our Barbados Cost-U-Less ("CUL") store, which was our first significant investment since acquiring CUL five years ago. While the initial performance did not meet expectations, we gained solid insights into what it takes to grow a profitable business in this market. Building on what we have learned in Barbados and our past success in improving performance in markets like the Cayman Islands, we are localizing more of our merchandise buying and steadily raising store standards. Many of these refinements will benefit our other Cost-U-Less stores, starting with the Caribbean. Overall we recognize that CUL, even as a profitable North West banner, needs more work before it becomes a growth platform.
Another important first half activity was a longer range assessment of North West's business. Through this process, our physical store network emerged as the number one opportunity to sustain and grow profitable sales. This lens identified two priorities. The first was to shift to being more store and customer centered. Technology, processes and, above all, the people in our stores are now clearly ranked ahead of other support activities for attention and investment. Second, more capital will be spent on upgrading store facilities with the highest opportunity to defend and grow sales.
Our store-centered strategy is a sharper tuning of the “More Growth in Store” work we started in 2010. We now have the benefit of three years’ worth of execution practice and we know how to bring the right changes to our stores faster and more effectively. More than a productivity gain, we see our expanded store capacity as a path to growth. We plan to introduce more new products and services that require on-site shopping, service and delivery or ongoing after-sales care, all supported by community relations that ensure continued market access.
2013 was a busy year for takeover activity in Canadian retail and we invested considerable resources assessing a number of attractive opportunities. Through the due diligence process we identified synergy and scale value that can be elusive for a company of our size and relative complexity. We were able to model structures that may work in the future and while we did not complete a transaction the time was well spent in light of the few prospects that actually fit with our business and that we are prepared to look at.
At heart, North West has always been an “unconventional” retailer and our success depends on continuing to find enterprising ways to serve our customers outside of the mainstream. Through northern market re-investment, Giant Tiger store growth and CUL improvement, we see real potential to accomplish this on the foundation of our superior physical stores and logistics network.
Through our store presence, we are committed to delivering lower costs, more innovative products and services, more local employment and more reasons for our customers to reward us with their spending. I am confident in these priorities, supported by a total company alignment. They make us a compelling choice with results that we can deliver on in 2014 and beyond.
– Edward S. Kennedy, President & CEO, April 9, 2014