President & CEO's Message2014 was highlighted by exceptional performance from our international store banners and solid preparation for accelerated investment within our northern Canada business.
International EBITDA was up 26.9% with contributions from both Alaska Commercial Company ("AC") and Cost-U-Less ("CUL"). In Alaska we benefited from a rebound in the U.S. economy and we made the most of our selling opportunities. Careful attention to planning and then getting sales during the Permanent Fund Dividend season was a prime example of this. As sales gained momentum at AC, expense management was maintained and helped to deliver even stronger bottom line improvement.
The key task at CUL last year was to fine tune the fundamentals of our strategy within the Caribbean. In 2013, we stretched ourselves with the opening of Barbados and it revealed weaknesses in our regional sourcing ability and store operations. The work to address this started 18 months ago and set the stage for last year’s results. Like Alaska, we had the advantage of an economy that has bottomed out and is moving into a recovery phase. The entire team, from our international division to our Canadian support services, deserves credit for intense conviction on doing the right work, together with the pride to do it well.
The focus at CUL and AC was best demonstrated in two “Top 40” market investments: Bethel, Alaska and Barbados. In these locations we applied our Top 40 mantra of "treating each market as if it was the only one we did business in”. From customer insight up to our executive team perspectives and back down again, this approach paid dividends in the quality of our decisions and the accountability for results.
Approximately 75% of our Top 40 markets are located in northern Canada. From the mid-point of 2014, our work shifted to bringing the learnings from Bethel and Barbados to this very important business region. Market assessments have been finalized and we expect to complete investments in 12 stores in northern Canada under the Top 40 Markets initiative in 2015. In each location we've uncovered opportunities to sustain and grow our business by being an even more relevant every day needs provider with more resiliencies from macroeconomic and competitive factors.
Closely aligned with our Top 40 work is the development of our Top Categories. The principle is similar. Within our broad range of product and service offerings, there are high potential categories that deserve more attention and investment. There are also categories that need to be downsized to free up store space and management time. During 2014, most of our effort was spent on getting ready for Top Category growth. We identified 30% of our general merchandise business as being too discretionary, too trend dependent or too vulnerable to being shopped for outside of our market. This was good news because we have an even longer list of “replacement” Top Categories ready to step up in 2015.
The transition we are making in our Top 40 markets and Top Category businesses is a big one. We know the risks and the short-term cost that we incurred last year, primarily in our Canadian operations. Difficult decisions were made on the home office skills and roles needed to support our new work. Expensive inventory write-downs were taken to walk away from low profit businesses. These were the right decisions and we are taking the right amount of care to ensure that the change to the business is well-managed.
A key to our Top 40 and Top Category success will be the degree to which we are a community, customer and store-driven organization. Last year we conducted a cross-company survey to check perceptions on these aspects. The results were positively off the scale on community-mindedness and pretty good on customer focus. Serving our stores needed the most improvement and is the first priority in 2015, using a powerful store help and tracking system we call “Store Connect”.
Over the past two planning cycles we’ve shifted from top line growth to middle line cost and margin management. We put in place sound processes and we developed better insight into what expense and investment factors drive performance the most.
Now, North West is adapting again, with an emphasis on customer relevance and market share. I’ve said in the past that we have a never-ending series of sales opportunities. This time around we have more experience on what to pursue profitably. We also have the recent success of our market focus in Barbados and Bethel. Most attractive to us is that we see remote and rural retailing changing in a way that favours relationships, products and services that we can uniquely deliver through our store, logistics and information networks.
At the heart of this work will continue to be the people of North West and the sense of contribution that we can help our customers and communities live better.
– Edward S. Kennedy, President & CEO, April 9, 2015