Leon’s, Brick look to cut costs

A combined Leon’s and The Brick should be able to enhance their competitiveness in an increasingly gritty retail environment even though both banners will continue to fly separately, the companies and analysts said Monday.

A combined Leon’s and The Brick should be able to enhance their competitiveness in an increasingly gritty retail environment even though both banners will continue to fly separately, the companies and analysts said Monday.

The friendly purchase of Edmonton-based The Brick by Toronto-based Leon’s for $700 million has less to do with direct competition posed by giant American retailers such as Target or Wal-Mart, they said, than with the need to keep a lid on costs.

“What’s most in the forefront of our minds is: The economy is difficult, generally it’s not growing, and if it is growing, it’s growing very slowly,” said Terry Leon, CEO of Leon’s who will head up the combined entity.

“So the best way to grow and to expand is to, if you can, make a purchase that makes sense.”

The Canadian retail landscape has been shifting in recent years as more American chains in search of growth opportunities make their way north, which has increased competition in retail segments, including furniture.

As well, many Canadian retailers from Loblaw (TSX:L) to Canadian Tire (TSX:CTC.A) have moved to compete by diversifying their offerings, including through furniture sales, to become more of a one-stop shop experience for consumers.

In addition to Wal-Mart and other foreign chains like Ikea, which have been in the Canadian market for years, U.S. retail giant Target is preparing to move into Canada, its first expansion outside the U.S., opening the first of between 125 and 135 stores in March and April at locations once owned by Canadian retailer Zellers.

Leon’s Furniture Ltd. (TSX:LNF), the storied retailer with century-old roots in industrial Ontario, said it would pay a premium $5.40 per share for Brick (TSX:BRK) stock, which closed Friday on the Toronto Stock Exchange at $3.50 per share.

The market seemed to roar its approval, at least as far as The Brick was concerned.

Brick shares shot up 52 per cent, or $1.82, to $5.32 in heavy volume trading Monday, while Leon’s shares added two per cent or 23 cents to $11.80.

The deal comes amid a tough economic climate for furniture retailers with a number of factors, including a softening housing market, taking a toll on sales.

In addition, the influx of American retailers has put upward pressure on land, building and employee costs, making it imperative for others to look for ways to keep costs down.

The companies said they had no plans to close any stores or lay off any employees. Rather, they said, they would try to become more competitive initially by flexing their combined purchasing muscles and by joining distribution channels.

Ken Wong, with the Queen’s School of Business, said the blurring of retail boundaries is having a profound impact on the landscape that goes well beyond new U.S. competition.

For example, Leon’s and The Brick both sell appliances such as fridges and stoves but increasingly, so do other retailers such as Home Depot, Lowe’s and Canadian Tire. Even e-retailer Amazon is thinking of doing the same.

“It’s not just about American versus Canadian — it’s about getting costs down,” Wong said.

“Whoever has the lowest cost wins, provided they know what to do with those low costs.”

Bill Gregson, executive chairman of The Brick board, said the combined entity would be able to offer consumers better value, service and choice than they could do separately.

The store concepts are different, yet complementary, and the two companies should be a good fit, he said.

“We do believe we can do more collectively than we can individually,” Gregson said.

However, both companies said they did not consider Target to be a significant threat given the different merchandise focus.

Wong said it makes sense to keep both banners given their brands are distinct, likening the situation to the merger of Future Shop and Best Buy.

He also said furniture retailers are all chasing the “magic formula” as represented by Ikea, which uses it’s huge buying power to lower its costs.

“Everybody wants to be Ikea. Ikea plays on a global stage,” Wong said.

Even combined, the companies would still have less than 20 per cent of Canada’s furniture market. However, retail analyst John Winter said shoppers should benefit from the deal.

“There’s a larger company which can buy in greater bulk and therefore get greater discounts, and therefore should be able to transmit some of those discounts to the consumer,” Winter said.

Leon’s is slated to report third-quarter results this week. In its second quarter, it saw an almost 20 per cent drop in earnings compared with the previous year as its marketing costs rose.

The Brick also reports third-quarter numbers this week after a net loss of $3.1 million in its second quarter, compared to a net profit of $6.4 million a year earlier.

Leon’s, founded in 1909 in Welland, Ont., has 76 stores with locations in every province except British Columbia.

The Brick, which opened its first store in Edmonton in 1971, has 230 stores operating under The Brick, United Furniture Warehouse, The Brick Mattress Store and Urban Brick banners.

The aim is to close the deal in the first quarter of 2013. While endorsed by both companies’ boards, the sale is still subject to regulatory and Brick shareholder approval.

Mark Leon, chairman on Leon’s board, said the two companies, should be an excellent corporate fit.

“The culture is very similar. Similar dreams. Similar aspirations,” he said.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

(File photo by Black Press News Services)
QEII closed between 67 Street, 32 Street at Red Deer

Drivers are being asked to use alternate routes as southbound and northbound… Continue reading

Innisfail RCMP are investigating a single-vehicle crash that happened west of Bowden on March 21, 2021. (File photo by Advocate staff)
Bashaw RCMP investigate fatal collision in central Alberta

Bashaw RCMP are investigating after a fatal collision Saturday afternoon. Police were… Continue reading

A damaged unicorn statue is shown in a field outside of Delia, Alta. in this undated handout photo. It's not often police can report that a unicorn has been found, but it was the truth Saturday when RCMP said a stolen, stainless-steel statue of the mythical beast had been located in a field not far from where he'd been taken. THE CANADIAN PRESS/HO, RCMP *MANDATORY CREDIT*
Mounties get their unicorn; stolen statue of mythical beast found in Alberta field

DELIA, Alta. — It’s not often police can report that a unicorn… Continue reading

Red Deer Rebels forward Ethan Rowland battles with Medicine Hat Tigers forward Brett Kemp during WHL action at the Centrium Saturday night. (Photo by ROB WALLATOR/Red Deer Rebels)
Tigers claw back, hand Rebels 11th straight loss

Tigers 5 Rebels 2 The same old issues continue to plague the… Continue reading

There were six additional deaths across Alberta reported over the past 24 hours, bringing the death toll to 1,926 since the beginning of the pandemic. (File photo)
Red Deer Public Schools will not pilot the new draft curriculum at its elementary schools. (File photo contributed by Red Deer Public Schools)
UPDATED: Red Deer Public Schools says no to piloting new curriculum

Alberta Teachers’ Association support school boards

People cross a busy street in the shopping district of Flushing on Tuesday, March 30, 2021, in the Queens borough of New York. Access to the COVID-19 vaccine in the United States is growing by the day. THE CANADIAN PRESS/AP-Kathy Willens
Despite COVID-19 vaccines, Americans in D.C. not feeling celebratory — or charitable

WASHINGTON — This might make Canadians jealous of their American cousins for… Continue reading

A man pays his respects at a roadside memorial in Portapique, N.S. on Thursday, April 23, 2021. RCMP say at least 22 people are dead after a man who at one point wore a police uniform and drove a mock-up cruiser, went on a murder rampage in Portapique and several other Nova Scotia communities. THE CANADIAN PRESS/Andrew Vaughan
Memorial service in Nova Scotia marks one year since mass shooting started

TRURO, N.S. — A memorial service is planned for today in central… Continue reading

In this April 23, 2016, photo, David Goethel sorts cod and haddock while fishing off the coast of New Hampshire. To Goethel, cod represents his identity, his ticket to middle class life, and his link to one the country's most historic industries, a fisherman who has caught New England's most recognized fish for more than 30 years. (AP Photo/Robert F. Bukaty)
‘It’s more than just a fish:’ Scientists worry cod will never come back in N.L.

ST. JOHN’S, N.L. — The latest assessment of Atlantic cod stocks, whose… Continue reading

FILE - In this Friday Aug. 21, 2020 file photo, Leonid Volkov, a top strategist for Russian opposition leader Alexei Navalny, addresses the media in Berlin, Germany. Activists for imprisoned Russian opposition leader Alexei Navalny are calling for massive protests in the heart of Moscow and St. Petersburg as Navalny's health reportedly is deteriorating severely while on hunger strike. Leonid Volkov, a top strategist for Navalny, said the demonstrations are called on short notice for Wednesday April 21, 2021, because "his life hangs in the balance. ... We don't know how long he can hold on." (AP Photo/Michael Sohn, File)
Navalny’s team calls protests amid reports of failing health

MOSCOW — Associates of imprisoned Russian opposition leader Alexei Navalny called Sunday… Continue reading

Florida Gov. Ron DeSantis gestures during a news conference Sunday, April 4, 2021, at the Manatee County Emergency Management office in Palmetto, Fla. DeSantis has received a single-dose coronavirus vaccine. His office confirmed Wednesday, April 7, 2021 that the Republican governor got the Johnson & Johnson vaccine, which requires only a single dose. (AP Photo/Chris O'Meara, file)
GOP White House hopefuls move forward as Trump considers run

WASHINGTON — Less than three months after former President Donald Trump left… Continue reading

Each spring, the Okanagan Fest-of-Ale is held in Penticton. This year, as a result of the COVID-19 pandemic, the festival will not be held. However, beer is still available. How much do you know about this beverage? (pxfuel.com)
QUIZ: How much do you really know about beer?

Put your knowledge to the test with this short quiz

Ontario Premier Doug Ford points on a COVID-19 caseload projection model graph during a press conference at Queen's Park, in Toronto, Friday, April 16, 2021. Ontario was set to backtrack on controversial new police powers to enforce stay-at-home orders implemented in the battle against COVID-19.THE CANADIAN PRESS/Frank Gunn
Ford backtracks on new police COVID-19 powers amid intense backlash

TORONTO — Furious criticism of new anti-pandemic powers that allow police in… Continue reading

The official program for the National Commemorative Ceremony in honour of Prince Philip, The Duke of Edinburgh, sits on an empty pew prior to the ceremony at Christ Church Cathedral in Ottawa on Saturday, April 17, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Prince Philip remembered as ‘a man of great service’ during Canada’s memorial service

Canada’s commemorative ceremony in honour of the late Prince Philip offered a… Continue reading

Most Read