Furniture giants Leon's and The Brick are getting together. But I wonder if this is a marriage made in heaven.
Leon's is a family-run operation, founded in southern Ontario more than 100 years ago. It has thrived through several generations and now has 76 stores across Canada. The keys to its success, beyond aggressive pricing, are big-box stores that serve as warehouses and owning most of the properties that the stores sit on.
The Brick is pretty aggressive on pricing too, using the slogan "Nobody beats the Brick". It sprung up in 1971 in Edmonton. Its model is different. It doesn't own the land the stores sit on, and it uses distribution centres across the country to service its 230 stores. The Brick has had problems in the past by piling on too much debt, but that seems to be fixed.
Combining the two seems like a perfect marriage. Both get to keep their maiden (brand) names and both will keep their own homes (head offices). It's a unique blend of independence yet commitment.
My concern is that this marriage has questionable motivation. Leon's is spending $700 million to buy The Brick. Earnings are under pressure at both chains. The question then is: are they doing it to bulk up their family of stores and the products they offer or are they doing it to defend their turf. Acquisitions driven by increased efficiency and expanding territories tend to work better than ones where both entities are struggling.
Canadian furniture retailing is changing, quickly. New entrants are expanding in Canada. Target is coming, and even though it doesn't have a huge furniture offering, it adds to a long list of companies expanding their reach. That puts pressure on getting the best locations and attracting the best talent to run stores and move inventory. Plus, Home Depot, Lowe's, Best Buy and Canadian Tire now sell appliances. All the while, housing seems to be slowing.
That said, joining the two chains can have benefits. They can lower costs by reducing duplication between their operations. They can demand better pricing and, hopefully, gain a marketing advantage by passing that on to their customers. It also sets them up, efficiency-wise, to move into other markets, like the United States.
I wish them well, I do. Wouldn't it be nice to have a Canadian champion to cheer on if they can expand their family into the U.S.
But I also worry whether this union is out of desperation.
- Pat Bolland hosts AM Agenda with Alex Pierson on Sun News Network