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 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.
Leon's was founded in 1909 in Welland, Ont., and 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.