SpongeG
Sep 6, 2007, 12:29 AM
Need a mortgage with those tools?
Canadian Tire adds mortgages, chequing and savings to credit cards, loans unit
Canadian Tire Corp. Ltd. is pushing deeper into financial services, which carry far richer profit margins than its core auto parts and sporting goods retail business, with a plan to start marketing a combined mortgage and chequing account.
The giant chain of more than 1,100 stores is launching a bank account product in three markets that bundles together customers' mortgage, chequing and savings accounts, as well as loans and credit card balances with the promise of allowing consumers to pay off debts faster.
Since being granted a bank licence in 2003, Canadian Tire has been expanding strategically beyond credit cards and loans for big-ticket items, standard financial services fare at other major retailers.
"Good for them to diversify and get some more opportunities for growth," said Stuart Morrow, retail analyst at Research Capital. "Their recent results show that this has been their growth engine."
Canadian Tire's aggressive push into banking may also help appease its sometimes restless large shareholder, New York hedge fund Pershing Square Capital Management, he said. It has suggested in the past that selling off parts of the business, such as the credit card portfolio, would enhance shareholder value.
But the burgeoning bank subsidiary can be a lucrative way for the retailer to realize value, Mr. Morrow said.
Canadian Tire now boasts more than four million credit card customers.
The company's research indicates these customers want more bank products from the retailer, said Pamela Dodaro, an associate vice-president at the retailer's financial services division.
"We believe customers are looking for new product offerings and new choices from a brand that they know and trust - Canadian Tire," she said. "We're always researching new opportunities and looking for ways to bring new services and choices to Canadians."
Canadian Tire has also been testing conventional mortgages, high-interest loans and guaranteed investment certificates over the past year or so.
Its financial services division continues to gain ground. In its second quarter, the banking unit's pretax profit jumped 54 per cent to $68.6-million and its outstanding loans grew 8 per cent to $3.7-billion. It said recently that it anticipates double-digit profit growth in the segment for the next couple of years.
The expansion into mortgages could pay off for the retailer as the Canadian housing market continues to boom, analysts said. That's in stark contrast to the housing sector in the United States, which has been hit hard by credit issues flowing from the U.S. subprime mortgage industry.
In Canada, the mortgage market has grown by 8 to 10 per cent annually over the past few years, despite warnings of a slowdown, said Mario Mendonca, an analyst at Genuity Capital Markets. And the mortgage market poses few risks because "there are very, very few mortgage arrears of defaults in Canada.
"That's been true for years. Could that end? Sure. At some point we're going to see some kind of mortgage weakness. But so far no signs."
Still, competition to nab mortgage business is "remarkably intense," he added, and some of the big banks have been losing market share.
The all-in-one mortgage-and-chequing account, a popular option in Britain and Australia, has been tried by other players in Canada, most notably Manulife Financial and its Manulife One account.
While the product had a slow start when it was introduced in 1999, it has become a strong offering for Manulife, spokesman Tom Nunn said. He said it may also find a loyal following at Canadian Tire.
The retailer plans to pitch the new account in the three pilot markets in Calgary and in London and Kitchener-Waterloo, Ont., Ms. Dodaro said.
Besides information kiosks in Canadian Tire stores, the company will run television and newspaper ads and tout the product in its flyers. It launched a website, MortgageInYourWay.com to provide consumers with information on the account and an interactive calculator to figure out benefits of depositing pay, savings or investments directly into the account. And the retailer will dispatch mobile mortgage consultants to try to sell the product to people at their homes or businesses.
Canadian Tire expects to spend about $25-million this year to test new banking products, it has said.
Other retailers, including Loblaw Cos. Ltd., have also expanded into financial services to help boost profit. Wal-Mart Stores Inc. said in June it plans to introduce a prepaid debit card in the United States, targeted to low-income consumers, and launch money centres in about 1,000 of its stores. Its Canadian division is also looking to branch out into financial services.
CANADIAN TIRE (CTC.A)
Close: $78.90, up $1.29
More than just tires
THE PLAN
Offer combined mortgage/chequing/savings accounts to customers in three markets - London and Kitchener-Waterloo, Ont., and Calgary - as a pilot project over two years. Lure people with the promise of being able to pay off their debts faster.
THE COST
Canadian Tire expects its retail banking expansion to cost $25-million in 2007.
THE STRATEGY
The housing market is booming, with total mortgage debt expected to hit $808-billion this year. Canadian Tire hopes to leverage a trusted brand - revenue from financial services has grown 82 per cent since 2002 - to capture a piece of a lucrative industry.
THE RISK
The mortgage industry is intensely competitive. The housing market in Canada could slow down, resulting in fewer mortgages. And if the economy softens, there could be more defaults.
Canadian Tire's financial services arm generated $721.7-million in revenue last year, comprising nearly a third of its profit before taxes and other costs.
http://www.theglobeandmail.com/servlet/story/LAC.20070905.RCANTIRE05/TPStory/Business
Canadian Tire adds mortgages, chequing and savings to credit cards, loans unit
Canadian Tire Corp. Ltd. is pushing deeper into financial services, which carry far richer profit margins than its core auto parts and sporting goods retail business, with a plan to start marketing a combined mortgage and chequing account.
The giant chain of more than 1,100 stores is launching a bank account product in three markets that bundles together customers' mortgage, chequing and savings accounts, as well as loans and credit card balances with the promise of allowing consumers to pay off debts faster.
Since being granted a bank licence in 2003, Canadian Tire has been expanding strategically beyond credit cards and loans for big-ticket items, standard financial services fare at other major retailers.
"Good for them to diversify and get some more opportunities for growth," said Stuart Morrow, retail analyst at Research Capital. "Their recent results show that this has been their growth engine."
Canadian Tire's aggressive push into banking may also help appease its sometimes restless large shareholder, New York hedge fund Pershing Square Capital Management, he said. It has suggested in the past that selling off parts of the business, such as the credit card portfolio, would enhance shareholder value.
But the burgeoning bank subsidiary can be a lucrative way for the retailer to realize value, Mr. Morrow said.
Canadian Tire now boasts more than four million credit card customers.
The company's research indicates these customers want more bank products from the retailer, said Pamela Dodaro, an associate vice-president at the retailer's financial services division.
"We believe customers are looking for new product offerings and new choices from a brand that they know and trust - Canadian Tire," she said. "We're always researching new opportunities and looking for ways to bring new services and choices to Canadians."
Canadian Tire has also been testing conventional mortgages, high-interest loans and guaranteed investment certificates over the past year or so.
Its financial services division continues to gain ground. In its second quarter, the banking unit's pretax profit jumped 54 per cent to $68.6-million and its outstanding loans grew 8 per cent to $3.7-billion. It said recently that it anticipates double-digit profit growth in the segment for the next couple of years.
The expansion into mortgages could pay off for the retailer as the Canadian housing market continues to boom, analysts said. That's in stark contrast to the housing sector in the United States, which has been hit hard by credit issues flowing from the U.S. subprime mortgage industry.
In Canada, the mortgage market has grown by 8 to 10 per cent annually over the past few years, despite warnings of a slowdown, said Mario Mendonca, an analyst at Genuity Capital Markets. And the mortgage market poses few risks because "there are very, very few mortgage arrears of defaults in Canada.
"That's been true for years. Could that end? Sure. At some point we're going to see some kind of mortgage weakness. But so far no signs."
Still, competition to nab mortgage business is "remarkably intense," he added, and some of the big banks have been losing market share.
The all-in-one mortgage-and-chequing account, a popular option in Britain and Australia, has been tried by other players in Canada, most notably Manulife Financial and its Manulife One account.
While the product had a slow start when it was introduced in 1999, it has become a strong offering for Manulife, spokesman Tom Nunn said. He said it may also find a loyal following at Canadian Tire.
The retailer plans to pitch the new account in the three pilot markets in Calgary and in London and Kitchener-Waterloo, Ont., Ms. Dodaro said.
Besides information kiosks in Canadian Tire stores, the company will run television and newspaper ads and tout the product in its flyers. It launched a website, MortgageInYourWay.com to provide consumers with information on the account and an interactive calculator to figure out benefits of depositing pay, savings or investments directly into the account. And the retailer will dispatch mobile mortgage consultants to try to sell the product to people at their homes or businesses.
Canadian Tire expects to spend about $25-million this year to test new banking products, it has said.
Other retailers, including Loblaw Cos. Ltd., have also expanded into financial services to help boost profit. Wal-Mart Stores Inc. said in June it plans to introduce a prepaid debit card in the United States, targeted to low-income consumers, and launch money centres in about 1,000 of its stores. Its Canadian division is also looking to branch out into financial services.
CANADIAN TIRE (CTC.A)
Close: $78.90, up $1.29
More than just tires
THE PLAN
Offer combined mortgage/chequing/savings accounts to customers in three markets - London and Kitchener-Waterloo, Ont., and Calgary - as a pilot project over two years. Lure people with the promise of being able to pay off their debts faster.
THE COST
Canadian Tire expects its retail banking expansion to cost $25-million in 2007.
THE STRATEGY
The housing market is booming, with total mortgage debt expected to hit $808-billion this year. Canadian Tire hopes to leverage a trusted brand - revenue from financial services has grown 82 per cent since 2002 - to capture a piece of a lucrative industry.
THE RISK
The mortgage industry is intensely competitive. The housing market in Canada could slow down, resulting in fewer mortgages. And if the economy softens, there could be more defaults.
Canadian Tire's financial services arm generated $721.7-million in revenue last year, comprising nearly a third of its profit before taxes and other costs.
http://www.theglobeandmail.com/servlet/story/LAC.20070905.RCANTIRE05/TPStory/Business
