October 3, 1990

Zellers may buy Towers, Bonimart Would fit well in discounter's empire

Globe & Mail

Speculation is mounting that the giant Zellers Inc. chain is close to buying the Towers and Bonimart department stores run by Toronto's Oshawa Group Ltd.

Officially, at least, neither side will comment on the prospects for a deal or even confirm that discussions are going on. "I can't say anything about it," said a spokesman for Zellers' Toronto-based parent Hudson's Bay Co.

Backstopping the takeover rumor is the business logic such a deal would represent, at least to Montreal-based Zellers. The chains operate similar- type stores, target the same, discount-oriented customers, and the acquisition of Towers would help Zellers cover some geographical holes in its empire.

"No doubt Zellers would be interested," argued Ross Cowan, merchandising analyst at Levesque Beaubien Geoffrion Inc. of Montreal.

Of particular appeal to Zellers would be the 12 Towers stores in Metropolitan Toronto, Mr. Cowan noted, because Zellers is not as strong in that market as it would like to be.

A takeover would also push Zellers ahead of Toronto's T. Eaton Co. Ltd. as the second-biggest department store chain in the country.

The 51 Towers outlets (called Bonimart in Quebec ) have a 3 per cent share of Canada's department store market, according to estimates by retail consulting firm John Winter Associates Ltd. of Toronto. Picking up Towers would move Zellers to an 18 per cent market share, just behind the roughly 20 per cent held by Sears Canada Inc. of Toronto. (The estimated share for Sears does not include its catalogue sales.) In recent years, Zellers has been expanding rapidly - but at a slower pace than it would have liked, according to sources close to the chain. The main barrier to even faster growth, they said, has been the slowdown in shopping mall construction across Canada.

At its fiscal year-end last January, Zellers had 208 stores and sales of $2.1-billion, twice the revenue it posted six years earlier. Operating profit for the latest period was $179.5-million.

Although Oshawa Group is better known as a grocery wholesaler and retailer, its department store business generated revenue of $553.3- million in the fiscal year ended Jan. 27, 1990, up 7.4 per cent from the previous year.

Oshawa Group does not publish separate profit figures for the Towers"Bonimart division. Industry sources suggested that its profit has inevitably fallen this year, in line with the poor performance of most competitors. But "Towers is not taking a bloodbath," one said.

The consistent question mark in industry speculation is whether Oshawa Group is genuinely interested in selling the department stores, which it has run for more than 30 years.

"It would surprise me if, after all these years, Oshawa wanted to give it up," Mr. Cowan said.

"It would be strange," agreed a senior executive at a rival chain. "But I guess everyone has his price."


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