Canadian brands face hurdles abroad

Go shopping abroad and you’re likely to run into some well-known “Canadian” brands – Club Monaco clothing, MAC beauty products, La Senza lingerie.

But don’t feel too patriotic: The roots of all three consumer brands have been transplanted to the United States after takeovers. Estée Lauder snapped up a majority stake in MAC Cosmetics in 1994; Ralph Lauren bought Club Monaco in 1999; and Limited Brands Inc. purchased La Senza in 2007.

An Aldo shoe store in Tunis

In this new world of globalized brands, some experts believe Canadian brands need to expand internationally to offset competition at home from foreign players such as Hennes & Mauritz AB or Starbucks Corp. But while entrepreneurs have no trouble creating successful made-in-Canada brands, keeping them Canadian is another matter. When the time comes to expand abroad, many end up forfeiting their independence to a foreign buyer.

“It’s a very tough market,” said Alain Michaud, who heads the retail and consumer practice for Canada at PricewaterhouseCoopers LLP in Montreal.

He cites a study about the changing landscape of Canadian malls as international brands moved in: “It was so clear that a lot of Quebec- or Canadian-based retailers had disappeared and had been replaced by international players.”

The biggest hurdle for Canadian brands is well known: The country is big and the population small. That means the consumer base isn’t large enough to finance a global expansion, which hampers a company’s ability to compete with giant rivals from more populous countries.

“It’s hard to capitalize a company to be the size it needs to go international in a country the size of Canada,” said Maureen Atkinson, a senior partner at retail consultant J.C. Williams Group in Toronto.

Culture also plays a role, according to brand consulting firm Interbrand. In its report on the 25 top worldwide brands for 2011, no Canadian labels made the cut. One of the criteria to make the annual list is that one-third of a company’s revenues come from outside its domestic market.

In a 2010 report focused on Canadian brands, Interbrand labelled them conservative, risk-averse and focused on their home market. Citing the success of Research In Motion’s Blackberry, the report asked: “How many of our top 25 Canadian brands could conceivably climb the steep stairs to the global brand podium? The answer still remains: very few.”

That mindset needs to change, the report argued. “A Canadian brand can no longer stick its head in the sand in its home market and expect to flourish and be left in peace,” Interbrand said, warning that ignoring the global market could make a company a target for competition or even an acquisition by a rival global brand.

While Canadian brands do come from a small market, there is a place for them in the global market, experts say.

Take Club Monaco, founded by Canadian retailing legend Joseph Mimran and designer Alfred Sung in Toronto in the 1980s. The chic but affordable chain has expanded in the United States and Canada, pushed into Asia, and last year started popping up in posh department stores across Europe.

La Senza, founded in 1990 and known for its flashy lingerie, has stores in 30 countries. And cosmetics from fashion-forward MAC, also a Toronto invention, can be found in purses from Denmark to South Korea.

Some retailers, however, are expanding internationally without giving up their Canadian passport. Clothing retailer Lululemon Athletica Inc. has stores in the U.S. and Asia, as has Roots Canada Ltd. The latter brand has more than 40 stores in Taiwan, where its sweatshirts are popular.

The most successful global Canadian retailer, experts say, is probably Aldo Group Inc. The shoe retailer, which also owns the brands Spring and Locale, operates in more than 60 countries, in many places through franchisees. Aldo launched its international sales in the United States, the natural step for Canadian retailers but a notoriously competitive market. After some false starts, it carved out a niche as a more edgy shoemaker that was embraced by the Hispanic market, according to John Williams, founder of J.C. Williams Group.

One way that more Canadian brands could expand abroad is through e-commerce, Atkinson said. This allows them to become an international brand without footing the costs for bricks-and-mortar stores.

Toronto-based Vasanti Cosmetics Inc. has used the Internet to reach a wider audience. The company, which initially focused on South Asian women, has always sold its makeup online via its website and, later, through Amazon in the U.S. and Britain. Its lipsticks and other cosmetics are also sold in drugstores across Canada.

Selling its makeup via the Internet proved to be a smart move for Vasanti, as U.S. customers now account for the biggest chunk of its online revenue, according to chief executive officer Monal Patel.

“It helped with brand recognition,” said Patel, one of the company’s three founders.

After finding a place in Canadian cosmetic aisles, the company is now preparing to move into U.S. stores within the next two years, and to make the jump to Britain and India within five years. But, like many Canadian companies before it, Vasanti will probably need someone to eventually buy it to take the brand fully global.

Not only is it difficult to reach the required scale for expansion, Patel noted, but it’s more difficult to get business loans in Canada than in other countries.

“For a company like us, being bought out seems to be the next step if you really want to grow and expand your business,” she said.

Foreign takeovers of Canadian consumer brands is “sad, but that’s the unfortunate reality,” Patel said. “We just don’t have the population to support the kind of growth to play at an international level.”