In March, Loblaw Ltd. announced its plan of building 50 new stores and improving more than 100 existing stores in 2015. The company is currently operating several subsidiary corporations including, Fortinos, No Frills and Shoppers Drug Mart. It will also invest in its e-commerce, supply chain and IT infrastructure. The cost of this plan is estimated to be $1.2 billion.
The retailers will benefit from Target leaving Canadian market. However Walmart is planning to expand in operation size and investments this fiscal year.
However, in July of the same year, Loblaw announced its new decision of shutting down 52 stores due to the increasing competition. The company is currently on a loss of $300 million in sales, and by shutting down, it can only save $35 to $40 million variable costs.
The closure of unprofitable stores is a right decision for Loblaw to make. Instead of expanding rapidly in number, companies should take a pause and evaluate on its performance. If a store is under-performing, in which its total cost is higher than its total revenue, it is making an economic loss. Although it can still operate by not able to cover its fixed costs in the short run, the firm will eventually shut down in the long run. So it is more economic to close the under-performing stores as early as possible, in order to save further sunk costs.
However, Loblaw can still slowly open up new stores while shutting down existing stores. It needs more precise market research and more suitable business strategy. For example, finding out the locations with highest demand for its service or products; or, adopting the cost leadership strategy to gain more competitive advantage. As a recommendation, Loblaw should first acquire larger market share by improving its business plan before expanding further in Canada.
