On July 4th, the Amsterdam based retailer HEMA announced an expansion into the United States (via Walmart.com) & Canada with independent retail stores and shops inside large Walmart locations. In the Fall, HEMA will open its first store outside of Europe & Asia with a new store in Ontario, Canada.
What is HEMA (an introduction for Canadians)?
HEMA is a Dutch department store that was founded in Amsterdam with its first store opening in 1926. The brand has become an institution in the Netherlands with low prices on quality products featuring unique modern design. HEMA stores offer a wide assortment of products such as clothing, household products, office stationary, kitchenware, cosmetics, food and freshly baked pastries. Famous products include HEMA Rookworst (smoked sausage), Tompouce (Dutch pastry) and stationary products. With over 700 stores worldwide, (550+ stores in the Netherlands) HEMA's entry into North America is a bold move into an uncertain retail market.
What Canadian stores are comparable to HEMA?
HEMA is a unique department store that focuses on quality, design and consumer oriented products. There are no brandnames sold by HEMA as the retailer only sells HEMA brand products. For clothing, HEMA produces trend setting designs at a low prices similar to H&M or Joe Fresh. For stationary and paper, the distinctive designs resembles the product offerings by Indigo. For household items, the minimalistic and modern design draws parallels to IKEA. So, what is a HEMA store like? Visually, HEMA stores are modern, minimalistic and colourful. Packaging is clean with colours and design that HEMA has become known for. Lighting is used to highlight products and signage highlights the best prices on items in store. In larger Dutch locations, stores feature cafés with food offerings like pastries and HEMA specialities.
How HEMA will succeed in Canada.
1. Study Target's disastrous entry and exit from Canada
Target's expansion into Canada is a case study for every company to throughly examine when expanding into Canada. In 2011, Target purchased the leases from Zellers (a struggling and tired HBC discount chain). All Zellers stores closed with Target replacing many defunct Zellers locations. The rapid Canadian expansion saw Target open large stores over 80,000 sqft anchoring major Canadian malls and shopping centres. The new Target stores were welcomed by Canadians as it provided an alternative to Walmart, Giant Tiger, Loblaws, Shoppers Drug Mart and other discount retailers/department stores. However, the hype began to wear as supply chain issues had caused store shelves to become scarce and empty in several Target locations. A price war was declared by Walmart as the established incumbent was not ready to give up market share to the new American retailer in Canada. Target's products were very similar to Walmart with little distinction in merchandising between the two retailers. Walmart's buying power, existing supply chain and price match guarantee made Walmart unbeatable on low prices. Target was losing the retail battle and decided to close 133 Target stores and layoff over 17,000 employees less than 2 years after entering Canada. Target lost $2.5 Billion in the failed Canada expansion, citing rapid over-expansion, poor locations and supply chain problems as main factors in the failure.
HEMA must have a strategic plan that addresses the problematic issues that Target encountered to avoid the same fate. With smaller size stores and control over their supply chain with HEMA brand products, this shouldn't be an issue. Marketing HEMA as a store that isn't Walmart or only low prices will be essential to the success of HEMA in the Canadian market.
2. Embrace Design & Being Different (from other discount brands)
Canadians have options for shopping for low price products at discount stores. Retailers Walmart, Giant Tiger, Dollarama and other stores do not excel in visual merchandising or modern store design. The customer saves money in exchange for a typical-mediocre shopping experience. With aisles of merchandise lining expansive stores lit with overhead lighting on name brand and generic store brands. The large discount brands of Canada are price oriented by providing customer with the lowest prices on thousands of items in store. With the growth of e-commerce, discount brands will have to elevate the customer experience to retain store sales and traffic as more shoppers utilize the low prices & convenience of Amazon (Prime).
HEMA has a unique selling proposition with the ability to offer high quality products with modern designs at a low price in an retail environment that shoppers can enjoy. The combination of the HEMA brand is not common in the Canadian marketplace and it will be interesting to see how Canada responds to the Dutch brand.
3. Keeping Up with the Competition
HEMA will have tough competition in Canada with the existing Canadian retailers and Chinese retailer Miniso. Miniso entered Canada in 2017 and already operates more than 50 stores in five Canadian provinces. The fast growing chain has plans to open 500 stores within three years, a very ambitious strategy for a brand that does not (yet) have brand recognition amongst most Canadians. Miniso is the most direct competitor to HEMA with both merchants selling homeware, stationary, cosmetics and excelling in visual merchandising. The two retailers even have similar branding with red and white logos. HEMA differentiates itself with clothing and fresh food options, although it has not been confirmed that HEMA will bring their signature Dutch food menu to Canada. A diverse product mix makes HEMA competitors with several different brands on certain product categories. The key for HEMA will be challenging Miniso directly with design, quality products and customer experience, a strategy that has made HEMA successful in many international markets.
4. Embrace being Dutch (from Amsterdam)
HEMA will be branded as HEMA Amsterdam when it expands into North America, signifying its Dutch roots and European flare. According to the 2016 Canada Census, over 1.1 million Canadians have ethnic origins from the Netherlands. HEMA should embrace being Dutch as relations with Canada & the Netherlands have historic significance as Canadian Forces helped liberate the Netherlands in WWII. The legacy of Liberation still positively connects Canada and the Netherlands to this day with a large number of Dutch that reside in Canada. It would be great to see traditional Dutch food/products incorporated into the Canadian stores with stroopwafels, drop, HEMA rookworst and other Dutch delights. Even if Canadians aren't sure what HEMA is, the opportunity to make it a destination for Dutch cuisine would be build brand recognition/awareness. Much like how many Canadians know IKEA for furniture but also for their Swedish meatballs and other Swedish food/treats.