Greg Hicks - April 3, 2024

Well, thank you Richard for that very kind introduction and good afternoon everyone. Before I begin, Glenn, I'd like to thank you and the Canadian Club for inviting me. EY, Norton Rose, and Tories for sponsoring today's event. This is my first ever appearance on the Canadian Club stage and I'm pleased to be here this afternoon. I know that your time is precious and I'm flattered that you chose to spend it with me. It goes without saying that we are living in challenging times from continued economic uncertainty to ongoing geopolitical unrest. And given the lack of winter we just experienced, many parts of Canada will likely be bracing themselves for another summer marked by extreme weather events. For retailers, both Canadian and globally, we're currently facing three distinct categories of challenges. The first is the disruption challenge, which is not new. Retailers are managing a shrinking middle as they're pinched on one side by dollar and discount stores and the other by luxury brands, all while fighting the ever encroaching e-commerce behemoths. The second is the post-pandemic affordability challenge, which is relatively new. Although the lockdowns forced many retailers to swiftly upgrade their online presence, systems, and processes, it wasn't long before we were hit with rising inflation, unprecedented interest rate hikes. This fundamentally changed our operating environment, and the resultant softened consumer demand has significantly impacted industry earnings, including our own. The third is the change challenge, which is ever present. Consumers' wants and needs in terms of products, services, and experiences always have and always will evolve. This has no doubt been recently accelerated by changing weather patterns. If it doesn't snow, nobody needs a snowblower or wants a toboggan. In short, omnichannel retailers need to adapt faster and more often to change, all while battling disruptors and navigating the current economic landscape. With that in mind, Richard, I think it's safe to say that my master class is far from over. This certainly seems to be a steep uphill battle for retailers. And the question is, how do retailers maintain their footing on such unsteady ground? We think at Canadian Tire, it starts with controlling what you can while mitigating what you can't. This includes balancing short-term challenges with driving long-term growth by looking at the capabilities you already have, then maximizing those that are most powerful for your brand. For us at Canadian Tire, this means maintaining our conviction in our better connected strategy. And I'll tell you why. As Richard mentioned, I took over as CEO of CTC at the onset of COVID-19. And as challenging as the pandemic was, it cemented our why. It led us to develop a new strategy anchored on a clear brand purpose that we're here to make life in Canada better. In creating our strategy, we looked 10 years ahead to consider our future consumer, competitive, and operating environment. And what we saw is that we would be national champions competing against world champions with scale. How could we win in that arena? Certainly not on price when you're competing with that scale. And it's unlikely that you can out-Amazon Amazon. We knew that we needed to be competitive on the key components of the shopping journey, but had to find where we could truly differentiate ourselves. And we saw our differentiators show up in spades during COVID. We care about Canadians and the communities in which they live because we live here too. And because we're there for Canadians with the products, services, and support when they need it most, Canadians trust us, and we have the data to back it up. In addition to Canadian Tire being named Canada's most trusted brand by Morning Consult last year, we also partnered with a globally renowned research firm to launch our own brand trust index. And the results confirm that Canadian Tire Retail is the number one most trusted brand within its peer set in Canada. But to further differentiate ourselves from the competition, we must develop an even stronger emotional connection with our customers and reinforce their trust in us because that's something we have that is very tough, if not impossible, for our competition to replicate. So our strategy is more than investing in improving our omnichannel customer experience. It's about driving connection: connecting our employees to our brand purpose and to a higher collective ambition, connecting our physical and digital channels, connecting our investments to build not just a better company, but better communities and a better Canada, and ultimately drive stronger relationships focused on being more relevant and providing more value for every Canadian with the belief that if we do this right, we can build a stronger emotional connection with them and win. So our business strategy is centered upon emotional connection. And turning our strategy into action starts with putting the customer at the center of everything we do. Now, that is extremely easy to say, which is perhaps why every business strategy textbook suggests it. But how do you actually go about creating meaningful change in a 101-year-old company to truly transform your business? And we at Canadian Tire believe that there are two keys required for this unlock. The first are your capabilities and the second is your mindset. Starting with capabilities, which for us is triangle first-party data and personalization. We have a wealth of first-party customer data thanks to our Triangle Rewards loyalty program, which today boasts more than 11 million active members. More important, however, is that we have the capabilities required to generate insights from the data. After all, data is only as good as the insights that it can provide. And getting to the right on this objective from a required investment standpoint is no easy task. This has been a multi-year investment journey for us. It's involved the standardizing, formatting, structuring of our customer data and both the development and transitioning of customer models and reporting into a real-time cloud environment. It has also involved the integration of our customer data to internal digital platforms like web, mobile, and email, and to external channels and partners including social media. All with the objective of being able to deliver communications and offers to a single customer in their channel of choice. As Triangle members engage in our digital properties, we learn more about them. And the data insights we glean are used to continuously optimize the program, allowing us to provide a more contextual and relevant experience and the most appealing offers for each customer. We believe at Canadian Tire that personalization isn't where successful loyalty programs are going. It's where they are today. But we believe that the generative AI era requires a data infrastructure that is flexible, scalable, and efficient. And our behind-the-scenes work on the structuring of our customer data positions us to utilize AI for advantage. Sustained loyalty requires hyper-personalization through one-to-one offers and experiences that resonate with customers on a personal level, creating a strong emotional connection that keeps them coming back. The second key for putting the customer at the core of everything is a mindset shift in terms of how we view our business. We needed to move from seeing ourselves as an old-school conglomerate or holding company, one with individual retail banners, financial services, and a real estate arm that all operate separately, to an operating company whereby we put the customer at the center. In this model, we think about how our group of companies as a collective can shift its relevancy from share of wallet to share of life. The mindset shift is critical. I say is, not was, because the mindset shift is still work in progress for us and might be 10 times more difficult than the investment in the right capabilities. When we began this journey, the average Canadian didn't even know that Canadian Tire Corporation owned Sport Chek or Mark's. Our organizational structure is predominantly decentralized around each of our businesses with some shared functions and matrixed accountabilities. When you operate this way, not only is it tough to take advantage of any real scale, but the trust halo we've built at Canadian Tire can't transcend to and benefit our other banners. It certainly isn't easy bringing all of your banners and brands together in the operating company format, but it's not impossible, especially for us when you have a strong unified loyalty program to power your transition. A loyalty program where each component gains scale and advantage from the system and all components work together to amplify and render each other more valuable. The result of this evolution for us is what we call our Triangle Flywheel, which is so much more than a loyalty program. It's a system whereby consumer trust begets more trust and connection begets more connection. All it needs is that first push. When we acquire a new Triangle member in one of our banners, there is great value created in all of our banners. We use the system and all of its components to create more value, one member at a time. Value that keeps that member coming back. It's the essence of a fundamentally new business model for us. A business model where more and more of our revenue can be recurring over time, almost acting as an annuity and creating a competitive moat around our business. And if we do this right, the end result is trust. And as I said, trust is the crux of our strategy. We are building an emotionally connected, data-enabled organization. And as our flywheel continues to gain momentum, it spins out opportunities to create new products, new partnerships, and new profit pools. Last year, we launched a new product, Triangle Select, our subscription loyalty program that delivers enhanced value across the system to our members. And by the end of the year, the program had over 45,000 members. But what was more important is that we had evidence that the program worked. In 2023, select members visited our retail banners more often and spent almost 40% more than similar members who were part of our control group. Now, we're moving our focus to scaling membership, including launching a series of tests to a large portion of our membership that offer subscription trial or the opportunity to sample some of Select's most valued benefits to encourage subscription. On the partnerships front, such as our recently launched partnership with Petro-Canada, we can drive greater Canadian Tire money issuance, capture even more first-party data, which fuels our flywheel. And finally, although it's still early days, we're very excited about the potential of our retail media business, Triangle Retail Media. Data, and more specifically shopper data, is the lifeblood of differentiation for emerging retail media networks as an advertising service to marketers. All of the investment that I just talked about that we have made to structure our data in our core business for granular audience creation and the deep ability to personalize communications in our digital assets and channels is ideally suited to help brands provide more relevant ads to their customers. In addition to this being a new revenue stream for us, it strengthens our connection to our existing vendor partners that helps us ensure we continue to have trusted, reliable brands, which in turn fuels the flywheel. In summary, although retailers are facing an uphill battle between the disruption challenge, the post-pandemic affordability challenge, and the change challenge, there are tools at our disposal to reach the summit. Choosing which to use requires a clear understanding of not only where you need to compete, but also how you'll differentiate yourself to win. For us, it's about remaining committed to driving trust and building that emotional connection through our better connected strategy. Since introducing the strategy two years ago, we've invested $1.4 billion in capital, the vast majority of which has been targeted to growth initiatives, which by and large are more than just an investment in CTC. They're an investment in this country. Now, if that sounds like too bold a statement, allow me to offer some data to back it up. In 2022, we commissioned Public First for an economic impact report for CTC. Their findings revealed that we supported an estimated $18 billion in gross value added in 2021, the equivalent of 1% of the Canadian economy, or the support of 160,000 jobs. And over the previous decade, our economic impact was approximately $150 billion. But our investment in Canada also extends to our communities, which is critical not only to reinforcing that emotional connection and trust Canadians have in us, but it is quite simply the right thing to do. At CTC, we've always believed in the power of sport to unite the nation, bring communities together, and put kids on a positive path for life. And over the past decade, we've invested more than $100 million in amateur sport. Since 2005, Canadian Tire Jumpstart has helped more than 4 million kids overcome the barriers to sport and recreation. What started as a mandate to break down financial barriers, Jumpstart expanded to tackle accessibility and gender barriers as well. Last year alone, Jumpstart dispersed over 1,000 grants to support community programming. They also completed construction on seven new inclusive play spaces, bringing the total incremental square footage added since 2017 to more than 550,000, or the equivalent of 32 NHL hockey rinks. We also believe that sport has the power to inspire social change, which is why we're taking a lead role in driving gender equity in sport through our women's sport initiative. The gap between the money female athletes make versus their male counterparts was and still is cavernous. But we're doing our part to close that gap by committing half our sponsorship dollars to women's professional sports. We believe that by investing in women's sport, we're investing in women. And that is a good investment for Canada. Supporting our local communities is not a new idea for us. Though it was instilled by our founders, and Canadian Tire Dealers have embraced this spirit of giving wholeheartedly. From generously donating to critical local organizations and infrastructure, to stepping up during storms and natural disasters, to supporting community groups and sports teams, we never have to ask them to make life better. Because as Canadian Tire Dealers, it's just what they do. When we say that we're here to make life in Canada better, we mean it. This is not window dressing or a catchy slogan. This is who we are, and we're putting our money where our mouth is. And the result is not only increased trust and a deeper emotional connection, but a stronger nation overall. Canada needs businesses to step up and eradicate our weak record in business investment. Business investment levels are lower than they were a decade ago. And although not the only reason, this lack of investment as a percentage of GDP is a large contributor to our country's weak productivity. Our purpose is not something that we back away from when times get tough. If anything, the current challenges point to the fact that we need to double down for the future of our company and our nation. Thanks very much for your time today, and I look forward to answering your questions.

It's tough, you know, it's really tough and we have all sorts of data, as I outlined, you suggest, etc. When you look in aggregate, when you look at what's happening in terms of spend in the average Canadian household, I'd say we saw a marked decrease in consumer spending almost immediately when the surprise interest rate came down in June of 2023. You know, to those who aren't in the industry, I tell them that story and they just don't believe that it's that causal or direct. And we saw it immediately in our data and it continued to progress and widen throughout the balance of 2023 and into 2024. And that softened consumer spending really was impacted in every income level across the country. But where we really have seen it show up materially is in highly indebted households in the suburbs of Ontario and BC, which would probably stand to reason given the amount of migration out of big city centers in the early days of COVID and larger mortgages. We, as you point out, have a financial services organization, lots of data: over $20 billion worth of spend on our credit cards with a small percentage of that in businesses that we own. And I think the average Canadian household, based on the data that we see, is spending on food and shelter and just cutting back on everything else. If you keep double-clicking and you think about how it's showing up in the four walls of the businesses that we own, we're seeing absolutely a trend to repair versus replacement. We're seeing trade down in quality: the quality and price architecture good, better, best—best to better, better to good. And we are absolutely seeing a fairly wide performance bifurcation between our essential and discretionary businesses. And although I think we like to say that we're avoiding as a country a technical recession, I think it's very safe to say that we've been in a discretionary product recession for many, many quarters. So overall, I don't think it's a very good picture. Unfortunately, I think the consumer is in tough and there's some structural uncertainty with respect to mortgage rates and very stubborn inflation, and so the Bank of Canada and others have a tough job and we're waiting for the right signals. I think we'll look for hopefully some beyond a signal and some hardened action around a reduction in rates as we move throughout the year this year, and hopefully we see that immediate causal consumer behavior the other way. And we'll certainly be able to pick up signals from the customer once that happens.

Yeah, I mean dual focus for sure in our supply chain organization and function. It's been a hallmark capability for us for years. I mean operating in this country in retail, I think a lot of retailers that have come up here from the south just realize how difficult the supply chain is. So this is a core capability of Canadian Tire. We've been working at it for 100 years. And the dual focus really was access to product during COVID, a structural issue in the global supply chain industry and supply side economics. And I think we really used our capabilities and our relationships, whether that be freight forwarding or rail companies or transport company or just inside the four walls of our centralized supply chain centers, to be able to punch above our weight and get Canadians the products they were looking for when they were hunkered down in their homes. But with that brought enormous inefficiency, not just to our supply chain but many supply chains around the world on the retail product side of things. Lots of third party logistics facilities needed to be stood up and integrated from a technology standpoint to just be able to manage the throughput associated with a boom in discretionary product demand. And so now we're starting to see that unwind. Things like global freight rates are a fraction of what they were at the height of the pandemic. Factories are below capacity as opposed to above capacity all over the world. The ports from a capacity standpoint, the rail companies operating with better efficiency, etc. So we see much more normalization, and that normalization is flowing into the cost of goods, and the cost of goods is flowing through to the consumer. And the dual function was, while all that was going on, we were investing and embarking on a pretty significant automation technology deployment strategy in our network. And it started with really thinking about the role of the store in e-commerce. In our Canadian Tire stores, about 30% of the total square footage of the average store is a warehouse. So how we utilize that 30 million square feet in a unified forward-deployed supply chain to be able to compete and win same day in e-commerce was a big work effort for us. And then we turned our attention during the height of COVID to really investing in our centralized fulfillment centers. So we stood up a 1.3 million fully automated square foot distribution center for our apparel businesses. Last year in the height of all this, we expanded two large centralized fulfillment centers and we deployed automated goods-to-person technology. And so we feel like now we're just starting to get to the other side where we can drive some leverage in our P&L around the supply chain, and that'll be good for customers as well. The variable cost per pick and ship for both our core business and our bricks business and our e-commerce business is coming down, going in the right direction, and we just haven't had that luxury over the course of the last few years. But all that to say, I think Canadians should feel good about the fact that the supply chain and its inflationary impact is subsiding. We're getting back to normal for sure, if we're not already there now, right?

My father owned a Canadian Tire store. So I worked in the store when I was a younger guy, and when I came to the corporation many years ago, I thought I knew how to run a store. And I'm sure everyone appreciated that. There is no way I could run one of our stores these days. They are fully integrated technological operations, and that goes all the way from visibility back into the supply chain to receiving product at the back door and moving it efficiently with data to the floor, the selection of merchandise curated to local demand profiles, all done through AI on proprietary platforms that we've built over the last few years. And to the untrained eye, you walk into one of our new concept stores as part of our Better Connected strategy and the technology is fairly subtle. But from an operation standpoint, there's nothing subtle about it at all. The stores just could not operate without technology. From employee-facing devices to customer-facing devices to micro-fulfillment, automated capabilities around storage, receiving, replenishment, and geolocating inventory. And I think one of the things that has been really beneficial and we're just starting to feel like we're at value creation on this is, you deploy point-to-point solutions into a retail environment, whether that's a new POS or for us an auto service business or something to do with ordering or pricing or search for store associates. It goes on and on. And those systems eventually, if you want to become customer-focused, need to all connect. And so part of that customer data that I talked about and the organization and structuring of it: we had hundreds of different systems that were collecting some sort of customer data. Whether it's a returns desk at the store or the auto service counter or you sign up for an auto club membership or you have a credit card or you're on our website, etc. So the work effort to be able to connect all of that to be able to understand — or I guess the macro capability is customer understanding — has been no small work effort. And as I said in my prepared remarks, we believe what gets forgotten in terms of the utilization of some of these emerging technologies is the ability to have your data structured for it to actually let the machine do its thing. And this great breakthrough generative AI technology in the absence of the right structure, you're not going to create a lot of value. And so we're in a position now where we think we can really scale value. Because it just doesn't work on its own, right? And so, the stores, like I said, it's an unbelievably different experience in the running of the store and how a customer engages in their shopping journey. It may start online and end in store or vice versa. And just that connection, talk about the importance of connection and the Better Connected strategy, is a wholesale change.

I love those kind of personal experience stories and I think that is the quintessential essence of the emotional connection. In that, we curate an assortment for life in Canada. We don't have two million products in our digital catalog like some of the e-commerce folks we compete with. So whether it is those local dealers or our buyers, and now the customer data that can provide us a pulse, we're kind of your concierge for the jobs and joys of life in Canada. So I think if we do that right, because we are here living here, understanding what it's like and seasons and starts and firsts and what the country needs, those product experiences should provide a great degree of emotional connection. There's no one thing; it's a series of things that this organization has done over time. I tried to hit on a few of them with respect to how we think about community and what literally lives in our DNA. And I think the company has done well by the country over the years, and we've set up this strategy to really accentuate those positives to really make a difference, and then having that targeted outcome be emotional connection.

Just keep it. I have a nice drawer of it. It's all this is Canada. I think you can actually take it into the store and convert it for a whole bunch of great durable goods that you need.

Yeah, I mean this is not new for us, but how we organize the organization because there's no one function really in terms of how we're centralized or structured that really gets at thinking through ESG at a macro consumer level when we go to market in the manner that I talked about. So we have spent a lot of time organizing a leadership committee led by Susan here, our ESG council. And last year was the first year we put out an ESG report that has commitments on a whole number of fronts. That works itself now into our capital planning agenda. And one of the things that we think helps us steward in this area is that we have a committee of the board, a formal committee of the board that looks after and stewards our brand. As you heard from my discussion today, we take brand pretty seriously. It's something we nurture and the commitments we make from an ESG standpoint are important to our brand, important to our employees, important to our customers. So we put the requisite amount of formality now into that, all overseen by a broad cross-section of executives and supported by our board. I couldn't be happier about the progress we're making. If you've got any bedtime reading, it's a pretty good report, and you can get a pretty good sense of all the things that we're working on.

It's a great question and I think there's some fallacy associated with the implications that it could have on a business like Canadian Tire. We see the electrification of Canada's car park as a structural tailwind for us going forward. The top five jobs in an automotive service center represent 85% of our business, and the majority of those jobs still live on with electrification. Depending on what study you have, car part right now penetration 2.5 to 3% probably in Canada, but growing pretty significantly. And it's in our name: EVs need tires, they need front-end suspension, they need brakes, and the weight of these vehicles relative to traditional combustion engines drives wear out much greater on all those critical parts. And right now, probably because of a scale disadvantage, the average price per part is significantly higher. So for us, we have the most amount of service bays in this country. We've got capacity in that asset going forward. We have spent a significant amount of time deploying technology around the customer experience specifically, and we think we're poised with all of the assets to be a winner as EV penetration really moves through the fleet in the country.

Well, I'll leave you wanting more on Triangle Retail Media. It's new for us, we're really excited and the great thing is all the capabilities we've been building sets us up very well to go after this new profit opportunity. The acquisition of Party City was almost exclusively done through the interrogation of our customer data. To some who cover our stock, maybe even some of our big investors, they were giving us a little bit of a head nod when we announced that acquisition. And then when you walk them through the crossover in terms of especially CTR, Canadian Tire Retail and Party City, they're the same customer. And our ability to engage with a younger, more female-oriented customer demographic and an active household—it was absolute sweet spot for us from a customer standpoint. The acquisition was so much more in terms of the customer overlay and what we expected to get at a per customer level, not only in terms of what we could bring Party City in terms of access to 11.4 million members and tucking them into our Triangle program, but what Party City could do for our business at the member level. So of course we take the board through traditional metrics like EBITDA and multiple and cash flow and assets and all those types of things, but I can tell you I remember vividly because I was the one standing up there suggesting that we needed to do this. Most of the analytics that we walked our board through that ended up in us acquiring Party City's Canadian operation was 80% customer, 20% traditional numerical. Driven from your own data and assessment of it.

No, I mean as I said, I'm a little out of practice with these types of things. So I'm flattered that you spent some time with me and the team. I've got a lot of team members here today. I have an absolutely fantastic team that lives brand purpose every single day. So hopefully you got a chance to meet some of them today, and I just appreciate your time. Thank you.