Ask the Legends: Gordon Reid

• Born in Vancouver in 1933; moves to the Montreal area as a boy.
• Starts his retail career at age 13, gift-wrapping parcels at Simpsons. After being expelled from school at age 16, he joins the store’s staff full-time.
• In 1955, Reid becomes a sporting-goods salesman, which takes him across North America. In the U.S. Midwest, he encounters a new concept: discount retail. He returns to Canada and, with a $15,000 investment, opens Giant Tiger in downtown Ottawa.
• After a year in business, Reid holds a going-out-of-business sale that is so successful—and informative— that he decides to stay in business.
• Giant Tiger succeeds as a discount retailer. Reid opens several more stores in the Ottawa area, then grants his first franchise to a particularly entrepreneurial employee in 1965. Giant Tiger expands throughout the 1970s and 1980s, issuing new franchises and acquiring other firms, including Chez Tante Marie.
• Today, Giant Tiger has 202 stores— most of them franchises—and employs more than 6,500 people across Canada. Reid remains chairman of its board.

What hard lessons did the early days of Giant Tiger teach you about retailing?

I made a number of mistakes. My grand opening was on a Saturday. I advertised in Friday night’s paper, but in those days, they delivered the Friday night paper late Saturday morning, so the majority of Ottawa people didn’t see the ad on time. Another major mistake was to base my store on an American model, which I’d seen as a travelling salesman. A lot of the fellows I met ran stores situated in the suburbs, whereas I was sitting downtown. And it never occurred to me that people wouldn’t want to lug paint all the way home on a bus. Finally, there was also just a lack of capital. I couldn’t afford the assortment of merchandise that would appeal to the average person.

You decided to close Giant Tiger after its first year. What changed your mind?

My sales for the first year were $139,781. If you divide that by the weeks and days I worked, it was pretty slow going, and I was getting to the end of my financial resources. So I bit the bullet, said, “Well, it’s been nice. I gave it a good try,” and advertised a going-out-of-business sale.

And, my God, people beat down the doors. They came in and they bought everything, including stuff I hadn’t advertised. My cash flow improved so dramatically in a couple of days that I said, “Whoa! Wait a minute. Now I have cash. I can go back on the market, get stuff that will sell at very low prices and keep the traffic coming.” It gave me a much better idea of what to buy and what I had to sell it for. I got better value, and sales started to improve.

What do you define as Giant Tiger’s seminal event or strategy?

Definitely franchising. In 1965, I had a store manager working for me in Ottawa named Jean-Guy Desjardins. He told me he wanted to open his own business, so, we shook hands and said, “Okay, let’s go into a partnership.” He went off to a small town in rural Quebec and opened his own store. My function was to supply him with merchandise.

Well, this gradually grew. I compared the profitability of working with him as a partner to that of the five or six stores I owned at that point, and there was such a dramatic difference. Also, I had no headaches with him. With the stores I owned, it was a constant headache, mainly because I couldn’t afford high wages to attract a high quality of management. So, when I opened our seventh store in Perth, Ontario, I had an experienced Woolworth’s manager come to me who wanted to run it. From that point on, we franchised every store, because it was just a night-and-day difference.

You give quite a bit of leeway to your franchisees. Why?

They have to follow our company policies on advertising, the way we treat our employees, that sort of thing. The store operator has to buy from us, but he decides what goes on the shelf based on his knowledge of the market.

Over the years, we’ve attracted a lot of managers from Kmart, Woolworth’s, Zellers, and, more recently, Wal-Mart as franchisees. They bring with them all their skills and experiences, and we learn from that. My model for franchisees was always this: “You come to us and run things our way for one year. After one year, you figure out what it was you were doing in your previous career that’s better than what we do. Then you bring that to us and we’ll look at it, experiment with it and incorporate it into our system.”

What’s the biggest lesson you’ve learned about franchising?

If you try to limit a franchisee’s profits, you won’t be very successful. We have no limit on profitability. We offer a very low fee to get in, just $100, and if the franchisee is successful, we don’t try to grab his profit. I think that’s where a lot of franchisors get into trouble. They see somebody being successful, and they immediately up his fees, nibble here and nibble there, because they feel those profits are due to the value of their name. At Giant Tiger, we feel the value is the franchisee’s experience and ability as an entrepreneur and a merchant.

You started an employee-ownership program more than 30 years ago. Why do you like that model?

I started by selling shares to all the management team. That extended over the years to senior employees at head office, and then to people with two years of experience. They buy the shares. For those who don’t qualify for shares, we offer profit-sharing based on achieving the company’s profit targets.

At the store level, they have a profit-sharing system based on the store’s profits. Every employee who’s been there a year is entitled to profit-sharing. Franchisees are required to do that. It’s meaningful to employees. It involves people looking at the overall business and understanding that the way we operate, our policies and the way we treat our customers are all related to making a profit.

Why did Giant Tiger expand primarily through establishing new stores in smaller markets?

My first store was urban. But when I looked to expand, I wanted cheap real estate, and there certainly wasn’t much of that in Ottawa. I looked around at the small towns close by and found I could get very inexpensive real estate there.

Also, there was far less competition in these markets. In those days, it was chains like Woolworth’s and Kresge’s, and it was pretty easy to undersell them.

What’s the best lesson you’ve learned in your half century in business?

Over the years, I’ve made the mistake of thinking I could get a higher price because people thought I was a nice guy or had a nice store to shop at. Forget it. People are there to get value.

There’s no such thing as customer loyalty unless you’re price competitive. People won’t come to you because you’re a nice guy. If you want loyalty, buy a dog.