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Record 1 of 1 in CBCA Fulltext Business 1998 Annual

TI:  The beaver moves to the big pond: the Roots opening in Manhattan tonight is the start of accelerated US expansion. Can an IPO be far behind?
AU:  Lang-Amanda
PN:  Financial-Post-Daily
SO:  Financial Post Daily, v.11(72) Je 9'98 pg 8.
Illustrations
FA:  Fulltext: 1047 words
IS:  0838-8431
CI:  Roots-Canada-Ltd
CZ:  Roots Canada Ltd
PT:  Most-Recent-Update; News-article
SF:  Illustrations
PD:  980609
PY:  1998
AN:  4157380
LN:  LONG
FT:  Dan Akroyd will be here and Jason Priestly is expected, Michael Douglas is
out of town and there's no word on Matt Damon. But when Roots launches its
Manhattan store tonight - and celebrates its 25th anniversary - the most
important guests could well be the least known. 

Along with the many high-profile "friends of Roots" and local glitterati,
there is likely to be an investment banker or two, with thoughts running
less to Pol Roger than to public offerings. 

The opening of its New York store is an important development for Roots. It
is not the first store the company has opened in the U.S., but as a mecca
of style and fashion, New York is a critical addition to its lineup. It is
also expected to serve as a springboard for an aggressive expansion in the
U.S., one that will help double the firm's revenue to $300 million from
$150 million. That's where the bankers come in. 

So far, Roots has managed its expansion organically, incurring little debt
along the way. But founder Michael Budman says the next stage of growth
could impel the company to seek additional capital. "It will behoove us to
look at different options moving forward, whether going public, or
merging, or bringing in a partner." 

Budman doesn't give the impression a decision is imminent, and he and
co-founder Don Green have turned down offers before from would-be
investors. But with the stock market still edging higher, the pressure to
act is mounting. "We are inundated daily with people who want to throw
money at us." 

It's not hard to see why. Roots has 120 stores across Canada and in
Southeast Asia, and almost a dozen already in full swing south of the
border. The company is proud of its Canadian foundation. And the story of
how the two Detroit-born boys fell in love with the Canadian wilderness
and put down ... well, roots, is well known. 

Roots is almost as well known for its skill in marketing as it is for the
distinctive beaver on its sweatshirts, but marketing experts wonder how
its tactics will fare in Manhattan. One consultant says the company's
"guerrilla marketing" tactic of splashing 30-foot billboards with
celebrities in Roots garb isn't likely to fly here. She thinks Roots will
have to find a new approach in sophisticated New York. 

Elliott Ettenberg, chairman and chief executive of Bozell Retail, says
Roots has "good equity," which he defines as a strong sense of what it
stands for among consumers. That will help it make the move into
Manhattan, where good equity carries a high premium. "They believe the
Canadian brand equity has a place and a role in the U.S.," he says, "and
I'm betting they're right." 

The real challenge, he says, will be less in "branding" itself than in
managing growth. 

Creating a strong U.S. presence will take capital, but perhaps as
important, it will take good management with time to devote to the
problem. "If they don't make it, it will be only because the structure of
their company doesn't allow it." 

Roots also faces competition on its home turf, as rival Canadian retailers
such as Hudson Bay Co. plan to introduce Canadiana products. 

But there is no question U.S. retail is booming. Discretionary household
income is rising to unprecedented levels, driven not by the entry of women
to the labor force, but by productivity. That implies this boom will last
for some time. 

Other Canadian clothing retailers are already doing swift business in
Manhattan, including Club Monaco, Rugby North America and Tristan America,
which opened its third store about three weeks ago in Soho. 

As for bringing Canada to the world, Budman points to Roots' success at the
Nagano Olympics, where brand loyalty merged seamlessly with patriotism and
a general feeling of goodwill about Canada. The company got a subsequent
boost when Prince William donned Roots' Olympic gear during the recent
Royal visit to British Columbia. 

But Budman won't try to export "Canada." Roots, he says, is about lifestyle
and authenticity. 

It has already successfully branded new locations, stamping a place-name on
its distinctive design and created a local brand. 

The competitors Roots identifies with are those that have focused on
identity, not product: Ralph Lauren, Gap Inc., Abercrombie and Fitch Co. -
all have extensive marketing campaigns that play on a range of complex
associations, some of which have little to do with the products they sell.

As well as its brisk retail business, Roots has expanded its business to
include wholesale - the company just landed a deal with Eaton's in Canada
and wants to sign similar deals with retailers across North America - and
in more limited fashion, franchising. It also licenses its brand, stamping
the Roots logo on everything from watches to eyeglasses. 

Roots will launch a line of denim this fall, and plans to open a "Roots
Home" in Toronto, featuring Roots furniture. That is a gamble the company
has made before, but Budman insists furniture is a logical extension of
"the Roots lifestyle." 

Expansion in the U.S. will take "substantial" capital, he says. "We'll need
to build in prime locations" and "building a brand is expensive." 

This isn't the first time the privately owned firm has had motivation and
opportunity to seek additional financing, and rumors it would be bought
have surfaced several times in the past. 

Budman says Roots has entertained a variety of offers, but he adds market
conditions are good now for an initial public offering. "We're obviously
looking at all the opportunities." 

Although he and Green have made no firm decision, there is little question
capital is there for the taking. 

Ettenberg notes capital is easy to come by, especially for retailers with a
unique proposition, like Roots. But there are still pitfalls. "New York is
a funny market. You only get one shot at New York. If you don't do it
right, you languish forever." 

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YC:  1999
UD:  980300