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Canadian giant invades Alaska's bush.

In a historic merger, Canada's North West Co. acquires the state's leading Bush retailer, Alaska Commercial Co.

After five years of market research and one year of negotiating a complex deal, northern Canada's leading retailer, North West Co., bought the historic Alaska Commercial Co. for $6.5 million in late November. Although six years may seem like a long time to swing a business deal, the sale is the result of development -- and competition -- that goes back almost 200 years.

North West Co., based in Winnipeg, Manitoba, will add ACC's 20 rural stores to its chain of more than 160 outlets that span the northern edge of the North American continent, from the Yukon and Northwest Territories in the west to Newfoundland and Labrador in far eastern Canada. North West Co. claims 50 percent of the retail market in rural northern Canada, with annual sales of $380 million. This acquisition brings North West Co. 15 percent of Alaska's rural market, which translates into $65 million in annual sales from ACC and $10 million in annual sales from Frontier Expediters, ACC's Bush wholesale grocery firm that was transferred to North West Co. in the agreement.

The sale brings much-needed capital to the Alaska retailer, which has been owned and operated for 15 years by the non-profit Community Economic Development Corp.

North West Co. plans to build its new trade network on the model of its successful operation of stores sweeping across northern Canada. It hopes to bring modern retailing to rural Alaska, from price scanners and pizza to traditional essentials like stereos, all-terrain vehicles and outboard motors. What can't be stocked in the Bush will be available from increased inventory in Anchorage or, eventually, from North West Co.'s own mail-order catalog.

North West Co. modernized its stores and information systems to streamline distribution, and established a Native-hire and training program that leads the Canadian private sector. Like its Alaskan acquisition, many North West Co. executives, including ACC's new president and COO, Jim Clark, came to the board room by way of the Bush. They say they brought with them an understanding of the rural North that includes a commitment to community investment and advocacy for Native self-government.

Shifting Paradigm

The confidence North West Co. shows by its strong entrance into the Alaska marketplace -- and the cash infusion, with $30 million pledged for capital improvement and an ambitious plan for 15 to 25 new stores over the next five years -- is an upbeat indicator for the state's economic health.

Outgoing ACC president Jim Campbell, who will take a new role as CEO, says the revitalized ACC will use North West Co.'s expertise to develop the niche where both companies thrive: retailing in rural and remote locations.

"Acquisition by an Outside company has many intricacies, but negotiations get really interesting when laws of a foreign country must be considered," Campbell says. As CEO of the Alaska operations, Campbell takes pride in "Alaskanizing" the organization and the new expansions to come. "We'll train Alaskans in our Bethel career center, which will give our people a head start in landing those jobs and managing our stores," he says, adding, "even our legal and financial counseling is Alaskan."

While the Alaskan economy is tightly linked to oil and gas production and to the economic hub in Anchorage, Campbell says other factors point to sustained purchasing power in small towns and villages. The diversified interests and size of Native corporations mean they have the potential to grow into some of the largest enterprises in the United States, with commitments to investing in their communities. And the recent allocation of fisheries resources will sustain coastal towns, Campbell says.

The effect of the purchase on what one ACC board member calls the "shifting paradigm" of Alaska retailing is harder to gauge. Lower prices and greater product variety in the remote towns and villages served by Alaska Commercial Co. should benefit rural consumers. While North West Co. plans to increase the 15 percent share of the rural retail market claimed by ACC, it remains to be seen if its inroads will come at the expense of Outside mail-order businesses, Anchorage retail giants or more direct competitors in the small-town markets.

ACC suffered some setbacks in recent years, including a Kenai department store that vice president of operations and marketing Steve Kikendall says "was way out of our league," and a decision to pay off an unexpired lease for a gift shop at Anchorage International Airport with $1.1 million in short-term cash.

"We found ourselves approximately five years ago with a company that had basically stagnated," CEDC director Perry Eaton says. "We found ourselves with unsatisfactory management ... and we also found ourselves in a position of not having the capital to fulfill the dream we had for the company."

Searching for an Alaska Stronghold

Jim Clark began making forays into Alaska to investigate the viability of expansion here in 1986. Clark says he was "more than excited" by what he found in that first trip to ACC stores, and the Winnipeg management team was anxious to pursue the prospect of becoming a major player in the Alaska rural market with a single transaction for ACC's entire operation. Those hopes had to wait until North West Co. decreased its debt load, a process aided by sales that reached $380 million last year.

Clark will move to Anchorage as president and COO, the only Canadian coming to Alaska with the new ownership. The Alaska stores will retain the ACC nameplate, while the Canadian owners will incorporate here as TNWC (US) Inc.

At the time of the sale, North West Co. executives stressed that they will not replace American managers or employees with Canadians, and that they have no immediate plans for closing stores. "I fully expect that if any new hiring is going to happen, it will be advertised in the Anchorage newspapers, not the Winnipeg newspapers," says Ralph Trott, North West Co. president.

Kikendall estimates that Alaska Commercial Co. employs 450 people statewide, with 60 based in Anchorage. The company will need new employees for its new stores, including store managers. As part of their commitment to community investment and to Native hiring, officials announced at the time of the sale that they'll open a training center in Bethel to teach retailing, management and career skills to 18 management candidates each year.

The training is an attempt to attract enthusiastic young people to management ranks, and to allow the company to place rural Alaskans in locations that can leave newcomers bewildered.

The North West Co. boasts a 79 percent Native employment record, second only to the government in Canada. ACC managers in Anchorage and the Bush say that even with Natives at 42 percent of employees, the company has not promoted many to management.

The executives of both companies say they will maintain current suppliers for ACC and Frontier Expediters.

The largest supplier concerned is Carr Gottstein Foods, Co. which handles most of the food and produce for both ACC and Frontier Expediters. Mark Williams, executive vice president and chief operations officer for Carr Gottstein, says his company has followed the sales talks, and he met several times with North West Co. executives to discuss their relationship and the Alaska market.

Williams sees the purchase as good for Alaska -- and good for Carr Gottstein's wholesale and freight divisions. "When we do better, that generates more jobs in Alaska and everybody does better," he says.

North to the Future

Jim Clark and Jim Campbell say plans to expand with new stores -- three to five each year for the next five years -- will come without additional management in Anchorage. There are also no plans to duplicate Carr Gottstein's high-tech distribution center, similar to the $12.2-million Winnipeg facility that's part of North West Co.'s drive to modernize.

In the first expansions under new owners, Alaska Commercial Co. will continue with plans for nearly doubling the size of stores in Cordova and Dutch Harbor, and has taken over operation of the village-owned "Our Store" in Togiak.

Clark says many of the stores built by the Canadian corporation have been similar to the arrangement in Togiak. He's eager to identify small markets where ACC can lease store space from local owners, enter joint ventures with Native corporations or establish contractual management of existing stores. "Regardless of the size of the community, there is probably some way in which the Alaska Commercial Co. will be able to help them develop their village from an economic standpoint, better than it is today," he says.

In Cordova, ACC's general manager of operations Rex Wilhelm says the company is on track with plans to nearly double store space with a 20,000-square-foot "dream ship of stores we plan to add across the state." As the Alaska prototype of North West Co.'s "Tomorrow's Stores," Wilhelm says Cordova will have a state-of-the-art produce department, complete with salad bar, an in-store bakery and deli, better frozen food and meat selections, and a general merchandise store with clothing, hard goods, furniture, televisions and stereos.

ACC's employees may be the most enthusiastic participants in the whole deal. By all accounts, morale was sagging with the company's inability to fund improvements. And the employees' investment -- one-third of ACC, managed by an Employee Stock Ownership Program (ESOP) -- was dwindling with the company's worth.

Heidi Brown, an inventory manager in the Anchorage office who serves on the ESOP committee, says employees were aware of the capital shortage on a daily basis. Employees were closely concerned with the fate of the complex acquisition, but, nobody counted blessings until the ink was on the paper.

"The hysteria really didn't start until that day," she says. "Everybody here's real happy, and the branches are ecstatic."

"This group of employees has been enthused about this, and excited," Campbell says. "They're really chomping at the bit and ready to go."

Landmarks of the Alaska Commercial Co. 1776-1992

1776 Two Siberian merchants, Gregor Shelikof and Ivan Golikof, establish a fur-trading business in Russian America.

1784 Shelikof establishes trading posts at Kodiak Island, Cook Inlet and Unalaska.

1799 The Shelikof-Golikof Co. becomes chartered as the Russian-American Co.

1867 When the United States buys the Alaska Territory from Russia, the Russian-American Co. is sold to San Francisco merchants. A year later, the new owners rename the business the Alaska Commercial Co.

1901 The Alaska Commercial Co. merges with several other transportation companies, forming Northern Navigation Co. for shipping and Northern Commercial Co. for retail trade.

1922 A group of company employees buy Northern Commercial Co.

1974 Northern Commercial Co. is solid in three parts: urban Alaska department stores become part of Nordstrom of Seattle; equipment and machinery outlets are purchased by Skinner Corp. of Seattle; rural branch stores are sold to the Community Enterprise Development Corp. (CEDC) of Alaska in 1977 and are renamed the Alaska Commercial Co.

1992 Alaska Commercial Co. is sold to North West Co., the largest retailer in the Canadian North.
COPYRIGHT 1993 Alaska Business Publishing Company, Inc.
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Title Annotation:North West Co.; Alaska Commercial Co.
Author:Carroll, Ed
Publication:Alaska Business Monthly
Date:Jan 1, 1993
Words:1834
Previous Article:Small business outlook: David vs. Goliath.
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