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Business as usual as Leon’s acquires The Brick?

Two of Canada’s best known furniture and appliance retail rivals, The Brick and Leon’s, are now officially one. The two chains announced today that their union has been consummated, and Leon’s has acquired all outstanding common shares of The Brick. The Brick will be delisted from the TSX by April 1. Earlier this month the Competition Bureau of Canada ruled that the merger of the two competitors would not have the effect of reducing competition in the marketplace. The Bureau was satisfied that shoppers at the newly merged entity will not face higher prices.

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Leon’s has taken over rival retailer The Brick, with three times more stores. Will the new reality mean more deals for shoppers?

In fact, the $700 million takeover of The Brick by Leon’s was driven by increasing competition in the retail sector, as reported by the CBC. Terry Leon, the CEO of Leon’s Furniture, said that the move was meant to help the companies deal with giants like IKEA, Wal-Mart, which is planning to open no less than 73 more of its giant-box stores in Canada in the coming months, and Target, just now entering the Canadian market with a planned 135 new stores across the country in the next year or so. As well, there are the players already established in the appliances and furniture market, Home Depot, Future Shop, The Bay, Sears.

With respect to effective remaining competition, the Bureau concluded that a number of national and regional retailers had overcome the barriers identified above, and that there would be sufficient effective competition to the merged entity in each of the local markets identified. The Bureau’s conclusion on effective remaining competition is based not only on extensive market contacts and a review of the parties’ internal documents, but also on an empirical analysis of the impact that each of a large number of national and regional furniture and/or mattress retailers have on the pricing of the parties.

Competition Bureau Position Statement

Leon said that the new entity will have access to “national buying opportunities in merchandising and marketing, and a national distribution network that will enable us to greatly enhance our online shopping capabilities.” Will it also mean more deals for customers? That might not happen.

It appears that the two brands will continue to operate separately, under separate management. The distinctiveness of the two brands, which extends to the product lines they sell, could mean there will be little opportunity for price reductions for consumers, according to some analysts. One analyst quoted in the Globe and Mail said that Leon’s will likely close “10 overlapping stores” and boost its margins through the new buying power it will enjoy as a result of the acquisition.

The Brick currently has 230 stores across Canada; Leon’s, which dates back to 1909, has 76 stores.

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