MONTREAL - Telus Corp. (TSX:T) is buying Black's Photo Corp. for $28 million, joining rival Bell Canada (TSX:BCE) in bulking up its retail presence in advance of the arrival of new competitors for wireless customers next year.
Some time before the Christmas holiday shopping season, Black's stores will begin selling Telus wireless products and services at 113 locations across the country, with a particular strength in Ontario.
Although Telus is strong in its base in Western Canada, chief financial officer Robert McFarlane said Tuesday the company needs to increase its distribution in Ontario and the chain of photography stores is a "perfect fit."
"We're No. 3 in share in the Ontario marketplace so this gives us an opportunity to significantly improve our relative position," McFarlane said in an interview.
Telus acquired Black's from ReichmannHauer Capital Partners, which had purchased the chain in October 2007 for an undisclosed price.
The announcement follows a move by Bell Canada to acquire 750 The Source consumer electronic stores in March after U.S. corporate parent Circuit City went bankrupt.
The Source stores will more than double Bell's national retail network to 1,450 outlets.
McFarlane said the acquisition of Black's wasn't in response to Bell's move, but acknowledged it follows a similar strategy.
"Distribution is very important and there's a big battle going on in a competitive market. In our case we really like the fit for Black's because they're relatively small...and the stores are doing well."
McFarlane downplayed the deal being tied to ward off new entrants, saying it will also improve Telus's distribution capabilities against Rogers and Bell.
He wouldn't disclose the exact services that will be offered by Black's stores, or whether they will duplicate those offered by Telus-branded outlets in the same malls.
But he noted there are no plans to close Black's or Telus locations.
McFarlane said the cameras and photo processing services sold by Black's are complementary to the types of products and services that Telus has to offer. Cellphones are increasingly being outfitted with more sophisticated cameras.
While refusing to discuss much about the process that led to the deal, he said the previous owners believed it was inevitable that wireless products would be introduced into Black's and it wasn't something they had expertise in.
Telecom analyst Carmi Levy of AR Communications said the retail forays by Canada's largest wireless providers are part of the jockeying for position before new entrants arrive on the scene.
"New players are coming in, so the strategy seems to be saturate the market with physical presence and don't give the newcomers an opportunity to get a physical visibility in the eyes of Canadians," Levy said in an interview.
Ontario is the battleground for incumbents and newcomers alike.
Levy said he wouldn't be surprised if Rogers didn't make a retail play of its own to maintain its leading position in the key Canadian market.
"This is the middle chapter of a fairly long book so I expect more to come."
Iain Grant of the Seaboard Group said the deal is good for Telus but what remains to be seen is the response from Rogers to its rivals moves.
"They're the ones who really have to come up with a strategic game plan to answer the two challenges," he said.
While Bell's purchase of The Source will help it to sell its range of products in the stores, Grant said he believes Telus was "far more focused on looking over their shoulder at the new entrants and knowing that they had to do something to buttress their central Canadian presence."
Telus is Canada's second-largest telecommunications service provider after Bell. It has more than 4,000 locations where it's products are sold, including some 1,000 corporate owned stores, dealers and third-party retailers.
Telus shares closed at $34.90, up 47 cents in trading on the Toronto Stock Exchange.