THE ‘BOGEYMAN’
Canadian malls are adapting to the changing retail landscape — and some industry watchers say online behemoth Amazon isn’t the evil empire it’s been painted as.
Each spring the Canadian retail landscape recalibrates to account for the mall spaces orphaned by sector bankruptcies and restructurings.
Industry watchers are working the worry beads even more feverishly this year given the titanic threat of Amazon, which continues to gobble up retail market share and infiltrate categories that pundits never imagined would be a hit online — clothing, most notably.
But while the retail sector may not be in the most robust mood right now, the situation may not be as dire as some fear.
What appears to be an unfolding catalogue of fashion failures is making way for growth, allowing for multiple expansions and new retail arrivals to Canada.
“Amazon is a bit of a bogeyman out there,” said Bruce Winder, partner in the Toronto-based consultancy Retail Advisers Network. “A lot of folks blame it for retail store closures, but there is also a natural churn in retail and that is definitely happening. I think that churn has really accelerated over the last five years, and we have seen an expansion of U.S. and European brands. It’s creating fear in retailers, and they are reacting.”
The list of closures and insolvencies this year looks bleak and includes some big names, most notably music chain HMV Canada, which announced in January that it would close all 102 of its stores and wind down operations. Veteran Canadian retailer Grafton Fraser, which has 158 stores under banners such as Tip Top Tailors and Mr. Big and Tall, is restructuring after being granted creditor protection in January, as is Freemark Apparel Brands Inc., the insolvent Quebec-based operator of 58 stores with banners across Canada including Bench, Scotch & Soda and Esprit after filing notice in February, owing creditors $17.2 million, and 51 BCBG Max Azria stores are closing in Canada as part of a global restructuring.
Given the disappearance or radical shrink of some notable banners in recent years — Jacob, Jones New York, Danier Leather, American Apparel, Mexx and Aéropostale — it’s not difficult to assume that fashion players are feeling the most pain, particularly the Canadian ones, who buy goods offshore using U.S. dollars and have vastly smaller economies of scale than their global counterparts.
A number of other retailers appear to be steadily shrinking.
Reitmans had 981 stores in 2009, and ended its last quarter with 694. Le Chateau now has 187 retail stores, down from 243 in 2011. Quebec-based La Senza had 318 stores in Canada when Limited Brands bought it in 2006, but now has 122. Since then, however, Limited has infiltrated the Canadian market with its other banners and now operates 38 Victoria’s Secret stores, eight Pink stores and 102 Bath and Body Works stores.
But Winder notes multiple banners are filling the dead mall space, including many Canadian ones: Dollarama, Simons, Ardene, Arc’teryx, Indochino, Canada Goose, and Aritzia, which in addition to opening stores under eponymous banner, has also started opening stores under its private label brands Wilfred and Babaton.
Newer foreign entrants to Canada include Uniqlo, the H&M brand COS, Strellson, Samsung, Woolrich and Jimmy Choo.
And not all of the retail insolvencies have resulted in vacant storefronts: denim retailer Jean Machine found a buyer this week and will remain open, while 70 of HMV’s locations are going to reopen as Sunrise Records.
“The strong in Canada have survived and there has been a huge influx of these other foreign retail brands,” Winder said.
“You could argue that the ones that went away were not the best in class in retail. Online sales in Canada are, at best, maybe six or seven per cent of all retail and StatsCanada says it is more like two per cent. If you are a weak retailer and you are living on the margin, with operating earnings in the low single digits, that might be enough to put you under. The industry is purging, just naturally, some of the weaker players. That has always gone on, but now it’s happening more quickly.”
And if churn is happening here in Canada, it’s happening at an even more accelerated pace in the U.S., amid a spate of pending closures from Macy’s, Sears, Kmart and J.C. Penney.
“The one thing that we all know is that the retail environment globally is shifting very rapidly,” Andrew Rees, president of footwear brand Crocs, told investors on a conference call this month after announcing Crocs would close 160 of its 558 retail outlets by the end of 2018.
“That’s our current estimate of the stores that we need to exit,” Rees said. “But, it’s something that we’re going to have to re-evaluate on a constant basis. The consumer is shifting out of retail to e-commerce in this marketplace and many other marketplaces across the globe.”
Given the market turbulence, Canadian mall developers and retail businesses are fortunate that per capita retail penetration — the amount of retail square footage per capita — has always been lower in Canada than in the U.S.
Per capita penetration of shopping centres in Canada is 16.5 square feet per person, compared with 23.6 square feet per person in the U.S. Meanwhile, a recent analysis from the Retail Council of Canada found that shopping malls in Canada are more productive, on average, than malls in the U.S., averaging sales per square foot of $744 compared with US$466 per square foot in the U.S.
“I read about all the bankruptcies, but I don’t really feel it in my world,” said Ross Moore, senior vice-president at retail leasing advisers Cresa Vancouver. “From my perspective, there is still a shortage of space, as crazy as that sounds.”
While Moore typically conducts deals for the mid-market, he said broad anecdotal reports suggest weaker malls are suffering along with weaker retailers, and some of the space vacated by fashion or electronics retailers are being infilled with service businesses such as gyms, restaurants or chiropractic offices. As much as retail is reinventing itself, so is retail real estate at the mall.
“Talking to colleagues and competitors, all of us are doing more service retail than what I’d call traditional, hard retail of goods,”
A lot of folks blame (Amazon) for retail store closures, but there is also a natural churn in retail and that is definitely happening.
Moore said.
“That’s a definite trend that speaks to the fact that people are buying more and more online — if it’s a commodity-type item, you can just buy it online.”
Moore notes automaker Tesla has put its stores in places where fashion retailers typically reside, such as Vancouver’s tony Robson Street and Toronto’s Yorkdale Shopping Centre.
“A car showroom on the toptier retail strip in Vancouver,” he chuckled. “Who would have thought? And you are now seeing the epitome of online retail, Amazon, beginning to open physical stores (outside of Canada). In retail, you have to expect the unexpected.”