Retail redefined by digital revolution

TCharlie Smith

he last classical-record store in Vancouver, Sikora’s, still has a fair number of regular customers. As one of the owners, Ed Savenye, surveys his 3,000-square-foot palace of vinyl discs and CDS in the 400 block of West Hastings Street, he can see a couple of them looking through the containers of LPS. When one asks for help, Savenye leaps into action.

But Savenye, who became a partner in the store with long-time employee Roger Scobie in 2001, readily acknowledged during an in-store interview with the Georgia Straight that there are fewer of these customers than in its predigital heyday.

At the heart of his concern on this day is Amazon, a Seattle-based e-commerce giant that generated US$177.9 billion in revenue last year. That’s up from US$61 billion five years ago. This year, the behemoth founded by former Wall Street executive Jeff Bezos, now the richest CEO in the world, is on track to top US$200 billion in sales. Amazon’s success has had a devastating impact on booksellers and record-store owners.

“For the sake of time and just a couple of bucks, a lot of our customer base just simply walked away,” Savenye said wistfully.

As a result of declining sales, Sikora’s will close at the end of February after 40 years in business. It’s one of a multitude of local businesses that have been felled by rapid transformations in retail. Shortly before Christmas, the Comicshop at 3518 West 4th Avenue announced that it will be shutting down after 44 years in business. Last year, HMV Canada called it quits. Ingledew’s, a centuryold Vancouver shoe business, also folded in 2017. After 82 years in business, two Umbrella Shops were shuttered. Nicole Bridger closed her eponymous Gastown clothing store, shifting to online orders and pop-up shops. Savenye worries that the list of local retailing fatalities will grow, undermining community connections and severing long-standing friendships between shopkeepers and their customers.

It’s not just Amazon that’s gobbling up local shopping dollars. There are many other foreign-owned digital platforms, including Wayfair, Etsy, and Alibaba, that are having an impact on different retail sectors. Savenye predicted that within a couple of decades, many suburban malls will have to close—or be converted into “fulfillment centres”. That’s Amazon-speak for its massive distribution facilities, which will be increasingly reliant on robots and artificial intelligence in the years to come.

“You’re looking at a bunch of minimum-wage monkeys running around in an Amazon warehouse packing cardboard boxes—that is the future of retail,” Savenye said. “It isn’t pretty.”

He didn’t blame his landlord for the looming closure of Sikora’s—in fact, he had nothing but praise for the building owner’s efforts to help the store survive. Instead, Savenye focused on the “five Ds” that have eroded his business: downsizing, digitization, distribution, desertion, and demise.

People living in smaller apartments—including empty-nesters who have downsized by selling their houses—don’t have enough space to house large record collections. The second D, digitization, has enabled former customers to download music from online sites and listen to streaming services. This has transformed the third D, distribution, as wholesalers focus more on these areas rather than moving physical products to stores. That, in turn, has led customers to desert Sikora’s in favour of online services. Finally, there’s the demise of his older customer base. He noted that if someone started visiting Sikora’s at the age of 48 back in 1979, this person would be in their late 80s today.

“Do they even need to buy any more classical music?” Saveyne asked. “And let’s be blunt: are they still with us? Or have they passed away?”

He expects the rise of Amazon will lead to hollowed-out shopping districts in downtown Vancouver and along major shopping strips like Main, Commercial, South Granville, and Lonsdale. This stands in sharp contrast to the vision articulated by Alexandre Gagnon, vice president of Amazon Canada and Mexico, at a Vancouver news conference in April.

Gagnon, a software engineer and self-described “homegrown British Columbian”, was there alongside Prime Minister Justin Trudeau to announce that the company will occupy the former Canada Post office building at 349 West Georgia Street. Gagnon pointed out that Amazon already employs 6,000 workers in Canada. He claimed that its new Vancouver expansion will add another 3,000 high-tech positions.

“As a Canadian, I am very proud to see Amazon creating these jobs here,” Gagnon said. “These jobs provide an opportunity for talented engineers to work on a global scale on innovative projects right here in British Columbia.”

Amazon employs more than 560,000 people worldwide, according to last year’s annual report. Some work at its fulfillment centres in New Westminster and Delta.

SO WHAT gives? Is Amazon stimulating the Vancouver economy or undermining it? It depends on the person’s perspective. Politicians like Trudeau, Premier John Horgan, and former Vancouver mayor Gregor Robertson seem to love Amazon. The proprietors of family-owned brickand-mortar retailers have a tendency to loathe it. They also despise “showrooming”: the term for when a person visits a shop, takes product shots with a cellphone, and returns home to order these goods online.

In the words of Brad Stone, author of The Everything Store: Jeff Bezos and the Age of Amazon, the corporation may be the “most beguiling company that ever existed”.

Vancouver retail consultant David Ian Gray told the Straight by phone that e-commerce platforms should be viewed through different lenses. He started with employment. According to B.C. Stats, there were 290,400 people employed in retail in 2017. Another 83,600 worked in wholesale last year.

“That side of retail doesn’t get discussed as much,” he said. “But, you know, when Sears Canada goes under, there is a big effect on communities, at least in the short run.”

He pointed out that shoppers often claim they value those local jobs and want to buy from Canadian stores. At the same time, Gray suggested, “they’re going crazy over Black Friday deals and complaining when retail is not on sale as much as they like.”

He explained that this desire for the lowest price is increasing pressure on retailers to embrace artificial intelligence and automation to drive down labour costs. And that will, inevitably reduce frontline employment in this sector, which can undermine this segment of the population’s buying power. That could have the unintended effect of undermining overall sales.

“Physical retail is not dead,” Gray insisted. “There’s no apocalypse, but there’s an incredible transformation happening—very fast.”

Gray’s company, DIG360, and market researcher Leger recently released a survey of Black Friday sales to Canadians in 2017. Among those who bought items, 58 percent made their purchases in Canadian stores, and 55 percent bought online from Canadian websites. The survey revealed that 17 percent bought from U.S. websites and another 10 percent visited U.S. stores.

Interestingly, more Canadians bought goods on Boxing Day than on Black Friday—22 percent to 17 percent—according to the survey.

Gray said that between seven and 11 percent of all retail purchases in Canada (excluding automotive) are occurring online, depending on the source. To him, this indicates that the role of stores is changing and retail now has to be more of a “technology play”, even as people continue flocking to shopping districts.

“Almost every retailer needs a core competency in technology,” Gray declared. “So while there could be staff lost at the front end of retail, from the store side of it—and the stores are getting smaller, with some more automated processes—there are other jobs opening up in retail in terms of technology and data.

“That doesn’t mean someone at the frontlines suddenly gets a job as a data analyst, because it’s a different skill set,” he continued. “There’s

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This trend is evident in the appearance of self-checkout machines in London Drugs, Shoppers Drug Mart, grocery stores, and other retailers. While Amazon is seen as an online retailer, Gray noted that it has also opened more than 650 heavily automated brick-and-mortar stores in the United States. To him, it’s a sign that “the future is going to be a hybrid” between in-store and online. COMMERCIAL-LEASING veteran Sherman Scott has noticed the impact of online retailing in some areas of Vancouver but not others. The associate vice president of Colliers International told the Straight by phone that his company has had no trouble attracting restaurants to lease space on West 2nd Avenue in Southeast False Creek. Some are being turned away because there are enough eateries. But it’s more challenging attracting conventional retail stores.

“So we’re focusing on service-type retailers at the moment,” Scott told the Straight by phone.

He thinks that online retailing has likely contributed to vacancies in recent years in the 1100 block of Robson Street. The Gap is one major store that abandoned this area. However, he also stated that retail is thriving in Gastown and pointed to a signifi- cant increase in luxury-oriented retail shops on nearby Alberni Street.

According to Scott, the expansion and upgrading of Pacific Centre, including the addition of a Nordstrom store, has altered the dynamics downtown, attracting more shoppers into Cadillac Fairview’s mall. “They changed up the tenancies,” he said. “They’ve done a really good job.”

He suggested that this is not only having an effect on Robson Street but is also making things more challenging for retailers in the South Granville area. Some locations have been vacant for an extended period of time.

“Also in the last few years, we’ve just seen a massive increase in property taxes,” Scott said. “And that’s had an impact, because all that gets passed on to the tenants. I’ve seen some cases where property taxes are close to what the landlord is getting.”

Part of the reason is the city’s policy of taxing on what could potentially be built on a site under existing zoning rather than what actually exists. It’s one of several issues with which Sharon Townsend, the executive director of the South Granville Business Improvement Association, and her members must grapple. She told the Straight by phone that the city government needs to stop looking at local retailers as a cash cow.

“There’s no real road map, and… the playing field is changing so fast,” Townsend said. “And consumers are extremely fickle.”

The owner of Diane’s Lingerie on Granville, Sharon Hayles, acknowledged that online shopping is taking a toll on some businesses. Her company has responded by creating its own e-boutique—and she said that the European brands in her store are not available on Amazon.

“Because of the personalized service that we do, from a bra-fitting perspective, we don’t probably notice this as much as some of the other retailers,” Hayles said.

The Straight spoke to two millennial consumers with sharply different approaches to shopping. Ali Najaf, a recent grad from the SFU Beedie School of Business, said by phone that he’s signed up to Amazon Prime, which guarantees delivery in two days. The corporation provides free six-month memberships to college and university students, which appealed to many of his former classmates. It also offered unlimited photo storage in the cloud.

Another millennial, Spice