Sears’ demise could help, hinder national malls

malls that can easily fill vacancies — for example, Calgary’s Chinook Centre, Vancouver’s Pacific Centre and Toronto’s Yorkdale Mall — and smaller regional Blist or C-list malls filled with commonplace tenants.

“Once you get past the top dozen or so malls in Canada, business is really tough,” said Ross Moore, a commercial leasing specialist at Cresa Vancouver. “Between Walmart and Amazon and Costco, it’s tough.”

Overall shopping centre vacancy rates in Canada have dramatically risen since Target’s decision to close its 133 Canadian stores.

Shopping centre vacancies in Canada were 7.44 per cent in 2015 and 7.26 per cent in 2016, according to the Realpac IPD Canada Property Index, significantly up from 2014’s 4.37-per-cent rate, which at the time was the highest vacancy rate in 15 years.

“In one town we can have a mall that has 50 per cent vacancy and has not backfilled its vacant Target store from two years ago, and an hour away the new retail space is leasing quickly and the malls are full,” Smerdon said.

But Target’s demise was really just a symptom of a problem that was happening well before it arrived. president of Montreal-based retail real estate brokers Aurora Realty Consultants, whose clients include Japanese apparel chain Uniqlo and Victoria’s Secret, which are expanding in Canada.

“I don’t think you are going to find people making a bold statement, real-estate wise.”

Filling some of the space vacated by formerly traditional anchors are dollar stores, movie theatres and other once-unlikely tenants.

For example, London Drugs Ltd. has taken up a sizable anchor location at Cottonwood Mall and bigbox home improvement retailer Lowe’s Cos. Inc. has taken over a number of former Target sites, including one spacious end at Pine Centre mall in Prince George, B.C., where, like Cottonwood Mall, Sears is the anchor at the other side.

“I am not sure people are thinking of Sears and Hudson’s Bay as being part of the solution to the enclosed mall landscape,” said Avi Behar, chief executive of The Behar Group Realty Inc.

Behar is one of many who predict many of the large anchor spaces will be carved up to make way for smaller retail tenants, mixed-use land developments, health services and entertainment.

Major mall developers such as Oxford Properties Group and Cadillac Fairview Corp. Ltd. once devoted five to 10 per cent of their portfolio to food outlets, but “they are now looking on a concerted basis to increase that to up to 30 per cent,” Behar said. “They are not looking to replace a Sears with another department store.”

He noted Cadillac Fairview recently sold the Promenade Mall in Thornhill, Ont. — home to a big Sears department store — to local investors who partnered in the joint venture with a large residential highrise developer.

“It’s not only adding bodies to the neighbourhood, it’s replacing retail square footage with potential towers, whether it is residential, office or hotel and other creative uses,” Behar said. “That Sears could very well end up being a tower.”

Such an evolution cannot come soon enough, say some retail experts.

“The most horrible singleuse structures that destroyed main streets across the country post-Second World War will turn into real, true, mixed-use urban renewal,” said Jim Danahy, chief executive of retail advisory firm Customer Lab.

As an example, Danahy points to the Central City Shopping Centre in Surrey B.C., which now houses a satellite campus of Burnaby’s Simon Fraser University.

Still, beyond the transformation of classic enclosed malls, Moore speculates many smaller, more remote areas in Canada served by Sears will miss the retailer’s presence.

In addition to its 95 department stores, Sears has 26 Home stores, 32 Corbeil appliance stores, 14 outlet stores and 69 independently owned Hometown dealer stores in small communities that sell a selection of goods and major appliances.

“There are some small The once-formidable Sears Canada retailer warned this week there are doubts about its ability to continue operating without new financing. communities where Sears is the only game in town and would leave a void,” Moore said.

But Sears might have outlived its purpose in some of those places, too.

A Sears Hometown store has operated for years in Elliot Lake, Ont. (population 10,700), a community north of Lake Huron that gained some unwanted notoriety after the roof of its local enclosed mall in collapsed in 2012, killing two women.

Algo Centre, once home to a Zellers whose lease Target did not want develop, was demolished and replaced with a nearby retail complex, Pearson Plaza, that opened last year.

The town library functions as a key anchor of the mall, which also contains a busy Dollarama, a Foodland grocery store and a 7,000-square-foot Ontariobased general merchant, Turners.

“We have a large seniors’ population here, and people like to go in and touch stuff, and it’s a social outing,” said William Elliott, general manager of the Elliot Lake Chamber of Commerce.

Pearson Plaza is just a short walk from the local Sears. Elliott said the Sears hometown store is well run by its owner-operator, but admits it is not a particularly vital or necessary retail presence in the town.

“With the advent of online shopping and delivery, oftentimes you can order something in the afternoon and get it the next morning,” he said. “That level of service has supplanted a lot of what Sears used to be. They can’t really differentiate themselves in the market anymore.”