Lights out at the local mall?
The rise of online shopping is only part of the story
Mohammed Polani remembers the days when Whitby Mall Shopping Centre was packed with people who would line up outside his store at 7 a.m. to buy newspapers and magazines.
They were educated and literate, with a wide variety of hobbies and interests — diverse enough that he could sell magazines with titles like Vintage Fire Truck and Equipment and Wrist Watch Magazine and the Harvard Business Review.
“As long as there was a proper anchor, things were good,” Polani says. “The mall was like a can of sardines; it was very busy until about 2000.”
Then his clientele in the mall’s office space began to be relocated, as their companies were bought, sold and restructured.
The Woolco anchor store was replaced by a Walmart, which was replaced partly by a Sobeys with no access through the mall.
“As long as there was a proper anchor, things were good. The mall was like a can of sardines; it was very busy until about 2000.” MOHAMMED POLANI SHOP OWNER AT WHITBY MALL SHOPPING CENTRE
Asecond-hand store replaced a Staples.
The new generation of workers in the mall’s office spaces are more interested in Facebook and Instagram than they are in the magazines Polani sells, and they can access infinite articles free online.
At the end of his lease, Polani will hand in the keys to his store.
Polani’s store joins a long list of retailers calling it quits in an unforgiving retail environment that is adding up to one long headache for mall owners.
Whitby Mall isn’t the only property struggling to attract and keep tenants.
While top-tier malls, including Yorkdale and Toronto Eaton Centre, are by all accounts flourishing, many neighbourhood malls appear to be an anchor away from a potentially fatal downward spiral. Others are clinging to their original retail purpose while waiting for redevelopment.
No one is predicting the kind of retail apocalypse in Canada that swept across the United States after the financial collapse of 2008, leaving even large malls across the country abandoned.
The most important difference is that the U.S. had too many retail stores to begin with and still does.
Industry estimates peg the amount of mall space in the U.S. at 25 square feet per person, whereas in Canada it’s closer to15 square feet per person. But the sector is in upheaval. The retail industry is the single largest jobs category in the country, employing 1.96 million people in 2016, according to Statistics Canada.
Most retail workers — 1.7 million — are employed in shopping centres, according to data from the International Council of Shopping Centres (ICSC).
There are 3,742 shopping centres in Canada measuring more than 40,000 square feet, including strip malls, according to the ICSC — up from 3,496 in 2012. Anchors away Historically, malls were anchored by department stores at either end, but the department store sector is in decline in the U.S. and Canada.
“Over the five years to 2021, the industry is forecast to continue contracting,” according to an industry report, “Department Stores in Canada,” from market research firm IBISWorld.
“Profit has also suffered over the five years to 2016, as many industry operators have slashed their selling prices in order to remain attractive to customers,” the report said.
“Malls used to rely on their anchors and the anchors are changing faster than anyone imagined they would,” said Mary Mowbray, senior vicepresident, group sales for Colliers International, pointing to Target, which cycled in and out of shopping malls in two years.
Some malls have already backfilled — or failed to backfill — the 133 large spaces left by Target when it abruptly pulled up stakes in 2015.
The failure of a retailer like Sears Canada — working on another turnaround strategy after years of diminishing returns and selling off stores — would send shockwaves across the already fragile retail ecosystem.
Sears has closed 11 departmentstore anchor locations across Canada since 2012. It still anchors 93.
RioCan Real Estate Investment Trust had 26 Target stores, and while CEO Edward Sonshine managed to extract a $132-million payment from Target in bankruptcy and many of the locations were leased to new tenants, others remain empty two years later, like the one at Five Points Mall in Oshawa.
Now the enclosed part of Five Points Mall will be demolished. The area where the empty Target store is located has been sold to a self-storage company. It will remain a shopping centre, but not enclosed.
Enclosed malls are too expensive to operate — the taxes are high, they’re expensive to heat in winter and cool in summer, Sonshine said.
“That type of space, unless you’re part of a very large centre, it’s obsolete,” he added.
“The big malls are all fine, but the smaller malls, like this one, they really have no reason to be a mall, it’s much cheaper for the tenants and for the customers, quite frankly, to not have it be enclosed.”
The same approach is being taken with RioCan’s Niagara Square property. RioCan’s County Fair Mall in Smiths Falls was sold late last year.
In the west end of the city, Kipling-Queensway Mall has the same hushed feel of Five Corners. It is anchored by one of Canada’s two remaining Zellers stores (the other is in Ottawa.) A Sobeys moors the opposite end, but there are several vacant stores in the space between them, including a vacant kiosk space.
Honeydale Mall in Etobicoke is widely believed to be Canada’s only ghost mall, still standing but boarded up and fenced off.
Malvern Town Centre, which cy- cled through a Zellers closure followed by a Target closure, lost its No Frills anchor on April 27, leaving a 70,000-square-foot space to fill.
“We are definitely going through a transition now,” said Jennifer Huntley, director of leasing at Davpart Inc., the company that owns and operates Malvern Town Centre.
She feels confident the mall will pull through — it brought in a 20,000-square-foot Planet Fitness last year and has plans for the No Frills space, but it’s too early to announce what those plans are.
“I think it’s going to get stronger, absolutely.”
Huntley said the company is working with city council to improve public transportation to the mall, and planned new housing developments will soon increase population density, creating a larger market. Retail retreats But the closure of big box stores like
Staples, which has been downsizing its bricks-and-mortar presence across North America, has given prospective tenants more options to choose from, making it more difficult for malls to compete.
“It is hard to survive,” said Ilyas Qureshi, owner of E Games Plus at Malvern Town Centre, which sells video games and toys. “Day by day, business is going down.”
His lease is up in September and he doesn’t know if he will renew.
Pickering Town Centre, anchored by a Sears and a Hudson’s Bay, has several large empty storefronts, because smaller-store brands are also scaling back their physical presence.
“Retailers don’t want to have 600 stores anymore in a country. They are aiming for something closer to 300,” said Spenser Allaway, senior associate at Green Street Advisors, a commercial real estate consultancy.
“I think we may see a lot more rationalize their store counts in the coming years.”
The softness in the sector is being driven by a large number of retail failures, including once-dominant brands like American Apparel, Mexx, Jones New York and Tip Top Tailors, and Canadian mainstays like Danier Leather and Jacob. A few brands and retailers are in expansion mode, but they aren’t expanding as fast as other retailers are falling, and the result is a large number of vacant storefronts in malls. The growth of online The growth of online sales is another contributing factor. According to an estimate by Colliers International, online sales of $23 billion in 2014 replaced 76.7 million square feet of bricks-and-mortar stores.
That’s roughly equivalent to the shopping centre inventories of Vancouver, Halifax, Ottawa and Victoria combined, according to the report.
“My caution to anyone in the shopping centre industry is that this is a very fragile situation in my view,” said retail consultant Doug Stephens, author of the newly published book Reengineering Retail: The Future of Selling in a Post-Digital World.
Online sales are not just cutting into sales at bricks-and-mortar stores, online shopping is recalibrating what people think shopping should be, Stephens said.
Shopping online is frictionless, and shoppers can get almost unlimited information about the products they’re buying.
“All that is changing our consumer brains to expect more when we actually make the effort to go to a shopping centre,” Stephens said.
“Thirty years ago the shopping cen- tre was really the apex of convenience. Pre-Internet, where else could you go for shopping? That has been usurped by the Internet. The biggest big box of them all is the Internet, specifically Amazon.”
The market is being bifurcated, said Mowbray, of Colliers. Higher end malls with better, newer tenants are doing better than secondary market malls.
Chain stores like to be in mall properties where there is a stronger customer base, and top-tier malls aren’t in competition with the strip malls and power centres that are draining business from neighbourhood malls.
For a long time, fast fashion, which relied on low prices and rapid turnover of goods, drove shoppers into malls, creating the mentality that there should always be something new in retail.
“The consumer starts to get a bit jaded,” Mowbray said. Paring the portfolio Even mall owners are getting out of the mall business. Canada’s top commercial real estate development and investment firms have pared down their mall portfolios by half in recent years.
Cadillac Fairview Corp. Ltd. began shrinking the number of its retail assets 10 years ago, from about 40 to the current 20 retail assets across the country, according to Salvatore (Sal) Iacono, executive vice-president, operations at Cadillac Fairview.
In the past five years, Cadillac Fairview has invested $2 billion in developing and redeveloping the mall assets it kept, including Sherway Gardens and Toronto Eaton Centre. “We’ve made a huge commitment financially to retail’s future in these select locations,” Iacono said.
Oxford Properties Group has pared down to fewer than a dozen malls, and also invested $2 billion in redeveloping its remaining mall assets, including expansions at Yorkdale and Square One, which it co-owns with the Alberta Investment Management Corporation.
Ivanhoé Cambridge, which owns Vaughan Mills, Fairview Mall and Oshawa Centre, has 28 mall properties in Canada, including five owned with Cadillac Fairview, down from 48, according to Claude Sirois, presi- dent, retail at Ivanhoé Cambridge.
Legions of pensioners are connected to those decisions: Cadillac Fairview is a wholly owned real estate subsidiary of the Ontario Teachers’ Pension Plan (OTPP), with 318,000 active and retired members. Oxford Properties owns and manages its portfolio on behalf of the Ontario Municipal Employees Retirement System (OMERS), with 365,000 members and 900 participating employers.
Ivanhoé Cambridge is a real estate subsidiary of the Caisse de dépôt et placement du Québec, a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans.
Part of it is cyclical: some malls go through periods of decline. Erin Mills Town Centre looked rough for a while after it lost Target and before Walmart moved in. The Oshawa Centre was recently substantially expanded and improved by a $230-million investment by owner Ivanhoé Cambridge. Mall traffic is up 55 per cent as a result.
Pickering Town Centre general manager Diane Camelford said while there are blank storefronts in the mall, it’s also being redeveloped, having recently added a Farm Boy grocery store and a Saks OFF 5th. A Cineplex and a Pickle Barrel restaurant are also planned.
She believes better times are ahead, along with construction of a new residential development called New Seaton, which is expected to add 70,000 new residents to the area.
Two rows of storefronts on the upper level of the mall, in the east wing, remain unoccupied.
“It’s challenging for everybody. There have been a lot of companies, sadly, that have left the landscape,” Camelford said. Destined for development Other malls, including Honeydale, have development potential, although that can take years — even decades. The Honeydale project, which would include a mix of residential and retail components, has been in development limbo for years.
RioCan’s Sonshine has described his retail empire, with more than 300 locations across Canada, as a land bank with some of the best future redevelopment sites in the country.
“Every shopping centre ever built is at a major intersection and a good location. As the country fills in transit and infrastructure over the next 10 years — and it’s not just a Toronto phenomenon, it’s happening in Calgary, Edmonton, Montreal, Vancouver and Ottawa — it unlocks opportunities,” he told analysts on the company’s most recent earnings call.
The new owners of the Whitby Mall Shopping Centre purchased it last year, with an eye to its long-term potential as a mixed-used development, including homes.
“In our mind, we were buying land with income,” said Adam Paul, president and chief executive officer of First Capital Realty, the same firm that redeveloped Hazelton Lanes into Yorkville Village.
“Our immediate plans are to continue to run it because we are receiving an acceptable return on it. We will work with the city and the community and existing retailers to determine what the appropriate redevelopment will look like and the timing. But I know it’s not short term.”
Most retailers aren’t interested in investing in a location unless they have a minimum five-to-10 year horizon, says Nick Endrizzi, director of leasing for the Conservatory Group, which owns Kipling Queensway and describes itself as the largest builder of luxury condominium communities in the GTA.
Eventually, Kipling- Queensway will be redeveloped. In the meantime, new tenants, including a shoe store and a dollar store, are expected to open up in the next few months.
Endrizzi blames the decline of the neighbourhood mall in part on a huge growth in the number of retail plazas and centres.
“Thirty years ago you didn’t have a power centre, you didn’t have a bigbox type centre, you didn’t have outlets — you didn’t have that kind of choice.”
“(The shopping centre) has been usurped by the Internet. The biggest big box of them all is the Internet, specifically Amazon.” DOUG STEPHENS RETAIL CONSULTANT