It’s been 13 months since Target Canada filed for bankruptcy protection in an Ontario court on Jan. 15, 2015, capping one of the most disastrous expansions in the history of the retail business. Target was far from the only victim of a brutal 12-month stretch though.
“That seemed to open the floodgates of bad retail news,” Edward Sonshine, the head of RioCan, one of the country’s biggest mall operators, said this week.
For retailers, last year was the most disruptive since the last deep downturn in the economy, according to experts.
The evidence is piled high: Electronics chain Future Shop pulled the plug on its big box stores in March, while a cavalcade of shopping centre stalwarts turned out the lights, unable to cope with a hostile mix of stiffening competitive pressures and changing preferences among shoppers.
“Many retailers have been under pressure over the last few years due to a number of factors,” Admir Kolaj, an economic analyst at TD Bank says. Ever-growing online shopping as well as fickle consumers faced with too much choice are primary reasons why many retailers are being squeezed out.
Those forces haven’t abated, even as some heavyweights have departed. The arrival of higher-end department stores Saks – which opened its doors this week — and Nordstrom, are only adding to the cauldron of pressure.
With economic storm clouds gathering over large tracts of the country amid the resource downturn, many are asking how the current year will compare to the bloodbath of 2015.
“It’s probably going to look fairly close, unfortunately,” said Juliann Ng, vice-president at GfK Canada, a market research firm.
This year has already claimed its first victim in Danier, the well-known Canadian purveyor of leather jackets and handbags, which sought bankruptcy protection earlier this month.
Aside from Danier, experts say the start to the year has been surprisingly calm — RioCan’s Sonshine characterized it as “quiet.”
The shopping centre exec does expect additional retailers to make an exit though.
‘I think the worst is behind us. Most retailers I speak to… say the last few months have been OK. Not great, but not terrible’
“There will be a sprinkling, without a doubt. Particularly in the mid-range fashion segment,” the executive said on a conference call. “But I think the worst is behind us. Most retailers I speak to… say the last few months have been OK. Not great, but not terrible.”
Apparel sales are expected to grow by 2.4 per cent this year versus 3.8 per cent last year, slipping to 1.7 per cent growth in 2017 before inching back up to 2.1 per cent growth in 2020, according to Trendex North America.
But that could prove optimistic. The Trendex forecast’s outlook for economic growth is much stronger than estimates held by economists at big banks as well as the Bank of Canada, which has revised its expectations lower in recent months.
Stores are also being challenged to deal with higher costs of imported goods due to the low Canadian dollar, and how to pass these on to consumers.
Adding to the pressures being exerted on the sector is the need for stores to integrate online shopping capabilities, according to GfK’s Ng. “More consumers are expecting things to be seamless now between brick-and-mortar and online,” she said.
Analysts expect e-commerce will continue to flourish. Although a small part of their businesses, HBC, Le Chateau, Lululemon and Reitmans saw online sales increase between 16 and 72 per cent in the third quarter.
“Retailers who aren’t delivering against that or not making the most of the two environments, knowing people shop that way, are going to be the ones that fail faster,” Ng said.
Condos and stores
The permanent structural shift toward online-based shopping is creating challenges for owners of retail locations like RioCan, which is still looking to fill about half of the 2.1 million square-feet of store space abandoned by Target.
Sonshine says the mall owner is in the process of redeveloping properties to include things like residential and office units.
The company is revamping locations such as Five Points Mall in Oshawa, Ont. — “a victim of Target’s departure” — to include housing, for example.
“This is a theme you’ll see played out on many retail sites in our portfolio over the next few years to address some of the structural changes we are witnessing in the retail world,” Sonshine said.