Online shopping is growing, major department store chains, like Sears, are struggling, while others, like Target, have disappeared from the Canadian market.
You might expect malls to be on their deathbed, but mall owners in Montreal are investing millions of dollars into renovations and store openings can still draw lineups.
“It’s very individual,” said Craig Patterson, the founder and editor-in-chief of Retail Insider, an online industry publication. “You’ve got some centres which seem to be doing better than ever.”
At Carrefour Laval, rents are now on-par with the highest retail rents in downtown Montreal, according to Cushman & Wakefield, an international commercial real estate company.
“I certainly wouldn’t say that everyone in Canadian retail is struggling but, certainly, I think that some retailers are,” said Patterson, who also works as a consultant and analyst for the Retail Council of Canada.
One reason some stores are struggling is that consumer spending patterns are changing.
Discount retailers and retailers that offer goods at a lower price point than similar looking products (think so-called “fast fashion” stores like H&M or Zara) are on the rise, as are dollar stores.
“Consumers are looking for value, so that’s why we’re seeing Winners and Marshalls and Saks Off 5th and those types of stores doing well,” Patterson said.
In Montreal, Winners and Saks Off 5th both opened new locations at the same mall, Galeries d’Anjou, on Aug. 3.
These retailers aren’t just competing on price, it’s also on a sense of value.
“I think the Simons concept is brilliant,” Patterson said. “They’re about 80 per cent private label, it’s not the cheapest private label, but it’s not super expensive and it seems cheap when you compare it next to the items that are 10 times the price on the same rack.”
At the opposite end of the spectrum, luxury retailers are also performing well.
Holt Renfrew is expanding the Ogilvy store on Ste-Catherine St., while high-end department store Saks Fifth Avenue is scheduled to open its first Montreal location in 2018.
Mid-market retailers, however, are struggling to differentiate themselves and to compete with cheaper brands that appear to offer similar products.
Montreal-based Le Château, for example, has lost more than $100 million over the past three years and is in the process of closing 18 stores this year.
As with retailers, malls are also being forced to differentiate themselves.
They’re doing that by adding more food and beverage options — especially full-service restaurants as well as entertainment and “lifestyle” offerings, like gyms.
“Competition is a big thing and malls now are having to see themselves as entertainment centres,” Patterson said.
Large regional malls appear to be having the most success in this new environment.
“What we’ve been doing, and we’ve always been looking at this, is bringing to malls things which are going to draw people for all sorts of different reasons,” said Brian Salpeter, the senior vice-president of development at Cadillac Fairview, which operates Carrefour Laval and Galeries d’Anjou. “So, (we’re) adding restaurants, adding different forms of entertainment, making it a place that you really want to be, that you want to spend time.”
In 2013, Cadillac Fairview spent $86 million on a renovation of Galeries d’Anjou. A big part of that investment, Salpeter said, was the construction of a new food court.
It’s not the only company making big investments in local malls.
Ivanhoé Cambridge is planning to spend $200 million on a redevelopment of the Montreal Eaton Centre and Complexe Les Ailes.
While online retail is growing, it still accounts for a small fraction of retail purchases in Canada.
Retail e-commerce sales in Canada were worth an estimated $34 billion in 2016, according to market research company eMarketer. However, that’s only 6.5 per cent of the more than $520 billion Canadians spent on retail purchases last year.
“I think that people thought that online was going to be the death of physical retail, I definitely don’t think that’s the case,” Patterson said. “We’re seeing online retailers actually opening stores and doing very well.”
Montreal-based companies like eyeglasses seller BonLook and clothing brand Frank and Oak both got their start as online-only businesses before opening physical locations.
The advantage of that strategy, Patterson said, is that it allows people who might be hesitant about making an online purchase to try products on in-store and then, once they know what they like, make further purchases online.
While selling online might have lower startup costs, it’s not cheap.
“E-commerce, it’s a hard business,” said Fabien Loszach, the co-founder of Montreal-based Portfranc, which sells handmade goods imported from France.
The company started with an online store in 2015 but, now, around 80 per cent of its sales are to retailers who sell the products in their brick and mortar stores.
Online-only retailers have to eat the cost of shipping when products are returned, which cuts into margins, Loszach said.
They also have to spend money on online ads and on making websites that encourage purchasing.
Brick and mortar stores give more flexibility, not only can customers try things on in stores, they can also place orders online and pick them up in the store or return products they want in-store — saving the company shipping costs.
“You need brick and mortar, that’s why Amazon is opening brick and mortar, that’s why Frank and Oak are doing it too,” he said.
While consumers still like to touch fabrics and try on clothes, it’s not the same for electronics, said Avi Krispine, the executive vice-president and managing director of Quebec operations for commercial real estate and investment firm CBRE.
That sector has seen a 10.2 per cent year-over-year decrease in sales per square foot, he said.
Some of the highest-profile failures in the retail industry aren’t the result of a changing marketplace but, rather, they’re the result of internal failures at those companies, according to Patterson, the industry analyst.
“With something like Target, I don’t think that was an issue of the Canadian economy struggling, I think that was an issue of Target struggling with their Canadian operations,” he said.
The effect of Target’s departure from the Canadian market has been different from mall to mall, said Luciano D’Iorio, the managing director for Quebec at Cushman & Wakefield.
While successful regional malls have been able to re-lease the space once occupied by Target stores, non-regional malls have had a harder time.
The departure of Target didn’t have an effect on retail rents, D’Iorio said, because many Target leases were rolled-over Zellers leases with rental rates below market prices.
“The landlords saw it as an opportunity in disguise,” he said. “It was an opportunity for them to refurbish the spaces and then bring it more to market rent.”
It’s probably a similar situation with Sears, he said, which has been in some malls since they opened.
Ultimately, for malls and the retailers located in them, it’s increasingly a question of standing out from the pack.
“There’s always going to be a place for the malls, but it’s a question of why you would want to come to a certain mall,” said Cadillac Fairview’s Salpeter.