From racks to ruin?

Luxury and discount brands are shaking up the retail sector — and many mid-market chains are hanging on by a thread.

At malls across the country, prime retail space lies dormant. Signature red walls and matching cement balls outside street entrances remain the only evidence that a much-anticipated US icon once stood there. A Target that missed its mark.

Even if the demise of Target — which closed all of its 133 stores this side of the border within only two years — was a black swan event, as some analysts have noted, it’s no secret that the retail apparel industry is producing more fashion victims than victors these days. In addition to the highly publicized exodus of the US discount giant in 2015, well-known Canadian fashion chains such as Reitmans and Jacob are closing down or restructuring in a last-ditch effort to salvage business.

Since announcing plans to shut all of its 109 Smart Set locations last November, Reitmans has closed 35 of these stores in fiscal 2015 and will convert 74 to its other banners, including Reitmans, Penningtons and Thyme Maternity, by next month. In March of this year, Mississauga, Ont.-based Comark (owner of Ricki’s, Bootlegger and Cleo) filed for bankruptcy. In the meantime, Sears Canada sold leases to some of its most prominent locations — including its flagship store in Toronto’s Eaton Centre — between 2013 and 2015. Even established US brands such as the GAP and American Eagle Outfitters are showing signs of struggle as they continue to close stores across North America.

A MIXED PICTURE

But the picture is more complicated than it first appears. So far this year, apparel sales are up by 3% and mall sales are finally returning to their long-term average of 2.5% after sustaining mostly 0% growth in 2014, according to CBRE Canada, a commercial real estate services firm that provides research intelligence for all major markets in the country. Also, luxury brands such as Nordstrom and Saks Fifth Avenue are choosing to set up shop in Canada, and those already here are expanding. Holt Renfrew opened its first, two-level menswear store in downtown Toronto last year. CBRE reports that of the 38 retailers that entered the Canadian market in 2014, no fewer than 28 were luxury operators.

What exactly is going on? Are the middle-market retailers doomed to be squeezed out by the upmarketers? Or are there simply too many of them for Canada’s relatively small market? There’s definitely a whole lot of shaking up going on, and the mid-market is bearing the brunt at the moment. “Our retail brokers have been saying that the mid-market [has been] really struggling for some time, with the top and bottom squeezing the middle,” says Toronto-based Ross Moore, CBRE’s director of research in Canada.

A number of factors are converging to create the current confusion. For one, online and mobile shopping has been steadily gaining traction in recent years. Due to globalization, many retailers are also sourcing from the same global suppliers and producing an ocean of sameness among many mid-market stores.

But the biggest change agent might be consumers themselves. Moore recalls an article he read years ago about a fictitious soccer mom who would start her day at Walmart, then drive to Tiffany’s to get her jewelry. “Fast-forward to today and that trend is playing out even more,” he says. “The point is, you have this average consumer who is effectively shopping discount and luxury within two hours of each other.”

Michael LeBlanc, senior vice-president of the Retail Council of Canada (RCC), adds: “It used to be that you had a high-priced good and would target only people with a high net worth, but the reality is that people spend on what they are passionate about. I will spend significantly on a specialty watch and if marketers aren’t careful, they’ll miss consumers like me who would likely buy their products.”

Retailers on both ends of the market have picked up on — and most likely contributed to — the “cross-shopping” trend. As Moore notes, “Walmart has been here for 20 years and has figured things out, so it’s not only capturing the bottom 20% but the bottom 40%.” In the meantime, some luxury retailers have started offering more affordable lines. So middle retailers who can’t compete on price are no longer a draw, unless they can parlay a unique product line into customer loyalty.

ADAPT, ADAPT, ADAPT

Given the current pressures, what is a self-respecting retailer to do? At RCC’s annual conference this year in June, aptly themed “Harnessing disruption,” the general consensus was that there is room for all retailers — big, small and middle — if they’re willing to adapt to a new genre of consumers demanding higher-quality goods, greater variety and the ability to shop seamlessly both in-store and online.

“It’s been a challenging few years for retailers in Canada, but those who are doing their homework and adapting their products and services to meet consumers’ changing tastes are more likely to survive,” says Rosanna Lamanna, southern Ontario leader of food and consumer products group for Grant Thornton LLP.

Lamanna points to Michael Kors as a good example of a higher-end retailer that has successfully reached the middle-market customer by offering more affordable product lines. “You’re getting a designer name for a reasonable price,” she says. “They’ve done a great job in marketing themselves and they now have a following.”

When it comes to Canadian brands, Lamanna cites Joe Fresh as well as Hudson’s Bay, which acquired upscale US chain Saks Fifth Avenue in 2013. “If Hudson’s Bay hadn’t rebranded and restrategized with a focus on higher-end, higher-quality product, it could have ended up closing like Target,” she says. “Instead, it’s changing with the times and bringing in new brands to meet customer needs.”

Another retail fashion icon that is beating the odds is Simons. Despite its 175-year history, this Quebec-based family retailer has managed to stay current, offering products that appeal both to upscale tastes and the budget-conscious. (See “Simons Says Shop,” May.) On the flip side are companies such as Sears, once a Canadian fashion staple whose failure to keep up with the times has resulted in widespread job cuts and store closures. “Those [baby boomer] customers who are loyal to Sears are in a different generation that isn’t necessarily doing as much shopping,” says Lamanna.

The reality is that fashion is by its nature a fickle market, and with the Internet, customers are accessing the newest styles as they’re coming off the runways. “With fashion, you have to be on top of it as consumers are seeing these latest trends online and they want to be able to access them immediately,” says Bob McMahon, national industry leader for retail and consumer business at BDO Canada LLP in Mississauga, Ont.

THE OMNI-CHANNEL APPROACH

Because of the Internet’s far-reaching influence, retailers both big and small must have a business strategy that encompasses an “omni-channel” approach, says McMahon. That means having a robust website and active social media channel in addition to a physical store. “Consumers want to be able to look at something right away on their phone or tablet, whether it’s 2 p.m. or 2 a.m.,” he says. “But they also want to try clothes on to check out the fit.”

Unlike Target, which blasted its way into the Canadian market, Walmart took its time opening stores, says Moore, and luxury newcomers such as Nordstrom are being more methodical about the process, using technology to gauge interest beforehand. “The Internet is a great tool for retailers like Nordstrom because they can get a good handle on what their Canadian customers are buying on their websites before they even get here,” he says. “These days, everyone is already a global retailer because of the Internet.”

Taking the omni-channel behaviour of shoppers into account is also key for retailers who want to succeed, believes LeBlanc. “Sometimes I’ll shop online exclusively, but sometimes I’ll go to a retailer’s site to see if they carry something before I head to the store,” he says. And with surveys showing more than 80% of 18-to-34-year-olds in Canada (and more than 50% of all Canadians) owning a smartphone, he isn’t surprised many RCC members are seeing upwards of 50% of their website traffic coming from mobile devices. “[Mobile] facilitates the speed at which you can access information and that’s a huge shift for retailers — the amount of information available and the speed at which you can access it is truly revolutionary now,” he says.

Sukhinder Singh Cassidy is the founder and CEO of Joyus.com, an online shopping site that was the first to incorporate video as a way to showcase merchandise and stream it to online customers. A Google veteran, she says the most successful retailers are those making the omni-channel experience as seamless as possible. “Some are using mobile to capture you while you’re in their store and providing you with coupons you can use right away,” she says. “The best are capturing customers regardless of the devices they’re using, no matter if they’re online or in-store.” She points to Nordstrom as a “best-in-class” retailer who has mastered an online presence that is an extension of its physical stores. Customers browsing the Nordstrom website can see a vast variety of product pictures and videos, with the ability to zoom in on fabrics and see merchandise from all angles. “The service experience [in-store] is amazing too because I can walk up to anyone there and check out so I don’t have to wait in line,” she says.

In an increasingly competitive e-commerce world, Singh Cassidy says, merchandising has to be an art form. “With sites such as Joyus and Pinterest, people are getting used to looking at rich content that is contextual, and as a retailer you need to find ways to differentiate your merchandise online,” she says. While video-incorporated sites such as hers are still in their infancy, she says video is an effective tool to give online customers a semblance of what it’s like to be in the store.

But even with online shopping chipping away at traditional retail channels, she says store operators should never lose sight of the in-person shopping experience. “I have a hard time believing bricks and mortar will ever go away,” she says. “[In-store] shopping is still a form of entertainment, especially for women, and people will always seek that adrenalin rush of being able to take something home right away.”

Her advice to those middle-market retailers who find themselves struggling to compete? “The shopping experience better darn well be entertaining,” she says. With companies such as Apple providing a seamless, interactive customer experience both online and off, she says the service bar has been raised across all channels, apparel retailers notwithstanding. That means in addition to exceptional in-store service, retailers need a robust website that’s equipped to work on all types of devices and can tell a compelling story about the merchandise, be that through video or pictures.

SCOTCH, COFFEE AND SUITS

Tomas Romita is one fashion retailer who seems to be cracking the code in terms of customer experience. Four years ago, the 28-year-old launched MADE Clothing, a custom menswear clothing business based in Toronto (See “Self-MADE Man,” January/February 2014) Fittings are strictly by appointment. When customers come to the studio they’re offered a scotch or coffee before they sit with a designer to pick the fabric for what will become their one-of-a-kind suit. “I can sell a suit for the same price as Harry Rosen with a lot less overhead or inventory,” says Romita. A professional accountant, he was inspired to start the business when he got his first custom-made, quality suit while on a trip to Hong Kong. “Our clients may buy our shirts remotely once they’ve been fitted here, but they still like coming into the studio for their suits — that’s omni-channel at its best.”

Romita is optimistic we’ll see plenty of niche clothing brands making their mark in the Canadian retail landscape for years to come. “With advances in technology, the barriers to starting a retail business have gone way down,” he says. “Plus these days, a retailer can have a hugely successful free marketing campaign with social media that would have cost the GAP hundreds of thousands of dollars to do — it’s about telling a compelling story and being authentic.”

Even as clothing chains continue to disappear and more store closures are imminent, Romita isn’t the only one hopeful about Canada’s retail future. “It amazes me how retail continues to reinvent itself,” says Moore. “You lose five retailers but right in there behind them are another five coming.”

RETAIL THROUGH THE AGES IN CANADA

1869 Timothy Eaton establishes T. Eaton Co. Limited, which would soon become Canada’s largest department retailer.

1881 – Hudson’s Bay launches a mail order catalogue and opens its first department store in Winnipeg.

1950 – Vancouver’s Park Royal Shopping Centre becomes the country’s first covered shopping mall.

1957 – The first Consumer Distributing store opens in Toronto. Customers make selections from a catalogue and the merchandise is retrieved from an on-site warehouse.

1977 – The Eaton Centre, which includes the nine-storey Eaton’s store, opens in downtown Toronto.

1983 – Phase II of the West Edmonton mall features a skating rink, amusement park and now more than 450 stores and services.

1986 - Price Club, pioneer of the discount warehouse store format, opens in Montreal (it merges with rival Costco in 1993).

1994 – Walmart launches in Canada after purchasing the Woolco Canada chain.

1995 – The first iteration of eBay is launched under the name AuctionWeb by a computer programmer in California (eBay.ca launches in 2000).

1999 – National chain Eaton’s declares bankruptcy and sells assets to Sears Canada.

2010 – E-commerce retail giant Amazon opens a distribution centre in Canada.

2012 – Canadian e-commerce retail sales hit $7.7 billion (up from $6.6 billion in 2011).

2013 – Hudson’s Bay Company acquires US Saks Fifth Avenue.

2015 – In-store payments via mobile devices are set to go mainstream, according to Deloitte’s 2015 Canadian Technology, Media & Telecommunications Predictions.

About the Author

Rosalind Stefanac


Rosalind Stefanac is a freelance writer based in Toronto.

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