Challenge 2017: ‘Pets, drugs and rock ‘n’ roll’ will dominate the retail landscape
January 9th, 2017
Fred Waks has spent decades as a shopping centre developer watching and anticipating retail trends as chief executive of Trinity Development Group Inc. and former president and chief operating officer at RioCan REIT. But his crystal ball for brick-and-mortar retailers is a little murky as they ponder how to divide up their investments between capital upgrades and technological ones to face a number of threats.
For example, Amazon.com Inc. is taking up a bigger piece of multichannel retailers’ businesses, making them assess their locations and real estate strategies. Meanwhile, the Trans-Pacific Partnership, which would reduce tariffs on imported goods for a significant number of Canadian retailers, is looking dicier than ever since U.S. president-elect Donald Trump has vowed to withdraw from the pending trade deal on his first day of office in February.
Here, Waks offers his views about where retail is headed in 2017.
Q: Do you think Donald Trump will affect retail business in Canada? And how do you see the current climate affecting retailers and landlords?
A: Trump’s election has not hurt out West — it is having a positive impact on Calgary sales and leasing. We may end up with a stronger dollar, a stronger oil price and, with that, less cross-border shopping. If we have growth and employment as a result of the oil business, it will certainly be a boon to Canadians.
As for the rest, I’ll call my forecast: pets and drugs and rock ‘n’ roll.
We have done more deals with PetSmart than with any other tenant. When times are good, times are bad or times are iffy, people will not sacrifice their pets. PetSmart is also adapting (to online competition) by opening dog hotels and adding classes.
As for drugs, we have an aging population. I see Rexall (recently purchased by U.S. health-care services and technology company McKesson Corp.) going on a major growth spurt at this point, and they are going to give Shoppers a run for their money.
And rock and roll is about entertainment and interaction. We are doing deals with Cineplex, and Cineplex’s Rec Room (entertainment, gaming and event concept), and we are doing deals with GoodLife Fitness. Food and entertainment are a huge part of what’s going to be driving the business.
Next year, you are going to see a continuation of these trends, particularly in urban centres, because (these businesses) are prepared to go to mixed-use developments.
Q: There was a period 10 to 15 years ago when many retailers believed big-box developments were vastly superior to enclosed malls because rent was cheaper and there were lower common-area costs. What is your take on older power centres now? What about the newer outdoor centres?
A: There is no question that enclosed malls are back to the flavour of the month. I am very concerned about the re-tenanting of the big-box malls that were built in the 1990s, because a huge component of those centres was fashion. And (online operators) have completely killed the fashion big-box portion of retail.
Originally, fashion guys could go in there with huge inventory and very little staff. You can now do that online. That has changed the growth patterns.
TJX (owner of Winners and Marshalls), DSW, Sport Chek and Mountain Equipment Co-op are all still expanding. We are doing business with them in hybrid lifestyle centres with a big-box component.
But it’s not a coincidence that the tenants who are having trouble in the shopping malls are the ones in big-box centres, and they are leaving or not renewing leases.
Q: Green Street Advisors has projected that about 15 per cent of the U.S.’s 1,500 shopping malls will close by 2025. Do you see many malls in Canada with too few tenants, or too many weak ones?
A: It’s survival of the fittest. What’s happening is the institutionally owned malls in major markets that used to be C malls have moved up and remerchandised with better tenants and put money into their common areas. But a number of older malls and B malls have also stepped up.
The best shopping experience I have had in Canada is at Sherway Gardens (in west Toronto). With the expansion and the addition of Indigo and Sporting Life and its food court, it’s as good as Westfield in London.
Q: What is your prediction for luxury retail in Canada?
A: We have gone from one and a half major retailers in that business — Holts and, to an extent, Hudson’s Bay — to having Saks and Nordstrom now. There is not enough disposable income in Canada, I believe, to support four luxury brands.
For a good portion of those luxury brands, their target market is shopping in the U.S. or Europe already. I don’t know how you can sustain those four anchors over time.
Q: How do you think traditional retailers can compete with Amazon, and what does it take to become a great “omnichannel” retailer?
A: For retail focused on entertainment and interaction, Amazon is not going to have an effect. The Internet has already greatly affected the business of certain discretionary retailers.
What is interesting is that the two most innovative omnichannel retailers almost have monopolies. Cineplex has a monopoly, pretty much, and so does Indigo. Maybe that gives them the chance to do research and learn how to augment what they have because they really don’t have somebody nipping at their heels.
That said, I think people are using the Internet to shop, but not necessarily buy: they will research online and go to the store to buy.
As for department stores, they are supposed to be offering the best service. Until they provide service like they do in the U.S., they are going to continue to tread water. Why else would you go to a department store, if not for service?
In the U.S., standard salespeople operate like personal shoppers. They are invested. They will email and call customers. Here, we hire personal shoppers. That said, I think Nordstrom has done a very good job here in terms of personnel.
Courtesy of The Financial Post, Hollie Shaw
Photo courtesy of Peter J Thompson/National Post
Published on: December 23, 2016.