You might not know it by visiting the nation’s shopping centres nor by scrolling through the news, but retail sales in Canada are up from last year. Disposable income that might previously have been put toward holidays and dining out is being spent instead on retail, particularly in home and home accessories and in the kitchen, bathroom and garden.
Along with this shift, e-commerce is rapidly advancing as a crucial part of the Canadian retail experience. It’s no surprise people are shopping from home.
But, what do these increased sales really mean for retailers and retail real estate owners?
Necessity retail not impacted by pandemic
Necessity retail properties – grocery, pharmacy and other staples – were not negatively impacted over the past year. If anything, they’ve become more solidified as the cornerstones of our communities.
Occupancy rates in Colliers’ necessity-based retail portfolio remained above 95 per cent throughout 2020, which is consistent with past years. As 2021 unfolds, new deals are beginning to return but are being mitigated by lockdowns.
There is a development opportunity in urban markets and residential densification is strong in all markets. Well-located properties with good covenants and strong cash flows are selling or leasing quickly. Still, COVID-19 forced changes upon all retailers – and many of them have proven to be good for business.
“We continue to believe that great neighbourhoods are those with an ability to fully address the needs of the surrounding community and consist of a mix of diverse uses, including retail,” says Jordan Robins, chief operating officer, First Capital REIT.
“The pandemic has emphasized the importance of essential retail and service as an amenity to residential and office uses, along with accessible high-quality public space that is easy to access by bike or on foot,” Robins says.
Shopping from home holds increasing allure
COVID has been an accelerator of the e-commerce trend. According to StatsCan, e-commerce traditionally accounts for about six per cent of overall sales in Canada each year. Before the pandemic, that figure peaked at 10 per cent.
Successful retailers, those with strong online platforms, are benefiting from this acceleration.
More people than ever, across all demographics, are currently shopping online — because they have to. The question is, will they continue to do so post-COVID? There are many reasons why we strongly believe the bricks-and-mortar shopping experience will be relevant post-COVID.
Retailers and landlords must make sure there are opportunities to make e-commerce part of the shopping experience today and in the future.
Storefronts with access to designated parking spots or pull-throughs will benefit from curbside pickup. All retail assets can be designed to allow for easy click-and-collect flow, which will allow for a positive consumer experience and continued online purchases.
Online shopping leads to offline real estate conversions
There is now a blending of e-commerce, warehousing and retail. Traditional retail storefronts are becoming pickup destinations in addition to regular stores. Distribution networks are being rethought and reimagined.
The trend is clear: improve efficiency and provide rapid availability, which will improve the retailer margins.
Retailers and their suppliers are investing heavily in spaces that serve e-commerce, both in smaller conversions that allow for easy pickup and in the warehouse space required to hold and distribute goods.
Walmart, Sobeys and Loblaws are all making changes to accommodate e-commerce. Smaller retailers, however, are adopting e-commerce at varied rates. Some have further to go than others, as small businesses were less likely to have existing websites and digital functionality.
Innovations evolving to serve the e-commerce shift can help guide the way for tenants and landlords looking to capitalize on the trend. Government programs that address the investment of small business in e-commerce are available.
Experiential efficiencies change retail store footprints
There are two major concepts that will change which types of retail real estate are sought and secured.
The first is “the last mile.” The last mile of e-commerce is the most expensive piece of the delivery process and micro fulfillment is emerging in some markets to solve this problem. In fact, in urban markets, we now talk about the last 10 feet – how to get it upstairs and through the front doors of multiresidential buildings.
Micro fulfillment begins when a customer orders multiple items online from the same retailer. All packages are sent to a micro fulfillment centre, which collects them and, once all packages have arrived, delivers them all at once to the purchaser.
This approach has both environmental and cost benefits. We are seeing an increase in the desire for multiple, smaller centres throughout a city to augment and/or replace one vast warehouse space.
The second theme, particularly applicable and useful for tenants, is a blending of the online and traditional bricks-and-mortar consumer experiences.
To reduce human contact during a pandemic while maintaining the consumer’s preference of viewing purchases in person, many are serving customers before they enter or even arrive in store. The experience must be consistent and positive, no matter the medium of the customer interaction.
“Celebrating life’s important milestones has obviously been harder to do digitally as we’ve all learned over the last year, especially when it comes to wanting to see food products up close before you purchase,” says Angela Donnelly, co-founder, Raise the Root Organic Market.
“We’re better able to celebrate food, nourishment, health, cooking and community with our doors wide open.”
“Retail is by no means dead”
In fashion retail, if a customer can pre-select the clothing they’d like to try on, a sales associate can have it ready and waiting for a low-contact and efficient experience.
Selected items can be sent directly from a warehouse to the customer’s home. Stores can reduce or repurpose their square footage by reducing display space and can decrease the storage footprint by lowering the number of items on hand to one or two samples of each item and size.
Despite the challenging and shifting times in which we find ourselves, it’s an exciting time to be in retail. This is an industry that embraces change and knows the success that can come from innovation, which is one of the reasons it has historically remained so economically strong.
Those who had already been making investments in e-commerce reaped the rewards when COVID-19 accelerated the trend. Both online and in-store purchases will continue to evolve.
A strong industry will become even stronger over the next year and landlords and tenants that stay abreast of the changes will have positioned themselves for a particularly advantageous year.
“While COVID-19 has impacted many of our commercial tenancies due to no fault of their own, we are confident that with continued assistance from our landlord partners and governmental programs, those retailers that had a strong business prior to the pandemic will once again thrive in the new landscape,” says Jonathan Weinberg, vice-president, retail, First Gulf.
“Retail is by no means dead,” Weinberg says. “It is just evolving as it has always done. COVID-19 has brought this change on us a little faster than we were prepared for, but we, along with our many retailers, are up to the challenge.”