CBRE predicts department store, retail comeback

Retailers (and real estate developers) are by nature an optimistic group, so it come as little surprise the two groups struck an upbeat tone at the International Council of Shopping Centres’ annual Canadian Convention in Toronto earlier this month.

Retail’s enthusiasm for Canada, evidenced by the recent arrival of Target and the looming arrival of Nordstrom comes as a bit of surprise given economic growth is slowing and consumer spending is decelerating along with it.

“Yes, talk about being late to the party, if you talk about retail sales in Canada, really since 2010 there has been a downward march ever since,” said Ross Moore, director of research for CBRE in Canada.

While many believe that the entry of Target into Canada marks the end of foreign forays into the country, that is hardly the case, according to CBRE. 

In particular, the venerable and much-disparaged department store format is poised for a “renaissance” according to CBRE. It predicts that demand from European department stores, not just North American brands, will keep supply tight. People can expect to see smaller private label, store-in-store formats and foreign names creating mall space with their own private brands and under their own banners.

“The next five to 10 years will likely bring a renaissance of the department store in Canada, and the outcome will be reminiscent of the European/International shopping experience,” said Tom Balkos, senior vice-president and a Canadian director of CBRE Limited’s Retail Services Group.

Target NorstromWhy Canada when retail sales are flat?

Why are Target and others lining up to get into a flat to middling market such as Canada? “We’re barely growing at one per cent, so why are all those retailers rushing in?” Moore commented.

One speaker at the ICSC conference explained it: Target has saturated its U.S. home market, is desperate for growth and was offered a rare opportunity.

“When they saw they could pick up the Zellers stores, to be able to pick up 120 stores in a 12-month period is too good to turn down,” said Moore. “The thing I got (from the ICSC convention) was that there were a surprising number of U.S. retailers that had really saturated the U.S. and the next logical step is global.

“And when you are going global, Canada is probably the safest bet out there. So you come here, play around and see if it works and from there you head to the U.K. or Latin America or wherever.”

Retail sales were up only 1.8 per cent in the first half of 2013 compared to the same period in 2012. This is a relatively mild increase (especially after stripping out auto sales and inflation) and softer retail sales have been felt in malls where sales productivity grew a marginal 0.6 per cent on average in the first six months of the year.

“This is relatively unremarkable for a format that recorded a series of new record highs for sales productivity in recent years,” CBRE noted.

True North, strong and rich . . .?

A common theme at the retailer’s convention was that Canadians are relatively well off, which may come as a surprise to those noting recent reports about record levels of personal debt and fears of a bubble in residential real estate.

“A number of comments were made with respect to new Canadians and we are not getting the immigrants with a nickel in their pocket,” said Moore.

“A good number of these immigrants are well-heeled and are actually demanding high-end retail and good retail. So I think the U.S. retailers in particular are attracted by this.”

Canada’s relatively high sales per square foot number when compared with the U.S. is also attractive.

“They say, ‘I get that retail sales have slowed down but if I have a choice to open a store in Boise, Idaho where I am lucky to get $350 a square foot or I can open a store in Toronto and Vancouver and I am probably going to get sales of $600 a square foot,’ you are going to come to Toronto or Vancouver,” Moore said.

Rents, labour and taxes may be higher, but “I think they can probably make the numbers work,” he concluded.

“Toronto ranked 17th in the world in terms of its ability to attract foreign retailers in 2012 and continues to be high on the list of potential new locations for many retailers. Launching in Canada’s biggest city makes it easier to then start up stores in centres like Vancouver, Calgary, and Montreal,” CBRE said.

That trend was evidenced this summer when Zara Home International opened its first North American store in Toronto’s Yorkdale Shopping Centre.

Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

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Paul is a writer, editor and media trainer based in Toronto with over 25 years of experience as a business reporter. He has written for Canada’s major news services on…

Read more

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