“From the rise of e-commerce to the growth of the experience, the massive influx of luxury retailers into this country and the closure of some big names, the reimagining of spaces and the addition of new uses, the common thread is change.”
That was the message from RBC Capital Markets Real Estate Group director Nurit Altman, as she opened a panel discussing the evolution of retail at the Real Estate Forum at the Metro Toronto Convention Centre in December.
David Zietsma, senior vice-president of strategy and performance for Jackman Reinvents, followed with a presentation on the changing role of bricks-and-mortar retail. He said e-commerce represents 10 per cent of Canadian retail sales, a number expected to hit 15 per cent by 2023.
Forty per cent of manufacturers sell directly to consumers, 47 per cent plan to add that capability soon, and 87 per cent see it as relevant to their products and consumers.
“The relationship that consumers have is to the brand and the product, not to the retailer,” Zietsma said.
“That’s pushing retailers to think about what roles their physical stores play in this. Is it about traditional fulfillment and making things easy, or is it about engagement?”
Zietsma said mall landlords can create better experiences and increased engagement for consumers through embracing convenience, curation and collaboration.
Using data to help retail decisions
Environics Analytics president and chief executive officer Jan Kestle followed with a presentation on retail disruption involving evidence-based decision-making.
“Over the past year, we have seen more organizations — on the investor level, the developer level and the retailer level — doing more exciting and innovative things with data in order to help deal with this challenge,” she said.
Kestle noted it was previously difficult to “get a handle on the consumer and understand how much power the consumer has, and how to make location decisions and investment decisions on the ground at the local level, and how to combine the investment in bricks and mortar with marketing.”
Now, however, the retail sector is doing “innovative and exciting” things with data.
Urban residents shop online at higher rates and spend more while they’re at it, according to Kestle. She attributes this to young people moving to these locations and embracing online shopping.
Smart phones provide information
There are many new ways to understand consumer patterns based on their smart phones, as long as permission is obtained and the data is collected properly, said Kestle.
“The opportunity for understanding who comes, when they come, time of day, day of week, what stores they go to, whether they park and how they come, it’s opened up a whole new world for actual retail location analysis.”
The information can impact decisions on where to invest, maximizing returns, finding the best tenants and efficiently engaging area consumers.
Such data was taken into consideration for the redevelopment of CF Richmond Centre in Richmond, B.C., which will include 2,297 housing units and 362,000 square feet of new retail and restaurant space. Kestle said data enabled developer Cadillac Fairview to:
* validate the residential suite mix and amenities;
* develop the food and entertainment component;
* and tailor the retail mix to avoid over-exposure in high online shopping categories.
* identify population segments driving market growth and mall visitation;
* devise a leasing strategy around the interests of target consumers;
* and develop local marketing to get those target customers shopping.
Cadillac Fairview retail innovations
Cadillac Fairview VP of strategic insights Inge van den Berg said she’s seen a higher rate of growth in many suburban shopping centres. CF is catering to local markets rather than using a one-size-fits-all model for its malls.
Part of the strategy is working with retailers to enhance a sense of community at its shopping centres.
This includes beta testing an application called CF Browse at CF Toronto Eaton Centre which allows consumers to use their smart phones to search brands, key words and retailers, use a way-finding system to direct them to a store and research its inventory, sizes, promotions and contact information.
Some formerly pure-play online retailers are now opening physical stores and van den Berg said 60 per cent of people placing online orders prefer to pick them up in stores.
“For every $100 that a person spends online, when they go to pick it up in the store on average they spend an additional $131.”
Crombie REIT and Sobeys
Crombie REIT president and CEO Don Clow thinks the Canadian retail sector is in good shape, noting more stores have opened than closed in Canada in the last three years. He also noted there’s 40 per cent less square feet of retail per capita in Canada than in the United States.
Canada’s retail sales are approximately $800 per square foot compared to $500 south of the border.
Clow said 90 per cent of Crombie’s business is in grocery-anchored strips, five per cent in regional shopping centres and five per cent in office.
Empire Company Ltd., the Sobeys grocery store chain owner, also owns 41 per cent of Crombie and accounts for more than half of its revenue. Clow said that just one half of one per cent of Canadian grocery sales take place online.
Looking to the future, however, Sobeys partnered with the United Kingdom’s Ocado Group on a grocery ordering, automated fulfillment and home delivery solution.
They’re developing two large customer fulfillment centres around Toronto and Montreal and will likely open two more in Western Canada. Portions of stores close to these centres may also have fulfillment hubs to mitigate home delivery costs, according to Clow.
Intensification of existing retail sites
“Our major markets and secondary markets are virtually the same from a retail point of view,” said Clow.
“The difference for us now is that we have a very large development pipeline, which is a different strategy about intensifying urban stores with multiple residential towers above.
“That’s not only driving retail performance, but also the value of those sites.”
Crombie owns about one-third of Sobeys sites, and the grocer can work with different developers for intensifying other sites.
Clow said grocery stores purchased in Vancouver for $30 million seven years ago now sit on land that could be worth up to $100 million and building residential above the retail could increase that value to $300 million to $400 million.
“Development’s a natural play for us and those sites. It’s really a matter of trying to figure out how you do it and at what pace you can do it. It’s an amazing opportunity.”
Cadillac Fairview also owns large amounts of land adjacent to its retail properties. There are plans for intensification at these sites, according to van den Berg, since there’s “a need to continue to look at diversifying cash flows.”