Retailers slow to follow urban trend

Toronto added some 32,000 new condo units to its city core during the past five years but that influx of new downtown dwellers is grossly under served when it comes to shopping options.
“Retailers like Loblaw’s and Sobeys are going to have to get their act together or they are going to miss out on a huge customer opportunity,” said Graeme McVie,  Vice-President and General Manager of Business Development with Loyalty One , based in Bethesda, Maryland and pictured left.
Supermarket chains and other mass merchants have been slow to follow the urban intensification trend in part, McVie said, because their organizations have grown up with the suburbanization of North America.
That means ever-bigger stores, large parking lots and in most cases, ownership of the land that their outlets sit on.
None of those characteristics is usually possible in crowded downtowns where land is at a premium and typically owned by investors looking for non-retail uses.
That own-your-own model is evolving fast, however, as the likes of Loblaw Cos. looks to unlock the value of their real estate portfolios by doing REIT spinoffs.
Loblaw’s planned REIT, scheduled for mid-2013, could see it put approximately 35 million of its 47 million square foot real estate portfolio into the REIT.
That will provide Loblaw with a cash infusion that it will need to fend off the likes of Walmart and Target and could also be used to fund the introduction of new, smaller urban stores. 

Canadian Tire Store at 65 Dundas St W. in downtown Toronto and part of the Eaton Centre
U.S. retail giants target core
Canadian retailers, often criticized for being slow to adapt to changing conditions and to adopt new models or formats from other markets, need to wake up and fast, noted McVie.
Both Walmart and Target have developed scaled down, urban concepts designed to be squeezed into tight, city core real estate.
Fresh from its recent grand openings in Canada, there are already rumblings that Target may be planning the launch of its smaller CityTarget stores in the next 12-18 months, he noted.
Target currently has pilot stores operating in a few U.S. downtowns. The new formats are about two-thirds the size of a typical Target store.
Meanwhile Walmart, the world’s largest retailer, has begun rolling out its fleet of smaller Express stores for cramped cityscapes. It currently has 17 Walmart Express stores in the U.S. that range between 10,000 and 15,000 sq.ft. and feature pharmacy services, groceries, fresh produce, general merchandise, and health and beauty aids.
Europe has it figured
Loyalty One’s McVie, a U.K. native, said that Canadian real estate and retail players should look across the Atlantic to see what works when it comes to urban retail formats.
“Tesco and Sainburys have developed these metro formats and the assortments are tailored for the downtown area. They have been around for more than 10 years and have really taken off,” McVie said.
“Those companies have their big supermarket footprints, maybe 50,000 square feet, then you have the metro ones that are maybe half of that and then you have more convenience-like stores that are even smaller,” he said. “You are just starting to see that in the U.S. and Canada.”

Canadian Tire Store and Best Buy located in the Eaton Centre in downtown Toronto
Signs of life
In Toronto, McVie notes that Canadian Tire has successfully introduced an urban store at the north end of the Eaton Centre. Not only has that two-storey urban store been able to nestle in a decidedly different real estate space than the vast majority of Canadian Tire’s store base, its product offering is carefully tailored to the accommodate the needs of urban shoppers who live in more cramped quarters.
“As you see retailers get more comfortable with these sorts of offerings, I think you are going to see introductions (of urban formats) pick up,” he said.
A major difference between urban dwellers and those who live outside the city cores is shopping frequency and average purchase totals. Because they have so little storage space, urbanites want smaller package sizes and may shop for food every two or three days, versus most Canadians who load up their vehicles after weekly forays to replenish supplies.
Others real estate users are also paying attention to the urbanization trend.
This week the Bank of Montreal said it will introduce smaller branches in higher-density, mixed-use neighbourhoods to serve the needs of urbanites. BMO’s first mini-location, which features only four employees working in a 900-square-foot space inside a Montreal residential building, opens next week.
The Toronto Star reported that BMO plans “up to 15” of these “studio branches” are expected to open across Canada as well as in the U.S. Midwest, where the company operates as BMO Harris Bank.

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