Target a game-changer for retail, but e-commerce changing industry

The arrival of Target is a game-changer for Canadian retail, but it is the massive growth in e-commerce that will likely have a greater impact on Canada's commercial real estate footprints for the retail, transport and logistics industries, experts say.
“There is a huge change in how product is stored and shipped and it is the evolution of retail and consumer spending,” said Gord Cook, executive vice-president of Colliers Canada.
“We are seeing that having a significant impact on the industrial footprint.”
Unlike Walmart's arrival two decades ago, plenty of other retailers are jumping on the Target bandwagon and looking for prime space in malls or big box sites, among others.
However a bigger strain on the country's ability to move goods comes from the phenomenal increase in online sales with four of five Canadians using online shopping. The exact value of that part of the retail sector is not known although everyone agrees it is massive.
A recent survey of 4,000 people for Canada Post suggests nearly four of five Canadians (79%) shop online and 66% of their online retail purchases in the prior three months had been with retailers outside of Canada.

Logistical warehouse in the GTA
Larger retailers set up individual freight systems
Cook said there is a huge impact from many of the larger bricks and mortar retailers, which have essentially set up their own freight systems in Canada. A prime example is Target, which converted the assets of Zellers and has added to its distribution chain with major east and west distribution centres in Alberta and Cornwall, Ont.
Other smaller retailers are coming in with far fewer than Target's full network of more than 130 stores. Those will either set up their own distribution networks or use Canada's existing framework of logistics companies or a combination of dock-to-dock transport or the distribution centre to home delivery system that has grown exponentially with the increase in on-line sales.
Cook said the question is all about scale.
“What's happening on the e-commerce side of the supply chain is you are dealing with onesies and twosies with UPS and FedEx picking up and dropping off at the house,” he said.
“You have your traditional retailers now looking at e-commerce as a separate distinct facility from their main hubs or because of the unique nature in the way that product is stored and shipped,” he said.
E-commerce footprint still unknown
“All of this is happening right now as we speak and is probably one of the major talking points with the supply chain heads in how they manage the e-commerce retail footprint in the Canadian market,” Cook said.
“A lot of the U.S. retailers are still running their e-commerce out of the U.S – the problem is the consumer doesn't like the timeline and the consumer doesn't like how they have the duty costs at the border. The buying experience isn't as nice, so there is that component of eliminating the trans-border issues, which is time and money.”
For retailers, Cook said there are significant differences in how an organization approaches the Canadian market, such as the likes of a Target, where they could take down a larger target like Zellers.
“These groups had scale within the first 18 months of acquisition and with scale you need supply chain. Target had the benefit of delaying from the point of closure of Zellers and the startup of the new brand for about 24 months,” Cook said.
Cook says the smaller retailers new to the market are growing organically and are using a larger section of the supply chain or use cross-docking or home delivery where goods are stored in the U.S. and then brought in through smaller docking systems without holding inventory in Canada.
“They tend to keep their inventory in the U.S. until they can't deal with home deliveries or customers are upset over the time it takes to get items shipped.”

Mississauga is the only city in the GTA serviced by seven major highways 401, 403, 409, 410, 427, QEW, 407
Mississauga ready for growth, says McCallion
The question of how Canada will be able to handle the U.S. invasion​ was put to Mississauga Mayor Hazel McCallion, who leads Canada's sixth largest city, but one that has massive importance in the logistics sector. (Read Property Biz Canada's interview with Mayor McCallion)
“Mississauga can accommodate more growth in the sector. We have more than 2,400 acres of employment land yet to be developed,” she said when asked if there was real estate available to house logistics companies.
“Close to 200 Mississauga companies in the truck transportation business have established facilities here because of the strategic location relative to Ontario's major highways. In addition there are close to 200 companies in the freight forwarding and customs brokering business.”
McCallion also addressed the increased need to be able to handle e-commerce.
“We understand how the growth in electronic retail market is having an impact on the demand and development of industrial space,” said Canada's longest-serving mayor.
Cornwall perfect storm for logistics needs
Another Ontario region is seen as an up-and-comer in the world of retail distribution and logistics.
As reported previously by Property Biz Canada, Cornwall, Ont., is a buyer's market for logistics, offering a location on Canada's busiest highway system, the 401 which links Toronto and Montreal.
It is near the U.S. border but without the congestion faced by retailers and logistics centres in the Toronto area. There is also a push for companies wanting to set up across the Ontario border to avoid higher-priced Quebec labour contracts.
Peter Earwaker and his partner Stacey Shields from Cushman and Wakefield have seen the exponential growth first-hand through their dealings in the Cornwall area, near Ottawa.
“All of these things factor into why this is a good location with affordable rent. Comparatively speaking, if we were looking at the land in Toronto, Montreal or Ottawa it would be $600,000 an acre and if you look at the Cornwall Business Park, it is $30,000 an acre and our particular site on the edge of Cornwall is just under $11,000 per acre,” he said.
Cornwall became famous when Target contracted a logistics company to set up a massive facility there to handle their goods.
“What you have in a lot of these situations is third-party logistics,” Earwaker said, adding it it called 3PL in the business.
“They are handling all of that for companies as a service. There is a huge economic lever for considering this area for your logistics.”
Trucking and established companies a factor
Andrew Kirkpatrick, the director of sales for Toronto's Sherway Group, which is made up of warehousing, cartage and logistics divisions, said he believes Canada's logistics network is ready to handle whatever gets thrown at it, although he said the trucking industry needs more drivers.
“I think our network is set up really well in North America, it just comes down to drivers and availability of resources and equipment. The availability of drivers is going to be the big thing in the industry.
“A lot of companies are trying to route over the rail system rather than over the roads in trying to find cheaper ways of moving product.”
All of the experts agreed there is a need for industries to talk to each other, especially in planning for periods of growth. And in the case of the e-commerce equation, understanding how big an impact it will have on retail, real estate and the transportation industries.

Industry Events