Shifting shopping expectations driven by demographic changes, the growing move to online consumerism, and evolving technologies will continue to shake up the Canadian retail scene in 2018, experts say.
Some in the Canadian retail sector may be forgiven if they seem glad to see the end of 2017, a year that brought upheaval and closures. The year was punctuated by the failure of Sears Canada. The department store chain sought creditor protection in June and ultimately went into a liquidation process that will see it close about 190 stores, ending the jobs of about 15,000 employees.
Another retailer, the venerable Hudson’s Bay Co., is also facing challenges in today’s competitive environment. The company said in June it was cutting 2,000 jobs as it restructured.
As retailers count their take from this year’s holiday shopping season, Willy Kruh, global chair for KPMG’s consumer and retail practice, says he expects a “relatively reasonable” increase of five per cent in holiday sales, and healthy margins.
“I think the point is that Canadian retail needs a real wake-up call about what’s coming in 2018 and in the future, based on what we are seeing today,” Kruh told the CBC’s Meegan Read in a recent interview.
Kruh said the most store closures on record in the U.S. was back in 2008, when they hit roughly 6,100 stores. However, this year, he said, that figure is projected to be between 8,500 and 9,000 stores.
“More than they’ve ever had in their history, and that is at a time when the [U.S.] economy is strong, consumer confidence is relatively high, [and] the wealth effect, stock market, [and] home prices are high,” he said.
“So there is a lesson there, and there is something to be seen by that,” he said. “It’s not a coincidence, and similar things are happening in Canada.”
Bruce Winder, co-founder and partner at Retail Advisors Network, said online shopping has grown to a point in the U.S. that it is creating casualties in traditional bricks-and-mortar retailers that are weak financially or strategically, or that have not adapted to the new normal. He said the same thing will happen in Canada in a few years, as we are behind the U.S. and the U.K.
“This has been happening for a few years but we are now at a tipping point where larger, well-known chains are being impacted,” he said, pointing to Toys “R” US, Macy’s and HBC.
Canadians will continue to shop more online through companies such as Amazon, which is increasing its infrastructure in Canada with a new Calgary warehouse and hiring in Vancouver, he said.
That growth in dollars going into online shopping means lower profit margins for bricks-and-mortar stores who are forced to participate in it, Winder said.
He said no one will be able to catch Amazon, which scooped up the Whole Foods chain in 2017 in a move into the grocery sector, while Walmart has been one of the few big retailers to embrace online shopping head on.
Kruh sees three factors driving the retail scene, including:
- changing demographics.
- new technologies.
- geography and geopolitics.
The generation of millennials will be the biggest demographic group within a few years, and Kruh said they seek an “experience” when they shop. Retailers will need to understand the experience and entertainment quality that consumers want and — millennials, particularly — need, whether they’re going into a store or doing their shopping online, he said.
“If you don’t grab them … they’re moving on and never coming back,” he added.
Meanwhile, technological change in the retail sector will also see growth in the use of artificial intelligence, the use Amazon’s Alexa voice-control system and Echo smart speaker, robotics,drones, and virtual and augmented reality, Kruh said. He added that Walmart and Amazon are already testing new concepts for stores that haven’t even yet hit Canada.
Population growth in Canada is driven by immigration, making it critical that domestic retailers adapt to the shopping habits of new Canadians, Kruh’s KPMG said in a recent forecast. At the same time, a wave of populism and nationalism is affecting retailing in the U.S. and Europe with spill-over effects in Canada, the firm said.
Among the winners
Canada continues to polarize in the retail industry, just as it has in income and wealth disparity, Winder said.
To that end, he sees retailer Dollarama among the winners for 2018 in the value segment. The company recently confirmed it will begin online sales of some popular items in bulk within the next 13 months.
He also cited clothing company Canada Goose, which is a manufacturer with some traditional stores and an e-commerce division, as a strong brand with good financing for growth from the success of its initial public offering.
Winder also sees Loblaws as winning at both the high and low ends of the market with its different banners and customer groups. It will also benefit from its new partnership with Instacart and its strong loyalty program, he said.
Source: CBC News