The Canadian retail industry continues to experience dramatic change as we plunge into another year. Often retailers are optimistic and heavy into the launch of a New Year. So, here is J.C. Williams Group 2016 Retail Outlook.

2015 In Review – Looked Good!

First, let’s reflect on 2015.  J.C. Williams Group’s monthly National Retail Bulletin (NRB) provides an analysis on monthly released sales figures from Statistics Canada by retail category (e.g., Food and Beverage Stores, Clothing and Accessories Stores, etc.)

According to our ongoing analyses, the Canadian retail landscape saw reasonably strong growth in 2015. However, the latest data has revealed slightly slower growth in November, with All Stores up 2.1% and All Stores Less Automotive, Food, and Pharmacies up 2.9%—in comparison, All Stores sales in October averaged out to a 2.2% increase, and All Stores Less Automotive, Food, and Pharmacies were up 4.9%.

Across Canada (with the exception of the Prairies and Alberta) all provinces/regions have seen positive sales growth year-to-date compared to the same period last year (up until November 2015). Furthermore, Toronto’s retail sector remains strong with sales growth over 5% (year-to-date up until November 2015), and even more impressive, Vancouver saw over 10% sales growth (year-to-date up until November 2015). This will likely spur increased interest for global brands expanding to Canada, adding to those who set up shop in Canada last year.

A major influence to the overall bump in retail sales last year was the dramatic decrease of Canadian gas prices. The result was a 14.5% decline in sales for Gasoline Stations compared to last year (year-to-date up until November 2015)—freeing up nearly $10 billion for spending in 2015!

2016 Brings a lot of Conflicting Phenomenon

It’s time to take a look into the future. Here are a few things to consider for 2016:

• Retail growth and expansion continues to dominate at both the high- and low-end. The question remains for the luxury retail sector—how much is too much? There will be a slew of high-end international brands opening and expanding into Canada. Nordstrom is on schedule with its expansion plans, opening in Vancouver’s Pacific Centre in September 2015 and coming to Toronto’s iconic Eaton Centre in the fall of 2016. Observers reported record-breaking crowds at the opening of Nordstrom in Calgary (2014) and Vancouver—so the same can be expected for the GTA onslaught.

Now the question is—whose hide will they take a bite out of? Some reports suggest the top-end luxury market in Canada is thin—and that Canadians do not spend like Americans. We’ll soon see.

On the low-end, Dollarama (truly awesome!) continues to open stores across Canada and expand into new categories, taking on a list of rivals and requiring the “mass merchants” to respond with their “dollar store” offers. Who does “seasonal merchandising” better?

• Faced with intense competition, major players in the grocery business are looking at digital as a way out of stagnant growth. Though grocery retailers were slow to embrace digital technologies, they are slowly catching up—and it is imperative that they do in order to compete with e-commerce behemoths like Walmart and Amazon who have seen exceptional growth in their online grocery business. An increasing amount of grocery retailers are starting to incorporate click-and-collect, e-commerce, and digital shopping tools like e-couponing into the customer experience. In-store technologies like “smart shelves” will also likely be seen in Canadian grocery stores in 2016. The trick is to get this working and widely accepted.
• Emerging technologies like wearables, drones, and virtual reality are being early-adopted by retailers as a means to provide solutions to existing problems (e.g., delivery drones) or to provide new experiences for their customers (e.g., in-store virtual reality headsets or banking via Apple Watch). Although many of these technologies are still in testing (and have been for a while), it is certain that these technologies among others will start to influence retail in 2016.
• Creativity and experiential qualities and themes are becoming a real differentiator for today’s brick-and-mortar retailers. From warm and impressive store designs to innovative in-store digital experiences, those retailers focusing on the experiential desires of consumers are reaping benefits. A leader in this (also coming to Canada) is Eataly. They make something as simple as grocery shopping an exciting and indulging experience—and they have a pretty snazzy website (www.eataly.com), too!
• The invisible slug-fest between Amazon and just about everyone else continues. This is not widely reported in the Canadian media, but not a week goes by without a jaw-dropping news release on Amazon—g., their own drone air force just bought 20 DC8 jumbo jets, or their massive warehouses would take over or be bigger than FedEx or UPS; Amazon will carry over 900,000 items and is aiming for a billion SKUs.
• The crunch will continue with real estate occupancy rates reaching painful heights. Municipalities are increasing retail taxes and landlords want more rent, which is difficult with most in-store sales flat or down. Many retailers are unable to achieve required sales productivity―and/or price competition is forcing margins down to levels that cannot accommodate premium rents. Obviously, expansion will be curtailed and store sizes will be right-sized.
• And for 2017 and beyond? Well, we are a bit ahead of ourselves, but there is a new wave of punishing retail competition coming. Look out for the giant killers in food―Aldi and Lidl―or Primark in apparel.
  • They will be disruptive!
  • They will take no prisoners!
  • They will roll across the land very quickly!
  • You have been warned!

Retailers to Watch

• HBC – there’s no holding HBC back. With massive renovations and the acquisition of Saks, Hudson’s Bay will be one to keep on the radar. Their key challenge is to turn this into significant chain-wide increases in store productivity and sales per square foot.
  Question: Is the Hudson’s Bay too late with its upgrading? Will Nordstrom, Saks, Simons and their outlet stores take the wind out of Hudson’s Bay’s sails and keep them in their current low productivity situation?
• Canadian Tire – it will be interesting to see how they apply their new “experiential/digital” store concept to other banners like Mark’s. Their new Canadian Tire store in Edmonton sets a new standard for in-store digital customer experience. This gives them a competitive advantage that supports productive selling, harnesses supplier brands, and is too costly for most competitors to copy.
• Loblaws – their ability to innovate and appeal to both the high- and low-end of the market provides a threat to a wide range of competitors. It is always exciting to watch the range of innovative ideas being introduced by the Weston team. At the same time, Sobeys, Longo’s, Metro, etc. are right there with them. No wonder no U.S. food chain has invaded Canada.
• La Maison Simons – This jewel of a retailer is building an exciting national brand. Simons’ success is based on an incredible company culture that enshrines success as it steadfastly embarks on expansion across Canada―first class and innovative in store design, merchandising, and customer service―true WOW!
• And the S_______ word? Who knows? More pain for the landlords…

In summary, 2016 could be “the year of retail pain.”

• Slower economy
• Crazy house prices with mortgages eating up disposable income
• University debt hitting normally big-spending consumers
• Serious e-retail spending on certain commodities (leisure activity, electronics, apparel, jewellery, footwear, sporting goods)—think anything that is branded and easily comparable on digital devices.
• And now there is a new wave of competitors at the luxury end, and the low-end is gearing up for price-value wars.

Oy, I’ve got a headache!

But, there are always rays of sunshine…

• Niche super-specialists like Lululemon Athletica and Victoria’s Secret are booming! And breaking sales per square foot records.
• Simons proves department stores are not dead and are a delight for contemporary shoppers.
• The food industry is where excitement and innovation exists―an inspiration for all retailers.
• Winners and other TJX banners continue to thrive.

The challenge for retailers and shopping centres is to ensure creativity and innovation are in the forefront of their business strategies!