The ongoing increase in the level of competition in the Canadian Retail Market, together with the ongoing shift to “omni-channel retailing” has “raised the bar” on Canadian consumer expectations. The dual impact of these two major factors has pressured many home-grown retailers, in particular those who don’t have strong balance sheets and deep pools of talent, thus inhibiting their ability to effectively compete in this new environment, referred to often as the “new normal”.
 
If these factors weren’t enough to pressure these retailers, the recent massive decline (more than 25%) in the Canadian dollar relative to the US dollar could be the trigger  that will force  many of these weaker retailers to restructure or reinvent. Given the sharp increase in the rate of direct importing that is tied to the US currency, this will significantly increase the cost of merchandise for these direct importing retailers. For those with strong brands, we expect that the impact will be more muted as their ability to raise selling prices to offset the increased merchandise cost is much greater. However we expect that the retailers with weaker brands and/or more price-sensitive customers will be hard-pressed to raise prices without the risk of major decreases in volumes sold. For these weaker retailers, merchandise margins will be hard hit and profitability will be impaired, which might be a decisive factor in leading to a restructuring. This typically results in many store closures and job losses. Many of these retailers already borrow on a secured basis to fund their businesses, which will result in closer scrutiny from their lenders. Not a happy situation for the “faint of heart”

According to our industry expert Antony Karabus, CEO, HRC Advisory, a leading retail advisory firm, the combined effect of these factors will be significant for many retailers who are already struggling to retain their market share.
 
According to Mr. Karabus, the Canadian retail market ‘pie’ is only so large. As international retailers continue to enter the Canadian market and as stronger Canadian retailers continue to win market share, a number of weaker Canadian retailers may languish or even worse, shutter. The overall Canadian retail market will see modest growth over the next year, other than possibly a windfall from reducing the extent of cross border shopping (Canadians have a long history in driving across the border to the US for shopping, currently estimated at $8 billion). Mr. Karabus believes that cross border shopping will decline due to the weaker Canadian dollar (thus making it more expensive to shop in the US) and the increased presence of world-class retailers in Canadian malls.
 
In summary, the declining Canadian dollar could prove to be yet another source of stress for the weaker direct importing retailers, particularly for those unable to raise prices due to lack of brand strength. For those unable to raise prices or to hedge their inventory, margins will decline significantly. Mr. Karabus suggests that those retailers who cater to less price-sensitive customers and have strong brands and differentiated value propositions will successfully weather the low exchange rate storm without major impact to their profitability.

Mr. Karabus commented that a number of Canadian retailers are already seeing much success from their transformations and investments in stores, digital and talent, including Hudson’s Bay Company, Sport Chek, Canadian Tire, Aldo, Loblaw, Shoppers Drug Mart, Harry Rosen, Holt Renfrew, Indigo and others. These retailers have strong balance sheets, deep talent pools and strong brand assets. They have been able to afford to invest in their growth and/or transformation strategies and are able to weather the storms created by the decline in the Canadian dollar.
 
Mr. Karabus notes that in addition to the above investments in the retailers’ bricks-and-mortar operations, the additional investment needed to enable omni-channel and mobile shopping is significant and the payback will not be swift, thanks to the pressure imposed by Amazon.com from free shipping and free returns. However these investments fall into the category of “table stakes”—they are mandatory as consumers increasingly seek omni-channel experiences, to shop on their smart phones and the like. 
 
What it will come down to is the increasing gap between the ‘winners’ and ‘losers’ within the industry. Although Canada has many world class retailers, there are many others who will face an uphill battle to survive and thrive.

About Our Expert: 

Mr. Karabus became CEO of HRC Advisory in January of 2013. He has been a trusted and passionate advisor to retailers on strategic and financial performance issues for over 25 years. He has assisted numerous North American retailers to create significant shareholder value during this time. He has worked with numerous well known retail chains in key sectors such as department store, specialty apparel and hard lines, big box chains and food and convenience.

Antony began his career at Arthur Andersen in Cape Town, South Africa and moved with the firm to Toronto, where he founded Karabus Management as a Canadian retail advisory firm in 1990. In 2001, Karabus Management expanded into the United States, where the firm became a leading North American specialist retail consulting firm. In 2008 he sold the firm to an International Accounting/Consulting firm where he served as the leader of that firm’s Retail Consulting Services practice until he left the firm in December 2011.

Antony conducts annual surveys of Retail CFO and CEOs to determine key priorities in assisting their business to enable substantive value creation.

Antony is a recognized speaker and a published author providing thought leadership at industry forums, including the National Retail Federation, Retail Council of Canada, World Retail Congress and the Fashion Institute of Technology and providing content to The Wall Street Journal, The New York Times, Stores Magazine, The Globe & Mail, Chain Store Age, National Post, Toronto Star and Women’s Wear Daily, among others.

About HRC: HRC Advisory is a specialist boutique retail advisory firm. Together with its predecessor firms, it has been assisting Canadian and US Retail Chains to improve their profitability and strategic positioning for more than 25 years. Many of HRC’s senior advisors were previously at Senn Delaney Retail Consultants and Karabus Management following retail leadership roles. Other senior advisors at HRC have a mix of retail leadership and retail consulting experience gained with other leading firms
 
HRC has significant retail depth in strategic planning, buying, merchandise planning and inventory management, indirect procurement, store operations and omni-channel processes, supply chain/logistics and fulfillment, and comprehensive cost optimization services. HRC has worked extensively with both healthy top performing chains as well as developing and executing turnaround mandates at a number of retailers in difficult situations. For more information, please visit www.HRCadvisory.com.

International womenswear brand Gerry Weber plans to open multiple free-standing locations across the country. It will open eight Canadian locations this year, with its first six locations scheduled to open this spring in Southern Ontario. Although these will be Gerry Weber’s first corporate stores in Canada, the brand has operated franchised locations in Ontario and British Columbia for several years. 

Founded in 1973 in Halle, Germany, moderately-priced Gerry Weber targets women over the age of 30. The brand features women’s ready-to-wear as well as accessories, leathergoods and footwear. The brand has over 1,000 company managed locations around the world, as well as more than 2,800 shop-in-stores. It employs over 5,000 worldwide. Its goal next year is to generate sales in excess of one billion Euros. 

Gerry Weber will open its first corporate Canadian location on March 26 at Toronto’s Yorkdale Shopping Centre. This store will be the company’s Canadian flagship. In April, locations will open at Upper Canada Mall in Newmarket, and at Scarborough Town Centre in Toronto. In May, Gerry Weber locations will open at Vaughan Mills, Square One Shopping Centre in Mississauga, and at Outlet Collection at Niagara, near Niagara Falls. 

Gerry Weber currently operates four Canadian franchised locations — three in Ontario, and one in British Columbia. The Ontario locations include stores at 1177 Yonge Street in Toronto, a location in downtown Burlington, and a shop on Richmond Road in Ottawa. A Gerry Weber franchise also operates at 1849 Marine Drive in West Vancouver, operated by by iconic Vancouver-based retailer Edward Chapman. 

Sources say that two more southern Ontario locations will be announced for this year, and that Gerry Weber is now seeking retail space in Western Canada. 

Gerry Weber is represented by brokerage Oberfeld Snowcap. Gerry Weber seeks retail space in the 1,800 – 2,000 square foot range, ideally in enclosed malls. 

We’ll update you when we learn more on Gerry Weber’s Canadian store expansion.  

By J.C. Williams Group

There has been a lot of discussion about Whole Foods Market recently. This Texas-based food retailer has made headlines with strong sales growth and sweet margins, plentiful store expansions, price cuts, and much more. They certainly have made a name for themselves in a tough economic climate when other retailers are packing up and leaving town in a hurry. Even with the “whole paycheck” reputation, out there on main street, they are winning. Therefore, with all this commotion, I thought I would pay them a visit at their Mississauga Square One location (just outside Toronto).

Overall, Whole Foods is a paradise for the healthy “foodie.” There is no other way to describe them. Now don’t get me wrong, you pay a premium for what you get but wow is it ever fun! Now hold on, before I go further I must declare that I have joined the millions of North Americans who have started eating healthy recently and my affection for them may be a little biased. Here is my assessment. Take it with a grain of salt substitute!

1. Indie Grocery shop feel – when you walk through the store you feel like you are in a local independent grocer. For Toronto-dwellers, think Bruno’s. Speckled floor tiles; folksy feel; Lots of earthy colors and fixtures make you feel like you drove outside the city and stumbled upon a great hidden farmers market.

2. Huge differentiated assortment – they sell food, but they also sell a healthy lifestyle and do a great job assorting that way. In the produce section they have an organic tent that talks to great tasting products that just happen to be great for you. Seafood is “conscientiously caught.” Beef is from “Rain Crow Ranch.” Bread is “naturally kneaded.” Coffee is “sustainably sourced.” There is a “gluten-free” zone as well. Never before have I seen an end cap with a Key Value Item (KVI) of organic Kale Chips.

3. Wonderful branding and signage – as per point 2 above, they sell a lifestyle. Their use of in-store signage is excellent. They educate the shopper at every major category station with buyer’s guides and use graphics to give you that country farm feel. It all comes together to reinforce your thinking that drives you to make that smart and healthy purchase that day. Core values and quality standards are clearly and proudly posted near the cash.

4. Community – a big part of Whole Foods Market is community. It reinforces their lifestyle branding and marketing. Shoppers can sit in a large, welcoming cafe at one of many “community tables” or review local community bulletin boards. You can come in and bottle your own water here. The store acts like a healthy foodie “safe house” where all is right and everyone around them has the same philosophy about eating. A homecoming if you will.

5. Merchandising for margin – it’s not just about feeling healthy and being part of a community. These folks are very smart about making money. Their financials show it too. When you enter the store on the right, you enter a large and profitable fresh produce section which leads to an inspirational meat and seafood offering at the back. Organic is everywhere and we all know organic equals high margin. The lower profit dry goods section in the centre is memorable for lots of differentiated higher-profit items. The left side of the store consists of a profit-driving bakery and a lucrative fresh ready-made section that offers high margins yet again.

In summary, Whole Foods Market does it right! They have grown and harvested a high margin market segment and “serve up” what they want, how they want it, in a way that talks to their high-value customers effectively. They are a great example to look to for success within the retail industry.

Are you doing it as well as Whole Foods Market? Let’s discuss over a healthy salad!

Bruce Winder, Senior Advisor, J.C. Williams Group
bwinder@jcwg.com, 416-705-5627

J.C. Williams Group is a well-known, full-service retail and marketing consulting firm. It offers clients practical, creative, and in-depth knowledge of retailing and marketing, including up-to-date know-how and techniques to make retail operations better and more profitable. You can also read their informative blog, Retaileye, here: retaileye.wordpress.com. 

Montreal’s 220,000 square foot Ogilvy/Holt Renfrew will boast an adjacent 75 affluent households who won’t have to leave the indoors to shop in its store. The tower development will feature luxury condos as well as 50,000 square feet of retail and a five-star hotel, with a total cost estimated at about $400 million. 

If everything goes as planned, the new Ogilvy/Holt Renfrew will open at the end of 2017, according to the Montreal Gazette. Holt Renfrew will reveal further details on the new 220,000 luxury store within the next few weeks, including details pertaining to its branding. Holt Renfrew initially announced that the store’s name will be Ogilvy, part of the Holt Renfrew & Co. collection. 

A further 50,000 square feet of retail space will be included in the project, with connections on several levels to Ogilvy/Holt’s. Some are already speculating that Eataly could locate on the premises, as Ogilvy/Holt Renfrew parent company Selfridge’s Group is said to be bringing the Italian food concept to Canada, beginning with a Toronto location within close proximity to Holt Renfrew’s Bloor Street flagship. Other sources contradict the above, saying that the Montreal space is very unlikely to become Eataly. We must therefore clarify that Eataly is currently only a rumour for the new Montreal project. 

A five-star hotel will locate immediately above the new retail space, boasting a 400-person ballroom. The entire project is being developed by Montreal-based Carbonleo, which is also looking to build a 3-million square foot mega-mall north of downtown Montreal. Including the cost of land, Carbonleo estimates the entire project’s cost to be $400-million. 

Luxury condominiums will begin on the 12th floor of the tower located above the hotel. Featuring 11 foot ceilings, condominium units will span approximately 3,500 square feet and at an estimated $1,400 per square foot, will cost an average of $5-million. These will be among the priciest condominiums in Montreal, along with the nearby luxury residences at the Ritz Carlton. 

Ogilvy/Holt’s will compete with luxury department store Saks Fifth Avenue, which announced plans to open at least one Montreal location. Sources at parent company Hudson’s Bay Company won’t confirm any Montreal Saks locations, though many speculate that Saks could land at Cadillac Fairview-owned Carrefour Laval. 

We’ll update you when Holt Renfrew provides further information on its new Ogilvy/Holt Renfrew store. 

Popular British fashion brand Ted Baker will open this June at Vancouver’s Pacific Centre. It will be the third full-priced Canadian location for Ted Baker, and the first to be located outside of Toronto. 

Ted Baker will locate below the mall’s new Nordstrom, joining brands such as Kate Spade, Microsoft Store, Rockport, Hugo Boss, Tumi, Pandora, and Weekend Max Mara. Nordstrom, itself, will open on September 18th of this year.

Ted Baker’s first Canadian location opened in October of 2012 in the newest expansion of Toronto’s Yorkdale Shopping Centre. The roughly 3,200 square foot store is across the hall from the recently expanded Holt Renfrew store. Ted Baker’s second Canadian location opened last November at Toronto Eaton Centre – spanning an impressive 3,800 square feet. Ted Baker’s only Canadian outlet store opened in August of 2013 at the Toronto Premium Outlets.

Ted Baker’s two full-priced Toronto locations carry both men’s and women’s ready-to-wear as well as footwear, accessories, and other Ted Baker products. Its Toronto Eaton Centre location takes the concept one step further, featuring a layout reflecting that of a British shopping arcade, complete with an umbrella shop, watchmaker, optician, jeweller, perfumery and tea shop.