JLL Releases Mid-Year Report on Canadian Retail Highlighting Challenges

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The Canadian retail market has softened, with availability for space rising and rents trending down as the COVID-19 pandemic has driven a surge in food and home items, postponed consumption of non-essentials, and limited operations of restaurants, gyms, and movie theatres, according to the Mid-Year 2020 retail report by commercial real estate firm JLL.

Tim Sanderson, Executive Vice President & National Lead, Retail, JLL Canada, said 2020 has been a year like no other.

COVID HAS DRAMATICALLY DISRUPTED THE RETAIL INDUSTRY WHICH REPRESENTS 1/3 OF CANADIAN ECONOMY

“The retail industry, which represents almost a third of the Canadian economy and 11 percent of the labour force, has been disrupted dramatically. We’ve experienced sudden shutdowns at a scale that have never happened before, leaving the industry struggling to cope. As undesirable as this sounds, retail will be faced with severe challenges getting back to the growth seen in previous years. This calls for prompt action in a bid to aid redirection, restoration and positive advancement,” he said.

The pandemic had a devastating impact particularly on enclosed malls. Many stores never reopened and those that did are now struggling to drive traffic back under restricted hours. It begs the question of whether the situation will eventually fix itself or mall owners will be forced to make further concessions and investments in an attempt to get their assets back on track.

“Some may find it shocking that, as we publish this report, consumer spending is right back to where it was last year. However, where this money has been spent is vastly different. Shoppers have flocked to consumer staples and home goods, leaving apparel behind. As grocers and restaurants grapple with COVID-related costs, food has become more expensive and now encompasses a larger share of home spending. In this scenario, it shouldn’t come as a surprise that apparel retail chains across North America have announced thousands of store closings, ” said Sanderson.

RETAILS THAT HAVE INVESTED IN OMNICHANNEL STRATEGIES WERE BETTER PREPARED FOR COVID-19

Retailers who had taken the time to invest in omnichannel strategies have been better prepared for the pandemic and have continued to make investments over the past few months.

However, omnichannel has had its fair share of limitations as retailers scrambled to fulfill online orders, particularly when demand surged for certain products. In turn, many small retailers are now catching up and Shopify saw a spike in interest in e-commerce, thus becoming the most valuable company in Canada.

The JLL report states that Canada’s response to the pandemic has put its retail industry at a slight advantage. As events continue to unfold, both landlords and retailers have had time to come up with plans to deal with further headwinds. As the second wave of the pandemic descends upon us, the hope is not to see the same level of lockdown as in March and April. Undoubtedly, the holiday shopping season could drive agglomerations, and it’s likely that both retailers and shoppers will be looking to move up the season to dilute crowds.

“In times of change like this, it’s important to rethink and reposition businesses and offers to meet shopper’s new needs. It will take time and patience to get to where the retail industry needs to be, but we’re optimistic that retail will emerge out of the COVID-19 era with a bigger emphasis on omnichannel, convenience, and customer satisfaction”, added Sanderson.

This time of year is traditionally a make or break time for many retailers.

“Since April we’ve been working with many of our retailers to help them survive. Our mall group alone has looked at 1,200 leases to try and help those retailers with abatements and deferrals or early lease renewals at more favourable terms – anything to help them stay alive.

There’s going to be a lot of retailers that are hanging on for Christmas and afterwards, they’re not going to make it. It’s unfortunate.”

Sanderson suggests retailers change the way they do business. The increase in the amount of online purchases just in the last six months is incredible.

Bricks and mortar retailers should consider making the transaction experience inside a physical store as seamless and as painless for the customer as it is to shop online.

Sanderson said part of the problem in the retail industry is that a majority of the properties are being driven by the value of the asset. How much is the shopping centre worth? Rents have been driven up while tenants are over-extended. To be in a shopping centre and pay high rents, a retailer is there because they believe the shopping centre is going to attract significant traffic that will in turn benefit them.

“For the most part, the enclosed regional malls around the world, not just in Canada, foot traffic is down. To get traffic back, landlords need to introduce new concepts that are going to bring people to the shopping centre. They’ve got to attract these users whether they be entertainment, whether they be more food and beverage. They’ve got to increase dwell time and that will allow people to understand that there is a benefit to being in a mall,” said Sanderson.

“I think what’s going to happen over the next 12 months is there’s going to be a lot of cost-benefit analysis work done on behalf of the landlords to say okay, what is my highest and best use for an empty box? The one good thing is the Canadian retail real estate landscape is not overbuilt. We don’t have as many centres with a ton of vacancy. And we don’t build centres like they do in the United States. You can drive through Texas and there’s one gigantic mall at one interchange and three miles down the road at the next interchange there’s another one. You don’t see that here.”

For more information, consult JLL Canada’s Retail Mid-Year Outlook 2020

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