The COVID-19 pandemic with the resulting social distancing measures has had a dramatic impact on Canada’s retail industry creating a number of trends that are accelerating, reversing, or emerging.
Research by CoStar Group Canada said among the accelerating trends is the fact that since the start of the pandemic, more retailers are adopting ecommerce, downsizing to smaller and more efficient space, repurposing mall space for micro-fulfillment, and adding coffee bars or services to maximize their usage.
Additionally, iconic brands are facing hardships while essential retailers are better positioned to thrive. Retail bankruptcies are causing property managers to get creative with their space and repurposing retail space for other uses such as warehouses to support last-mile delivery.
E-COMMERCE IS BOOMING IN THE WAKE OF COVID-19
Roelof van Dijk, Director of Market Analytics, Canada at CoStar Group, said the biggest and most talked about trend these days is the boom in ecommerce as a result of the current pandemic.
“That’s taken off like wildfire,” he said. “It now equates to almost 10 percent of retail sales. The whole point there is when you’re stuck at home and still need to do some shopping that’s the avenue that people have taken. Adoption of that is just speeding up. Now that more and more people have used ecommerce they find they like the convenience.
“That goes hand in hand with the curbside pickup, the buy online pickup in store situation.”
DOWNSIZING IS BECOMING INCREASINGLY PROMINENT
He said the idea of showrooming and downsizing retail space is likely going to become even more prominent as we go forward.
“As more people adopt the ecommerce online avenue then you don’t need as large of a store to have all the inventory you once needed to have in the store. You can take a lot of that inventory into a more industrial type space if you want to do that,” said van Dijk.
“We’ve heard a lot of discussion about what to do with some of this retail space and we’ve seen some listings come up where they’re actually advertising it as industrial space. There was one that came up in Mississauga, an old Zellers/Target space and it’s part of a mall and it’s being offered as either retail or industrial space and there’s two separate rents depending on what the user decides to use it for.”
In the U.S., he said Amazon has expressed interest in some of the old department stores’ space. Or space could be used as curbside pickup or part of the last mile of the supply chain.
“For retail it comes down to the property manager and the retailers are going to have to get very creative in how they are using space,” added van Dijk. “You also see a lot of discussion about what to do in the parking lots. We’ve been talking about this for years in how to repurpose some of these parking lots that are underutilized.
“Vacancy is moving up. It was moving up prior to COVID but it’s definitely going to be moving up a lot faster as we go through the next year, two years.”
In terms of reversing trends, fitness centres, restaurants, and experiential retailers are struggling to reopen and are no longer primary drivers of new demand. Since migration patterns could change, suburban retail could gain traction. People are also now spending more on groceries than bars/restaurants.
Van Dijk said some of these reversing trends are temporary.
“When you look at what has happened in shopping malls specifically over the last 10 plus years, there’s been a big movement to experiential retail. A big movement to put in fitness centres, restaurants, that type of thing,” he said. “Those types of uses were driving traffic. It was that diversification play, get away from competing with ecommerce as ecommerce moves up the food chain.
“You’re starting to see obviously a bit of a reversal on that because these were tenants that were able to pay premium rent and now when their capacity is being reduced 50 percent, or even less than that, these are slow to reopen. Will they be able to remain afloat going forward if they’re only at 50 percent capacity?
“Until we get to the other side of this and we understand what this new normal is going to look like, these are going to be uses that are going to have a hard time expanding and not necessarily the easiest sell to put into your mall knowing that they might not be able to afford the rents they once were able to afford because of capacity issues and increased costs associated with cleaning and so forth.”
CUSTOMER’S PERCEPTION OF CLEANLINESS IS CRITICAL FOR SUCCESS
And in new trends, the perception of cleanliness is critical to make customers comfortable moving forward. Many are now activating outdoor areas, outdoor eating or curbside pickup, and changing layouts to drive future sales. Interestingly, health and safety and BOPIS (buy online and pick up in store) and curbside pickup may be an answer to solving last mile issues.
“Outdoor uses are key right now and a lot of municipalities have fast-tracked restaurants’ ability to open up patios and so forth and expand patios really to help get that going and keep some of these businesses afloat over the next few months,” said van Dijk. “Capitalizing on that outdoor space, capitalizing on those exterior door entrances, is key but come November you’re not going to be able to use those spaces as well as you have been for obvious reasons in Canada.
“The other part of it is the idea of cleanliness. It’s one thing to be clean and the other thing to really hit home the impression that you are taking cleanliness into account and people are going to be very conscious of that. They have been but even more so. There has to be that appearance of cleanliness. It’s critical to make the customer comfortable. Health and safety concerns are very important.”
He said drive thru demand will increase because many people are avoiding public transit. The trend has been for retailers in the past to put their stores in locations that are transit-oriented but now there is talk that the commuter pattern will change as a result of COVID. The question is what impact that will have on where retailers look to operate.