London Drugs continues to cautiously expand its footprint in Canada with an approach of assessing the market and resetting its cost structure.
The company recently opened its latest new location in the Shawnessy Village Shopping Centre in Calgary and its new renovated and relocated store in Abbotsford, BC, in the Sevenoaks Shopping Centre. The Abbotsford Highstreet location will be closing on June 25.
Clint Mahlman, President and Chief Operating Officer of London Drugs, said increasing costs of running a business, particularly government costs, have slowed the process of opening new stores in Canada and renovating stores.
“We’re assessing the market and resetting our cost structure,” he said. “I think if you look at what some of the economists are saying that we’re probably into a good year if not two years of a consumer that is very challenged for a bunch of different reasons depending on which economist you talk to.
“Canada is different than the U.S. because we have a different structure but we’re always tied to the U.S. The U.S. has things like this banking crisis that they’re going through with the regional banks. That’s causing interest rates to be higher than we would otherwise have in Canada. Canada has still, according to some economists, a lot of pent-up savings that have allowed for a slow cushion – a lot of post-pandemic demand travel being a good example where people are still out spending.
“For those reasons, I think the economists are right that we haven’t seen the recession. However, those things don’t mean that discretionary income is being spent in retail overall. When we read the experts’ opinions, we’re probably into a good couple of years of malaise in the economy with customers being very uncertain, having to watch their dollars very carefully and until there’s some certainty of what’s happening with the economy and interest rates they’ll be very cautious on discretionary spending.”
Founded in 1945, B.C.-based London Drugs sells to every province and territory in Canada through its online store www.londondrugs.com and has 80 physical stores in more than 35 major markets throughout British Columbia, Alberta, Saskatchewan and Manitoba.
The greatest concentration is in BC followed by Alberta, with five in Saskatchewan and one in Winnipeg.
“E-commerce is an important part of our business. After British Columbia then Alberta, Ontario is our third largest market for e-commerce in Canada. We sell to every province and territory in Canada through our e-commerce,” said Mahlman.
“Shawnessy (in Calgary) is a market we’ve been trying to get into for a very, very long time. We had wanted to get in there about 20 years ago when it was developing and for a bunch of different reasons we didn’t proceed. And as Calgary has shifted and moved and all these different retail nodes, it was always on our radar screen to see if it would come up.”
It is the company’s ninth location in the Calgary area.
He said another relocation of a store is taking place this year in Airdrie, Alberta, just north of Calgary.
“We have another store that’s yet to be announced that will be a net new location in one of our markets,” added Mahlman.
“It’s a very tough retail landscape at this moment and retail just gets tougher all the time with the intensity of the competition. One of the biggest issues facing all retailers right now, not unique to London Drugs, costs are rising faster than we can pass on prices that a customer’s willing to pay. Obviously these inflationary times are really, really challenging for retailers.
“The inflation comes from a number of different avenues. One of the avenues that’s not discussed a lot is the amount of government shift of cost to retailers. It can happen in a number of different ways . . . For retailers that are a very people-intensive business that has a particularly amplifying effect . . . Obviously all governments are struggling with the post-pandemic costs they incurred. So taxes, fees, anything that remotely looks like a government cost is going through the roof.
“This isn’t anything new. So as more and more costs increase and the cost of labour and the availability of labour have been going through, we embarked two years ago on a major initiative, what we call Galileo. And Galileo is to kind of rebuild the infrastructure of the company so we can be much more efficient, reduce our overall cost of operations through investment in technology and automation and artificial intelligence where it applies. And also through that provide better tools for our team to operate. At a high level, that’s been our focus. So our focus hasn’t been on opening a lot of stores, a little bit of renovations. Costs of renovations for the same reasons. We’ve noticed that municipalities throughout Canada have certainly increased their development costs, their building permit costs, the time to get permissions has really lengthened. So for those reasons we’ve slowed down on doing a lot of renovations and new stores because it’s becoming extremely costly.”