The industry spirals into turmoil.
After bouts of store closings that started in 2013, Sears Canada has about 95 department stores, 10 outlet stores, and 40 home stores left. Now, according to the Globe and Mail, it will close even more stores.
It’s been tough for brick-and-mortar retailers in Canada. The collapse of the price of oil and the brutal drubbing administered to the tar-sands sector, the high-cost oil producer globally, haven’t helped. The overall economy is uneasy. And the migration to online shopping is unstoppable, a phenomenon that is also wreaking havoc among brick-and-mortar retailers in the US.
How tough is it in Canada’s retail land? Some salient recent examples:
Target, after only a little over two years in Canada, shuttered its 133 stores and was gone by April 2015, an episode that cost it $7 billion.
Best Buy closed 66 of its Future Shop stores in March 2015 and converted the remaining 65 to struggling Best Buy stores.
Then there’s Blacks, a Canadian camera shop chain that also sold cellphones and other things. It and its 113 stores were acquired by Canadian PE firm ReichmannHauer Capital Partners in 2007, when PE firms piled into brick-and-mortar retail. RHCP was smart enough to sell it in 2009 to telecom operator Telus, who shuttered the remaining stores in August 2015.
Sony closed all of its 14 stores in Canada in early 2015.
Mexx Canada, a Netherlands-based retailer, liquidated all its 95 stores in Canada in early 2015.
Reitmans, a Canadian retailer specializing in women’s clothing under a number of different store brands, announced in November 2014 that it would close 107 Smart Set stores.
A spate of US retailers, including Gap and Staples, have announced that they would close stores in “North America,” without specifying how many of their stores in Canada would be closed.
In terms of population, Canada is smaller than California. So this has an impact.
Nordstrom, when it decided to move into Canada, vowed to avoid a Target-like collapse. So with impeccable timing and great fanfare, it opened its first store in a veritable boom town of easy riches, a perfect launching pad for a high-end retailer. It was called an “auspicious start.” The time? September 2014, just after the price of oil had begun to collapse. The city? Calgary, Alberta, whose economy is now getting ravaged by the oil bust.
Nordstrom has since opened two more stores, one in Ottawa, and one in Vancouver, where high-end sales are expected to do well until the housing bubble deflates.
And now Sears Canada is at it again. It has hired real estate firm CBRE to find other uses for the weakest stores. That’s what Brandon Stranzl, Executive Chairman of Sears Canada, told the Globe and Mail. Sears is also making efforts in-house to whittle down the number of its stores. “Everything and anything” was on the table, he said.
“Footprint rationalization” — that’s what Tom Balkos, senior VP at CBRE Retail in Canada, called it when he confirmed that the firm was working with Sears “on numerous real estate efforts.”
Meanwhile, Sears is trying to turn around what remains of its business. It’s trying to lure Millennials with redesigned stores and snazzier styles, which everyone is trying to do, but it will be hard because Millennials don’t like to buy at dying stores. They buy online.
And it shows. Sears Canada sales have been spiraling down, plunging 50% from about C$6 billion in 2005 to just over C$3 billion in 2015. In Q3, sales dropped another 5% year-over-year to C$792 million, generating a loss of C$53 million. Stranzl didn’t comment on holiday sales.
Sears Canada began the process of “footprint rationalization” in 2013, when it closed 8 locations, including its flagship location at the Toronto Eaton Centre, and sold the store leases. Some of those locations were picked up by Nordstrom. Until the new round of closings, the list has grown to at least 27 locations. And it has laid off thousands of people, including at its Toronto headquarters.
While the locations that were closed early in the process were eagerly picked up by other retailers — including Nordstrom — that is now no longer the case; and this, according to the Globe and Mail, is “putting pressure on landlords who already have a lot of empty retail space.”
The efforts of Sears to unload some of its locations come at the nick of time, as landlords are trying to digest the wave store closings in 2015. The Globe and Mail:
For example, Sears plans to shut its Sears home store at its Carrefour de l’Estrie mall in Sherbrooke, which also has an empty Target store, sources said. Landlord Ivanhoé Cambridge wouldn’t comment, but “there are different scenarios being looked at this time” for the Target space, Ivanhoé spokesman Sébastien Théberge said.
In short, “landlords no longer have compelling new retailers to fill so much space.” And just when retail space is getting difficult to fill, Sears is expanding its “footprint rationalization” to its home and outlet stores.
“This will not be looked at as a pleasant surprise in our industry,” explained Fred Waks, CEO of landlord Trinity Development Group. “Between the closures of Future Shop and downsizings and Staples and the like, this is not a great thing.”
In the US, even luxury retailers are sinking into the quagmire. Read… Tiffany Sings Brick-and-Mortar Blues
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