Foreign retailers have flooded the Canadian market in recent years opening hundreds of new stores and the pressure may be too much for some long-established retail names in Canada.
“Years of complacency, and a failure to innovate, could spell the end of many Canadian retail brands,” said Craig Patterson, a retail analyst and the founder of the Retail Insider. “Foreign players could obliterate our local retailers.”
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Some chains are close to extinction. Montreal-based Jacob, a presence in virtually every major Canadian shopping centre, is under bankruptcy protection and all of their stores could be shuttered in the next month.
'What’s left are stores in secondary markets in frankly average malls' - Retail consultant Craig Patterson
Fellow Quebec-based fashion chain Le Chateau, which rose to prominence in the 1980s as a purveyor of clothes to club kids, is facing cash problems. The company’s stock has declined by 85 per cent in the last five years.
Other retailers may not be facing their creditors in court, but that move might not be too far behind. New players have had a particularly damaging effect on staples like Sears Canada, Indigo and Reitmans, three chains which face an uncertain future in this country.
"These retailers fear letting go of what made them very successful in the past," said Maureen Atkinson, a retail analyst at J.C. Williams Group. "And they haven't responded fast enough to changing market dynamics."
Sears, an American retailer with a history stretching back to the 19th century, entered the Canadian market in 1953 through a partnership with department store operator Simpson’s.
By the late 1990s, 93 per cent of Canadians lived within a 10-minute drive of a Sears outlet. It capitalized on the mismanagement of the Eaton’s chain and acquired the remaining pieces of Timothy Eaton’s ailing empire in 1999. Revenue subsequently topped out at an impressive $6.36 billion in 2000. That figure has since dropped to under $4 billion last year, as same-store sales have been falling.
The catalyst was likely when Bentonville, Ark.,-based Wal-Mart acquired Woolco, a chain of discount stores, in 1994 and began aggressively cutting prices, growing sales at a breakneck pace and competing directly with Sears for middle class shoppers.
Other challengers followed, including Home Depot and the iconic Hudson’s Bay, which stepped up their women’s fashion offerings.
In the face of declining sales, Sears Canada has ramped up efforts to divest prime urban retail locations — the flagship Toronto Eaton Centre, most notably — and retreated to the suburbs and rural areas, a move that could make the brand increasingly irrelevant to an urbanizing Canadian population, Patterson said.
Seattle-based Nordstrom will occupy many of the anchor locations Sears is leaving behind. Simons, too, of Quebec City, is in the midst of a national expansion and it could open in the space Sears formerly occupied at Toronto’s Yorkdale Shopping Centre, Patterson said.
The money from the sale of the leaseholds, some of which were former Eaton’s locations, has been funnelled back to shareholders in the form of generous special dividends, which means little of that money is being used to bolster existing operations.
"Sears is becoming an irrelevant brand,” said Patterson. "People keep going back to some of these horribly dowdy stores thinking 'there’s nothing here that I want.'"
Some poor merchandising choices — such as stocking lawnmowers in stores like Vancouver’s Pacific Centre — are likely behind some of the store’s sales problems. "They didn’t, and they don’t, understand their customer," he said.
In May, the U.S. parent put its controlling interest in Sears Canada up for sale but Patterson doubts the chain will find a buyer. "They’ve already sold off most of their grade A properties — like Yorkdale and Ottawa’s Rideau Centre — and what’s left are stores in secondary markets in frankly average malls."
"Frankly, Sears is worth more for its real estate then as an operating company," Atkinson added, but noted the size of chain, and the variety of formats it operates in, could make an outright acquisition tricky.
Booksellers are also facing an increasingly steep uphill battle. The emergence of e-books as a consumer staple has challenged sales at Indigo Books and Music Inc. and its other banners, Chapters and mall-based Coles. What's more, Amazon has been on a tear, offering cut-rate pricing and free shipping on many orders and greatly increasing the number of their product offerings.
Indigo, under the leadership of CEO Heather Reisman, has tried to match the might of Amazon to moderate success. Online sales, for example, were up 19.3 per cent to $41.5 million in the first quarter of 2014 up from $34.8 million a year ago. But online sales are just a sliver of Indigo’s total revenue pie. By comparison, total sales in the first quarter clocked in at $332.4 million.
But it's a different story at its brick-and-mortar locations where Indigo, much like electronics retailer Best Buy suffers from a phenomenon known as showrooming, whereby customers look at books in the store, only to turn around and purchase them online at a cheaper price.
Reisman has pinned turnaround hopes on selling more liftstyle items like throw pillows, candles and giftware and books have taken a backseat on the sales floors.
'They didn’t, and they don’t, understand their customer' - Retail consultant Craig Patterson
But investors are not nearly as optimistic about the new direction. The stock hit a high of $18 a share in 2010 but now hovers around the $10 mark. The shares have slumped because Indigo posted a rather hefty loss of $31 million in fiscal 2013 despite the launch of some of these new initiatives. Revenue, too, has declined by nearly $100 million in the last five years alone.
And Indigo, like Sears, has been shuttering stores, an ominous sign for any retailer. Three of the retailer’s most prominent locations in Toronto have closed over the last year.
Patterson said that Indigo could survive if only because of the personal drive of Reisman. "The passion and resources that I’m seeing from Ms. Reisman could save the company," he said, but he wouldn’t rule out the possibility of a dramatic downsizing of the number of books on offer in Indigo stores and the transformation of that business segment into an online-only effort.
The bookseller that put hundreds of small, independent bookstores out of business more than a decade ago might have trouble halting the march of time amid all the dramatic technological changes that are threatening all companies that sell a paper product.
Fashion retail is another tough gig, and Reitmans, the Montreal-based women’s fashion company established in 1926, has had a particularly tough go of it in recent years, seeing its stock lose 56 per cent in the past five years.
Like Sears, Reitmans has been facing dipping sales. The company, which operates its namesake banner, but also Smart Set, RW & Co, Pennington’s, Addition Elle and Thyme, has seen same-store sales declines at its 909 stores for the last six years.
The introduction of Ann Taylor, Loft and White House Black Market, three major American retailers of women’s fashion, has just added more competition to a market being saturated with cheap chic names like Forever 21, H&M and Zara.
"The fast fashion business is slamming these retailers that used to be, in their own way, innovative," Atkinson said.
And the once promising partnership of its Thyme division, which sells maternity wear, and Babies R Us, has fizzled out. All 169 of the in-store Thyme locations were removed from the baby retailer in June, less than two years after the company announced the initiative; sales were far below expectations.
“Reitmans and Le Chateau are going to be in a market with a lot of sharks, they’ll have to do a better job of defining their place in the marketplace or they won’t survive,” Patterson said.
“Reitmans still has brand loyalty but its market is shrinking, its customers are getting older. And if it doesn’t resonate with younger shoppers it’s just going to die out.”