E-commerce not the only cause of death for Canadian malls

Malls were once a go-to shopping destination in Canada, but they now face an uncertain future because of a range of competition that extends beyond online shopping, say market researchers.

Big discount chains, standalone specialty shops and multi-purpose technology making malls less relevant

The rise of specialty retailers and large discount stores are luring shoppers away from mall department stores. Plus, millennials seem less likely than their parents to hop in the car and drive to a mall. (Stephanie Keith/Getty Images)

Malls were once a go-to shopping destination and a teenager's hangout of choice, but now face an uncertain future as some of their biggest tenants lay off employees, file for creditor protection or hang a "closed" sign in the window and leave for good.

Beleaguered retailers have been quick to blame online shopping for their decline. But retail experts say scapegoating e-commerce is an oversimplification of a multi-faceted problem: changing consumer tastes, demographic shifts, technological advances and other forces also add to their woes.

"There's a lot more going on than just e-commerce," said Armin Begic, director of the retail business group at market research firm NPD Group. "There's definitely a lot more going on under the surface."

Only 3.4% of retail sales are e-commerce

Retailers fret over e-commerce's growth, even though it actually constitutes a small percentage of shopping in Canada. In December 2017, e-commerce accounted for nearly $1.9 billion or 3.4 per cent of total retail sales in the country, according to Statistic Canada, suggesting annual growth of about four per cent from 2016.

While the online phenomenon has eaten into the bottom line of brick-and-mortar store chains, the rise of specialty retailers — such as standalone stores for brands such as Hunter boots and Canada Goose jackets — and discount stores, including Walmart and Dollarama, are also luring shoppers away from former Canadian mall stalwarts like Sears.

Smartphone cameras mean fewer consumers are buying traditional cameras, hitting photography-centric stores like Blacks Photography, which closed its 59 Canadian stores in 2015.

Meanwhile, technological advances have replaced or diminished consumer desire for certain products, said Begic. Higher-quality smartphone cameras, for example, have fewer consumers opting for traditional cameras, hitting photography-centric stores such as Blacks Photography hard. The chain closed its 59 Canadian stores in 2015.

Online trading, deliveries taking a cut

The popularity of the sharing economy — including online trading platforms like Bunz— has lessened the need for buying new items, he said, while an increase in delivery services has weakened demand for bricks-and-mortar space.

It's also possible that Canada simply has built up too much real estate devoted to retail, he suggested.

The country boasts 94 square metres of retail space for every 100 people, according to data from the Shopping Centre Council of Australia, far more than the United Kingdom — at 44 square metres — and Germany — at 22 square metres. With the closure of anchor tenants such as Sears Canada — as well as entire shopping centres — Canada could be approaching more appropriate levels for a country with a comparatively small population, he said.

The demographic makeup of the country is also playing a role. Millennials, the age cohort loosely defined as being born in the 1980s and '90s, are increasingly important to retailers —and those who aren't able to capture the attention of the tech-savvy generation tend to struggle.

Millennials aren't driving to malls

Begic highlights how millennials don't gravitate to car ownership as much as their parents did, making them less likely to drive to a mall and more likely to shop online or stick to local stores.

There's usually plenty of parking at a shopping mall, but one market researcher says millennials don't gravitate to car ownership as much as their parents did, making them less likely to drive to sprawling shopping centres. (Andrew Vaughan/Canadian Press)

They also prefer to spend more money on experiences such as travel over material things, he said.

Millennials will also ignore stores that don't cater to the experiences they want, said retail analyst Bruce Winder, part of a trend in consumer preferences that have forced mall planners and retailers to reinvent their spaces to attract shoppers.

Toronto's Yorkdale mall seems to have cracked the code for drawing in consumers with premium services, Winder suggested.

Special characters, events help

Yorkdale features high-end shops and corresponding services, like personal styling. It doubled down on food offerings — which draw in shoppers and keep them inside longer — bringing in a Jamie Oliver restaurant and more recently, a Cheesecake Factory. The mall also generates buzz with Instagram-worthy events like hosting Fashion Santa, who provides an opportunity to snap selfies with the swoon-worthy, hipster version of Old Saint Nick.

Compared to large urban malls, those in smaller cities are less able to attract luxury retailers, which may, in turn, draw in more shoppers. (Getty Images)

The strategy seems to be paying off, as Yorkdale leads Canada's malls in sales per square footage, according to the Retail Council of Canada.

However, the formula is unlikely to be duplicated at many Canadian malls.

Luxury retailers stick to larger cities

Those in smaller cities can ill-afford to adopt the same strategy as they're unlikely to attract the likes of Nordstrom or other luxury retailers, said Winder.

They've been left with a string of anchor tenant vacancies, notably from the abrupt departure of Target in 2015 and most recently, the failure of Sears Canada.

Anchor tenants are probably a fixture of the past, said Begic, but that doesn't mean malls will follow the same fate.

He anticipates malls in smaller cities will replace anchors with multiple, smaller tenants featuring the type of experiences their customers want.

Mixed-use malls 

Indigo Books & Music Inc., with its cafes, book clubs and children's toy area, is one example of a retailer that thinks beyond products to offer an in-store experience.

But there aren't many companies that are both flourishing and looking for mall space. Successful retailers, like Costco, Walmart, Winners and others, tend to stay away from traditional malls, Winder said.

Some real estate owners are pushing to turn malls into more mixed-use space in smaller malls as they turn to alternatives like restaurants, dentist offices, gyms and even condos to fill the void.