Brick-and-Mortar Retailers are Under Siege

We wrote an article a few weeks ago where we highlighted a number of changes expected to occur in the retail industry.  The impetus for that article was a book by Doug Stephens called Re-engineering Retail.  Stephens, a self-described futurist, laid out a compelling argument on how retail is in the midst of radical change.  Ecommerce giants like Amazon and Alibaba have put considerable pressure on traditional retailers, and Stephens is predicting more pain ahead.

A few recent announcements highlight this impending change:

  • Toys R Us is now under bankruptcy protection in both Canada and the U.S.  But recently Babies “R” Us has been hammered from several angles. For one, e-commerce offerings such as Amazon.com Inc.’s Subscribe & Save model have proven popular with digital-savvy millennial parents.  While same-store sales fell 4% last quarter, there is more to the story than just top-line revenue problems.  Under a leveraged buy out in 2005, Toys R Us was saddled with $5 billion in debt.  The company would have been profitable, save for the crippling interest payments on the debt.
  • Riocan, Canada’s largest Real Estate Investment Trust, just announced they’ll be selling 100 properties with an expected price of $2 billion.  Specifically, the properties sold will be in secondary markets across Canada, with the intent that Riocan can focus exclusively on the larger markets (Edmonton, Calgary, Vancouver, Ottawa, Toronto and Montreal).  It’s reasonable to assume the largest owner of retail space in Canada has access to the best information available.  While there will undoubtedly be other REITs or institutional funds that buy the properties, Riocan is clearly announcing they do not see a bright future in those markets.
  • Sears Canada announced this week it is seeking court approval to close 74 full-line stores and 8 Sears Homes stores across Canada.  In Edmonton, this will include the locations at West Edmonton Mall, Southgate Mall and Kingsway Mall.  Undoubtedly a sad ending for loyal customers of the storied brand.

Notwithstanding the negative connotations surrounding that news, it’s important to note that other retailers are actually growing.

Canadian Tire, for example, has increased its year-over-year revenue and profit margin in the most recent quarter.  Admirably, Canadian Tire has also committed $50 million to provide greater access to sports for children with disabilities.  Canadian Tire is not just doing well as a business, they’re also doing good in the community.

Mastermind Toys, another success story, is also growing across Canada as they look to add 4 more stores to the 56 already in operation.

Indeed, the retail industry as a whole is a modern day example of Survival of the Fittest.  Some retailers struggle and some retailers excel.  Even with ecommerce threatening to take market share and erode profitability, many traditional retailers have adapted to the changing landscape and are thriving as a result.

 

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