Yes, our Dickens inspired headline is truly cringe-worthy1.
But it really does set up this week’s article quite nicely.
CNN and Business Insider have articles devoted entirely to sharing photos of empty and dilapidated shopping malls. There’s even a photographer on Instagram who shares his photojournalism of urban decay and has amassed over 250,000 followers.
In Canada, however, the bricks-and-mortar retail industry is not just surviving, it’s thriving. According to recent research, Canadian consumers still prefer physical stores over the e-commerce alternative. Anecdotally, there always seems to be a full parking lot and crowded stores every time we go to a mall in Edmonton. In shows in the stats too, as the retail vacancy rates in Edmonton is only 3.2%2.
Circling back to Dickens, it’s amazing that he wrote these words 160 years ago, yet they still seem so relevant:
“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way—in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
E-Commerce is a shark and there’s blood in the water
Back to our neighbours to the south, it’s easy to see why there’s been such a large drop in traditional retail sales. After all, E-commerce sales has been increasing consistently, with online sales rising 15% just last year alone. In the US, E-Commerce sales now comprise 14.3% of total retail sales.
A decline in market share translates into less revenue. And for in an industry that already operates with very low margins, many traditional retailers have simply been unable to adapt and were forced into bankruptcy. This includes Sears, which at one point was once the largest retailer in the US. It also includes other venerable names like Toys R Us, RadioShack, American Apparel, and dozens more.
CB Insights sums it up as follows:
“With the shift to e-commerce, fewer and fewer customers are shopping at big-box physical retailers and malls.”
Is Canada different?
There are seemingly insurmountable problems in tracking e-commerce sales at any meaningful level. As explained by Stats Canada: “Monthly estimates of on-line retail sales are currently only available at the national, retail sector level. This is due to the fact that most retailers are either unable to report their on-line sales by province or have very different methods of allocating on-line sales to their establishments across Canada.” This data only goes back a few years too, so it’s difficult estimating the overall impact. That said, Canada’s e-commerce market share is estimated to be around 7.3% (1/2 the US).
Canada does not have nearly the population density as the US. Recent statistics suggest there are roughly 4 people / km in Canada, whereas the US has 35 people / km3. With roughly 10x the density, the US is able to efficiently service more people with in a smaller geographical area.
That’s the primary argument anyways: Canadians shop more in physical stores because e-tailers have not been able to penetrate the market. Yet.
While many customers in Canada have shopped online, it’s only recently that these online companies established more elaborate infrastructure across the county. For example, Amazon recently announced plans to build a 1 million square foot distribution facility immediately outside the City of Edmonton.
In a very short period of time, Amazon has built in impressive distribution network across Canada. If you read what Jeff Bezos has to say on his leadership style, he is routinely working on plans 2 – 3 years in advance. And just this week, Amazon announced they are going to be making a larger push into the grocery market.
Amazon vs Walmart
It wasn’t long ago that Walmart struck fear into the hearts of retailers all over Canada. When Walmart purchased Woolco Canada in 1994, they embarked upon an aggressive expansion that continues to this day. In the Edmonton area alone there are 19 Walmart locations, most of which include grocery.
Fast forward to 2019 and Amazon is poised to be another large threat to traditional retailers. With a small work force and token re-investment back into the local economy, Amazon is hoping to take a large piece of the retail pie.
To be fair, Walmart doesn’t represent bricks-and-mortar retailers any more than Amazon represents e-commerce businesses. It’s just that they are the two biggest players in their respective fields. What either one of those companies do will have effects that reverberate throughout the market.
What Might Happen?
If you humour us for a moment, let’s make two assumptions:
1. Edmonton’s e-commerce market share is the roughly proportionate to Canada as a whole;
2. Consumers in Edmonton (and Canada in general) will eventually spend a similar amount on online shopping as consumers in the US.
If these assumptions comes to fruition, it would amount to a doubling of e-ecommerce sales in Edmonton. If this happens, we would expect there to be some real pain for bricks-and-mortars retailers in the future.
We’ll leave you with one more thing to digest: there’s a brand new mall in Calgary that’s virtually empty.
1 Some may say that bastardizing a pop culture reference for a headline isn’t art. Those same cynics might go so far as to suggest it’s downright thievery. So when we wrote an entire article about a road in south Edmonton, we weren’t being overly poetic when we re-arranged a Jay Z song title as the headline. Less Edgar Allan, more Abagnale. We’re admittedly much more guilty of awful metaphors, but the jury is still out. All we know is we that we can’t stop, won’t stop.
2 Source: CoStar
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Chad GriffithsPartner, SIOR, CCIM
Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer with NAI Canada-wide since 2013.
Ryan BrownPartner, BCom, SIOR
Ryan is a partner with NAI Commercial Real Estate in Edmonton and is currently ranked nationally as one of NAI's top advisors. Having executed in excess of $100 Million worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and long-term practicality.
Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.
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