2013 – The Year of the Department Store
Looking at 2013 in the rear view mirror, the top retail stories reveal the incredible amount of activity that shaped and will continue to impact the retail industry in Canada into the future. From a pure monetary perspective, Sobey’s $5.8 billion acquisition of Safeway and Loblaws $12.4 billion swallowing of Shopper’s Drug Mart dominated the financial fronts. Throw in the $6 billion investment of Neiman Marcus by the Canada Pension Plan Investment Board and you had “the year of years” for retail investment. Although these
made for sensational headline news stories, the most activity in the retail industry in terms of movement was from the department store segment. Here is a list of some of the department store players and their evolution in 2013:

• Target successfully opens 124 stores in re-vamped former Zeller locations across Canada but performed well below expectations from consumers and sales

• Sears sells back 5 leases to Cadillac-Fairview for $400 million and closes operations in their key urban locations in Calgary, Vancouver, Toronto and Ottawa

• Nordstrom announces their Canadian market entry plan of 5 shopping centres including Yorkdale and Sherway Gardens in Toronto (with Toronto Eaton Centre to follow), Rideau Centre in Ottawa, Chinook Centre in Calgary and Pacific Centre in Vancouver. The full Canadian expansion plan calls for 8-10 full line luxury department stores and up to 20 Nordstrom Rack outlet stores

• Hudson’s Bay Company merges with US luxury department Saks Fifth Avenue with a $2.9 billion purchase. Plans call for 8 full line Saks stores and 25 Saks Off 5th discount outlets across Canada

• La Maison Simons, the 173 year old Quebec based department store, continues to build upon a national strategy, adding to its network of 8 Quebec locations and West Edmonton Mall (2012). Plans were announced for Park Royal in Vancouver, Rideau Centre in Ottawa, Promenades Gatineau in Gatineau, Quebec and Square One in Mississauga

• Holt Renfrew will expand their square footage across Canada by 40% by the end of 2015. Plans call for up to 10 off price outlets called hr2 and additional and expanded full line locations across Canada. Holt Renfrew’s merger with Montreal luxury retailer Ogilvy will create a new 220,00 square foot downtown store branded as “Ogilvy, part of the Holt Renfrew & Co. collection”

• Hudson’s Bay Company’s first outlet store opens in the upscale Toronto Premium Outlets centre in Halton Hills

All of this hyper activity in one year comes in a sector of the retail industry that has long been considered a “dinosaur”. Clearly this sets the stage for the next phase for the retail industry. With bricks and mortar foot traffic starting to show erosion and the majority of sales growth coming from e-commerce and m-commerce predominantly, the velocity and amount of activity in the department store sector raises serious questions. There is no doubt that the headline stories going forward will swirl around the luxury market size, consumer segmentation by department store and the amount of department store competition. Here are some of the questions that will need to be answered:

• Are there enough consumers to support 4 full line luxury department stores across Canada?

• Are there up to 25 pure outlet locations that can accommodate the off- price offerings from the competing luxury department stores?

• Is there enough off-price business to warrant the addition to the big box category dominated by Winners and Marshalls?

• Are Canadian consumers focused on luxury acquisition to the same degree as US consumers?

• Will Sears continue to “liquidate” their real estate value assets of long term leases to generate dividends for their shareholders?

• Will Macy’s or Kohl’s jump on the opportunity to grab key locations for a Canadian expansion from a troubled Sears corporation?

Sir Isaac Newton’s law of physics states that for “every action there is always an equal or opposite reaction.” If the same law is applied to retail, then the department store sector is in for a lot more future change.

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