February was very eventful in the retail world. In a month that produces some of the lowest monthly retail sales, it was frenetic with retail activity. Some snapshots include: the merger of Rona and Lowes, the bankruptcy of Danier, the opening of Saks, and the reopening of H&M’s flagship store. Both Saks and H&M’s flagships are part of the Cadillac Fairview Toronto Eaton Centre. There are certainly a couple of our favourite retail themes being played out in these changes.
Bigger is Better. In the case of home improvement this is certainly true, especially when you go up against a giant like Home Depot. While Lowes is the better retailer (higher sales productivity/sales per store, more house brands, better looking store) when compared to Rona, they had to acknowledge the fact that Rona has a huge advantage from a floor-space point of view. Catching up to Home Depot was never going to happen through single store openings. We see this as an all-round “win-win-win”—the consumer gets a strong alternative choice to Home Depot, Lowes gets a significant Canadian operation bought with a dollar that is 30% higher than a few years ago, and Rona gets a ton of concessions about its brand and Quebec operation. While some will mourn the loss of a Canadian retailer, the reality is: To compete in an omnichannel world, a retailer needs a global point of view. It’s better to take on a fighting chance than succumb to a slow untimely demise in the retail sector.
Trading Up and Trading Down. The consumer now either wants the best and is willing to pay for it, or they want it at a price that makes them want to buy immediately. Fashion is the best place to really see this happen. H&M is arguably the retailer that exemplifies “fast fashion” and has slammed many mid-market retailers like Danier. Saks, on the other hand, plays in the luxury end of the market. Hence, two very different store openings. Saks at the Eaton Centre is a much stripped down version of your typical Saks store – under merchandised and quite underwhelming compared to its Fifth Avenue store in New York City, which is likely the Saks that most Canadians know. H&M, on the other hand, has created a massive store that covers a huge footprint. It grabs attention on the outside, with a two-storey digital screen showing among other things… David Beckham. On the inside, the store is really about five stores with a menswear department that will slam most of its competitors with style and price.
These trends are not targeted at killing off Canadian retailers per se, but that is exactly what is happening to many. It will be the stores like Aldo and Hudson’s Bay, that have a world view, or retailers that have such an intimate knowledge of their customers like Frank &Oak that will win. There are a lot of stores in the middle that are very vulnerable, not just ones in Canada – think Gap. Either they will evolve to find a compelling reason for the customer to shop, or they will struggle and ultimately fail in the retail battles.