CALGARY — The continuous influx of U.S. retailers into Canada is expected to have a lasting impact on Canadian retailers and consumers, according to Colliers International’s 2013 Spring Retail Report released Wednesday.
The report said the entrance of U.S. retailers is already one of the drivers behind the retail building boom Canada has experienced in recent years, with an average of 11.5 million square feet of leasable shopping area added annually and tens of millions of square feet currently under construction.
This addition of shopping space to the national inventory, while very large, is not likely to lead to a market bubble, provided Canada continues to demonstrate strong economic and population growth. It will, however, undoubtedly put more pressure on local retailers by potentially driving shopping mall productivity levels downward, something that U.S. retailers are better adept to manage, it said.
“Canada and the U.S. have been in a virtual lockstep in terms of shopping centre floor area per capita ratio for the past decade. Even with the massive retail development, Canada has consistently had a smaller shopping area per capita, which contributed to a low vacancy rate and high shopping mall sales per square foot productivity,” said James Smerdon, vice-president and director of retail consulting with Colliers International. “We are encouraged to see that so far, new supply is being supported by growth in demand. Going forward, aggressive price discounting or excessive supply growth could be hard for some retailers and some regions to absorb.”
According to the Colliers report, the increasing pressure for Canadian retailers to compete on price as well as shopping experience to match the look and feel of their U.S. competitors is a key driver that continues to shape the Canadian shopping experience.
“We already see Canadian retailers increasingly adopting U.S.-style sales and promotions such as Black Friday and Cyber Monday sales, as well as other discount pricing strategies, to keep consumer spending at home,” said Smerdon. “There is no doubt that the retail competition on Canadian soil will continue to intensify in the coming years. The recent step by Canadian Tire and Loblaws to spinoff their real estate into REITs is further evidence that Canadian retailers realize that their greatest asset might not be what’s in the store, but the store itself.”
Net of automotive and gasoline sales, second half of 2012 retail sales totalled $161.81 billion, a marginal 0.45 per cent increase compared with the similar period in 2011. This was coupled with lower than expected December 2012 sales, which were lower than the 2011 volume by over $1.1 billion or 3.3 per cent, said Colliers.
Net of automotive and gasoline sales, the provinces of Saskatchewan (3.4 per cent), Alberta (3.2 per cent) and Newfoundland (2.2 per cent) experienced the highest year-over-year retail sales growth to date in 2013.
Another retail report by CBRE, How Global is the Business of Retail?, said Hong Kong is the world’s hottest retail market, attracting significantly more new entrants than any other city and Toronto is ranked as the 17th most targeted market for retail expansion in the world.
Outside of Toronto, new entrants have been targeting Vancouver, Calgary and Montreal as gateways into the Canadian market, said the report.
“Canada remains an attractive destination in a very competitive environment,” said Tom Balkos, senior vice-president and a Canadian director of CBRE Limited’s Retailer Services Group. “We spend far more time finding space for major brands than we do convincing them of the need to come to Canada. The fact that Canadian malls are 50 per cent more productive on average than those in the U.S. and that there is less competition in each retail category in Canada has been more than enough to entice retailers to explore Canadian options.