If you think it’s bad now for the retail sector in Canada, you ain’t seen nothing yet — just wait until early 2021.
THIS MAY BE THE LAST HOLIDAY SEASON FOR MANY RETAILERS
For many, the day of reckoning could come following the holiday season.
“For many retailers, sadly, this will be their last holiday season. For those that were caught with outdated business models, weak balance sheets, less than exciting brands, short-term investors or near-sighted landlords the holiday will be their swan song,” said Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail.
“Some will have a hard time securing inventory for the all-important fourth quarter with cash in short supply and credit tapped out. Faced with stingy consumers, fading government subsidies and in some cases mounting deferred rent due, liabilities will exceed assets and they will enter CCAA (protection from creditors) and in many cases liquidate. And what a liquidation it will be. Clearance will be everywhere putting pressure on any remaining retailers as many wind down operations in the fall and use December to generate cash from inventory blow-outs.
“Some will live to fight again. Perhaps they will be bought by private equity and the truckloads of cash they are sitting on or scooped up by a landlord who wants to save them. Some could be acquired by one of the mega retailers looking to pick up a distressed brand. They will exist in a different form come the new year. Others will scrape by with e-commerce running full tilt and store traffic lower than last year but enough to pay the bills. They will regroup for holiday 2021 which will be a better time to be a retailer.”
Winder said Amazon will be Canada’s new holiday store and that it will give Canadian Tire, Walmart, and Costco a run for their money. There will be many late packages though, arriving after December 25 as delivery capacity will be no match for online demand, he added.
“Retailers will feel more significant hardship by the end of the year. With government programs expiring, including the provincial eviction moratorium, tenants will realize how weak their financial positions are. Sales will continue to be weak,” he said.
“Come Christmas holiday season, it is unlikely corporations will have company functions because of COVID. This will be detrimental to most hospitality tenants. Come the new year, retailers will liquidate any retail inventory and shut their doors because they can’t hold on anymore.”
EXPERT SAYS ‘CATASTROPHIC’ TREND IS UNFOLDING WITH STORE CLOSURES DUE TO COVID-19
Craig Patterson, Editor-In-Chief and Founder of Retail Insider, described the trend in store closures as “catastrophic”. He did a tally in the early part of the year that indicated more than 1,000 store locations would be closing this year in Canada. COVID-19 has simply accelerated the financial challenges retailers were already facing.
“Now we’re seeing a fairly substantial number of bankruptcy filings. That doesn’t necessarily mean that the retailers will be going away, but some will. Others are restructuring. I was told that most retailers in this country have taken on a bit of a restructuring in some form. It doesn’t mean that they’ve necessarily filed but they’re certainly looking at their operations,” said Patterson.
“Overall, what I’m thinking, having talked to brokers, landlords, retailers, we are starting to see closures in the summer here. At the same time, there are government supports which have helped keep businesses afloat at least for now.
“But when those supports go away, I think we’re going to see more closures. Into the fall, I think we’re going to see more of this. We’re going to see more bankruptcy filings. Some will be household name retailers. From there we’re going to see the December holiday shopping season which some retailers will look to hopefully recoup some losses and maybe keep operational. But depending on things like a second wave, we don’t know where that’s going to go. I think January of 2021 is going to be a blood bath. I think we’re going to see a substantial amount of store closures in Canada — probably the most we’ve seen in our lifetimes in such a short period of time.”
EXPERT SAYS 10 YEARS OF CHANGE HAS OCCURRED IN THE PAST 7 MONTHS DUE TO COVID-19
Michael Kehoe, Broker/Owner of Fairfield Commercial Real Estate in Calgary and a veteran of the industry, said retail is always changing and evolving, and we have seen 10 years of change in the past seven months in this time of accelerated disruption.
“Although we are in the thick of the transformation of the consumer real estate and the retail industry, we are still in the birth canal of this process and will be well into 2021. Many retailers and building owners are struggling to cope with the changes and an unknown future that will be either terrifying or exciting as we strategize for ‘what could be’ for the retail future in Canada,” he said.
“As the structures we have come to know and rely on seem to be crumbling before us, the future can either add to the fear or it can inspire the industry with new ideas and innovative possibilities. 2021 will see stores and restaurants continue to close and new ones will open. Building owners and their lenders will adapt and governments will need to get out of the way so as not to impede or delay the transformation of retail properties as they enter a new era to better serve the consumers in the markets where they are situated.
“Shopping centres and the concept of organized retail is the greatest entrepreneurial development in human history and both sides of the tenant, landlord equation will continue to be inspired by the challenges and the unknown trajectory of the future. The consumer real estate industry was built on relationships and the major adjustment in this intense time of change and unpredictability will be centred around the reorganization of relationships throughout the consumer real estate transactional chain.”
According to the most recent Canadian Federation of Independent Business survey, one in seven Canadian small businesses (158,000) are at risk of closing. The survey said 62 percent of small businesses are fully open; 37 percent are fully staffed; and only 26 percent are making normal sales.