COVID-19 is changing the face of Quebec retail at breakneck speed. Where do malls fit into this shopping revolution?
As more and more sales shift online, some observers have begun to question the future of shopping centres, especially after the first wave of the pandemic forced mall owners to shut their doors for several weeks this spring. Enclosed malls were hit particularly hard. Even Hudson’s Bay — a once-solid anchor tenant — fell on hard times, missing rent payments at some flagship locations.
Industry experts insist fears of a “mallpocalypse” are overblown, as long as shopping centres adapt to the new normal. Tomorrow’s malls, experts say, will be about much more than shopping — multi-use hubs that encompass recreation, food and entertainment, community gatherings and online order fulfillment.
“I still believe in malls,” Peter Simons, chief executive of the Quebec City-based clothing retailer that bears his family’s name, said in an interview. “Malls, in terms of discovering new things, have a lot of potential. It’s getting very expensive to break though all the noise on the web. Perhaps malls have to surprise you to make it worth going to.”
Vincent Chiara, CEO of developer Mach Group Inc. and owner of properties such as Laval’s Centre Duvernay, shares Simons’ faith in the shopping centre model — so much so that he’s on the lookout for additional assets.
“Brick and mortar shopping isn’t about to disappear, and neither are malls,” he said in an interview. “Malls are moving from being fashion centres to becoming service centres. We see more services to the people. We see pharmacies, clinics, and now supermarkets in malls. The model has changed a lot, and it will continue to change.”
Property owners and retailers all highlight the explosive growth in so-called “omnichannel” marketing, a trend — accelerated by the pandemic — that sees a growing number of consumers do their research online before setting out for the store. As a result, shoppers arrive at the retail location “already knowing exactly what they want,” as consulting firm Deloitte put it in a report in July.
Retail is moving toward a “totally omnichannel world” in which 25 to 30 per cent of sales occur in physical stores, another 25 to 30 per cent is booked online and the rest involves hybrid transactions such as “click and collect” orders, said Charles de Brabant, executive director of McGill University’s Bensadoun School of Retail Management.
To illustrate the changing dynamic, acronyms such as BOPIS (buy online, pick up in store) and BOPAC (buy online, pick up at centre) have made their way into the industry jargon.
As the second wave of the pandemic rages on, many retailers in Quebec and elsewhere are experiencing all-time records for online orders.
Walmart Canada said earlier this month e-commerce sales grew 177 per cent in the third quarter, led by grocery products. That followed a 215-per-cent jump in the second quarter. Walmart had earlier unveiled plans to invest $3.5 billion in Canada over the next five years to improve online and in-store service and keep pace in what Desjardins Capital Markets analyst Chris Li calls “the omnichannel arms race.”
An October poll by the Conseil québécois du commerce de détail, the province’s retail council, concluded 37 per cent of shoppers who purchased clothes last month did their buying online. For furniture and household appliances, the proportion was 38 per cent.
“This is at least triple what it was before the pandemic,” said Stéphane Drouin, head of the council. “Consumer habits are changing, and I believe the change is permanent.”
Because of COVID-19, many Quebecers began their holiday shopping earlier than normal. In preparation for Black Friday and Cyber Monday, retailers such as Best Buy Canada even encouraged shoppers to do all their buying online, offering free home delivery for orders of $35 and more.
“Shoppers are a little fearful,” said Drouin. We can already see that they’re going to do more online shopping this year. When they shop in person, they’ll often go during the week to avoid large crowds.”
For some retailers, holiday sales can represent up to 40 per cent of annual revenue, according to Marc Fortin, Quebec head of the Retail Council of Canada.
At this crucial time of the year, mall owners and retailers are enlisting every available technological tool to ease concerns about health and safety inside their properties.
Ivanhoé Cambridge, the Caisse de dépôt et placement du Québec’s real estate arm, recently introduced a web-based “virtual lineup management system” at its Canadian malls to provide “the safest possible shopping environment and to optimize the holiday experience.”
Shoppers can reserve a time slot from home before visiting a participating retailer by accessing the lineup system via the mall’s website. They then receive text-message updates on the progress of the lineup they signed up for, which allows them to minimize the time they actually spend inside the store.
Still, online transactions this holiday season will probably represent 42 per cent of all purchases across Canada — a significant jump from the 28 per cent last year, according to a Léger poll conducted for the Retail Council of Canada.
Like it or not, merchants “have to adopt digital tools in order to thrive in this kind of environment,” said Dax Dasilva, founder and CEO of Montreal-based software maker Lightspeed POS Inc., whose products allow retailers to create loyalty programs and develop analytical tools, among other features.
Retailers “have to be selling in new ways to continue to do business,” Dasilva said by telephone. “There’s no time to lose. Omnichannel was a nice to have pre-pandemic. Now it’s a must-have.”
Retailers that were already struggling found their weaknesses further exacerbated by the pandemic.
Once-iconic fashion chain Le Château Inc. filed for bankruptcy protection in October and is now liquidating assets, while chains such as Aldo Group Inc., DavidsTea Inc. and Reitmans Canada Ltd. all sought protection from creditors in a bid to renegotiate leases and emerge with a lower cost structure.
All retailers have been forced to rethink their business models. Those that could have invested massively in their online capabilities while reorganizing their supply chains. Mall owners too have seen the writing on the wall — drawing up plans to add density through housing and moving toward so-called “experiential” retail built around unique shops and services.
COVID-19 “has packed five or six years of digital transformation into a single year,” Andrew Lutfy, CEO of Montreal-based clothing retailer Groupe Dynamite Inc., said in a telephone interview. “We’re living the digital revolution. It’s a digital first world now.”
Earlier this month, Groupe Dynamite’s Garage fashion-store chain launched a new website that “elevates the brand esthetically, adds layers of functionality as well as integrating social media into the platform,” Lutfy said. Online sales have soared and are now posting “double-digit and sometimes triple-digit growth,” the CEO said.
Although Groupe Dynamite filed for creditor protection in September, Lutfy says he did not lay off any of his 4,300 employees. “It was more about pivoting the business model,” he said.
“In a world where cash flow and profitability matter, physical stores matter,” he said. “They’re not going away. The stores become hyper-important. They serve as showrooms to the brand.”
Lutfy is also a believer in hybrid malls that double as lifestyle centres — and he has a lot riding on that conviction.
As CEO of developer Carbonleo Real Estate, which built Brossard’s Quartier Dix30 into Canada’s second-largest mall, Lutfy is now attempting to replicate his success with Royalmount, the $7-billion shopping, office and entertainment complex planned for the intersection of Highway 40 and the Décarie Expressway.
Once completed, Royalmount will feature 4,500 housing units in 50-storey towers, a woodland, central park and 3.8-kilometre pedestrian path.
“Because of COVID, people will value deeper personal connections more than ever,” Lutfy said. “Green spaces and fresh air will become more important, as will mobility and independence.”
That shift in mindset is also playing out elsewhere in Quebec.
Cadillac Fairview recently announced plans to build a massive residential and commercial project along Highway 40 in Pointe-Claire — an investment of about $1 billion over up to 15 years — that would create a “downtown” satellite centre near the Fairview shopping centre. The mall already draws about eight million visitors a year, and is located close to a station of the Réseau Express Métropolitain commuter line currently under construction.
Mach also is keen to diversify its retail properties. Chiara says the developer is planning to build residences next to existing Mach-owned malls in locations such as Laval and Sherbrooke. A new project in Mirabel, meantime, will also include a supermarket.
“We’re pretty bullish about retail,” Chiara said. “Retail is not the real estate flavour of the month right now. Many institutions are disposing of their assets, so we think there’s an opportunity to reposition some of those malls, to give them new life. Adding some density is a solution. We have the capacity to partially change the profile of the centre, add mixed uses besides just retail.”
Chiara is a big fan of what he calls “real-life shopping experiences.” He readily cites U.S. outdoor clothing and equipment retailer Cabela’s, whose stores offer features such as refrigerated rooms, for customers to try on winter coats, or mini-swimming pools where would-be buyers can take canoes for a spin.
“You need stores that give people a reason to go out, a shopping experience that they can’t live online,” Chiara said. “People still love to get out there. Even if you’re not shopping, you’re window-shopping. That’s a form of entertainment.”
Over at Simons, the CEO says his team is considering setting up dedicated spaces inside the stores to showcase some Quebec-made artisanal products that are available on the retailer’s website.
“With these artisanal products, you can tell the story in words and pictures but there’s something about seeing them in a showroom environment that would really help the overall business,” said Simons. “That’s one instance where a store can work synergistically with the web.”
While foot traffic at Simons is down about 30 per cent across the chain, online transactions have grown exponentially since the start of the pandemic. They made up more than 50 per cent of sales in recent weeks, the CEO said.
“There are a bunch of initiatives under way to blend the stores and the digital business together to make it a profitable going concern in the long run,” Simons said. “Those are big, challenging questions on how we’re redefining retail. I believe stores still have an important role, but their ability to support cost structures is changing and intertwined with the web.”
Some property owners saw this digital surge as a cue to reduce their exposure to malls.
Ivanhoé Cambridge, which has been acquiring warehouses in recent years, was in the process of selling about one-third of its 25 Canadian shopping centres when COVID-19 hit.
CEO Nathalie Palladitcheff insists Ivanhoé Cambridge simply had too many malls — with a portfolio valued at more than $10 billion at the end of 2019 that included assets such as Montreal’s Eaton Centre, Place Montréal Trust and Quebec City’s Place Ste-Foy. Still, “we can’t imagine a world without shopping malls,” she said in September during an online discussion with the head of the Chamber of Commerce of Metropolitan Montreal.
Unidentified investors have approached Ivanhoé Cambridge about possibly transforming parts of its malls into warehouses to tap the growth in omnichannel sales, Palladitcheff said without being specific.
“Some of the malls we plan to keep are now in an active adaptation phase,” Palladitcheff said. “They will be better aligned with the needs of the community.”
Whatever comes next, expect the changes to be gradual.
Experts such as McGill’s de Brabant say malls of the future will include more upscale restaurants or food courts, and more services such as clinics and children’s play areas — with less reliance on traditional clothing retailers. Many properties will need years to be repurposed.
“The mall is going to become more of a food and recreation centre, a place for community gatherings,” said Luciano D’Iorio, managing director for Quebec at real estate firm Cushman & Wakefield. “It’ll be a place for shopping, for fulfillment, for logistics. Your local fashion or toy store will have a backspace that can accommodate online shopping and that last mile delivery. People want to touch. They want to see and be seen, and the mall also serves that purpose.”
The way de Brabant sees it, tomorrow’s shopping centres may look something like China’s Taikoo Hui, a sprawling property in the city of Guangzhou that includes an indoor mall, two ultramodern office towers, a five-star hotel, apartments and a cultural centre.
“Malls have to move away from a real estate asset mindset and move toward creating engagement centres,” said de Brabant, who spent more than a decade in Asia as a luxury-goods industry executive and consultant before being hired by McGill.
One such example can already be found in downtown Montreal, albeit on a smaller scale, following the recent modernization of the Eaton Centre. De Brabant credits Ivanhoé Cambridge for luring top-notch merchants such as Time Out Market, Decathlon and Uniqlo — the Japanese clothing retailer that opened its first Montreal store in November.
Recurring lineups at Uniqlo’s front doors show that “when you put together a retail offering that reflects what people want, customers will show up, despite what everyone says about malls,” he said. “This is what happens when you create the ‘wow’ factor.”