ON THE
EDGE A RETAIL BOOM IN CANADA
CONTENTS Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Economic State of Retail in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Hot Retail Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Canadian Consumers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Market Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Real Estate Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 About Buxton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2 ON THE EDGE: A RETAIL BOOM IN CANADA
IT’S STARTED: THE GREAT CANADIAN RETAIL BOOM Since 2007, Canada has added over 57 million square feet of leasable retail space, and international brands are moving there in droves. Consider these facts: > Canada is the fastest-growing nation in the G8. > Major Canadian markets are still considered underserved, and are attracting retail investment. > Canadian consumers are much less likely to shop online than their U.S. counterparts, and have more disposable income. > Canada has higher retail productivity per square foot than the U.S.
Use data strategically. Do your research. Know your options.
This report covers the current economic state of the Canadian retail market, population centers that are drawing retail investment, differences between Canadian and U.S. consumers, key barriers to entry, and important real estate strategies for success. Ultimately, success in the Canadian market requires a deep understanding of consumers and a solid real estate and marketing strategy. A REPORT BY BUXTON 3
THE ECONOMIC STATE OF RETAIL IN CANADA The Canadian retail market is on the edge of a major change, in full transformation mode. U.S. retailers have been driving a steady retail building boom in Canada.
Over 57 million square feet of shopping center leasable area has been added since 2007, or an average of almost 11.5 million square feet per year.
Canada has 39% less mall space than the U.S., resulting in relatively low vacancy rates. 4 ON THE EDGE: A RETAIL BOOM IN CANADA
RETAIL SPACE BY THE NUMBERS NUMBER OF SHOPPING CENTERS (2001–2012)
TOTAL SHOPPING CENTER SQ FT (2001–2012)
3000
550M
2750
500M
2500
450M
2250
400M
2000
350M
1750
300M
1500
01 02 03 04 05 06 07 08 09 10 11 12
250M
01 02 03 04 05 06 07 08 09 10 11 12 A REPORT BY BUXTON 5
U.S. RETAILERS When U.S. retailers come to Canada, they open fewer stores in each geographic region and their productivity jumps. The entrance of new retailers like Marshalls and J. Crew to the Canadian market, and expanding retailers like Wal-Mart and Simons, have contributed to stable or rising lease rates and stable or declining vacancy rates in regional malls in major markets across the country.
Nordstrom, which plans to open five stores in Canada in 2014, will open three of them in former Sears Canada locations.
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Marshalls is adding six new stores in Ontario.
In October 2013 Chico’s opens its first store under the White House|Black Market banner in Toronto. In 2014 Chico’s plans to continue to expand with all of its brands.
FOOD SERVICE & GROCERY
Following the recession, grocery retailers experienced a better recovery in 2012 than non-grocery retailers.
Ethnic supermarkets and high-end grocery retailers opened more stores in Canada than traditional grocery outlets.
Food service in Canada witnessed a slower than expected recovery, and cooking at home remains a better option for many Canadians.
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HOT RETAIL MARKETS The majority of Canadians live in a narrow Southern belt along the border with the United States.
ONE IN THREE Canadians lives in Ontario.
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NEARLY A QUARTER of Canadians live in Quebec.
POPULATION DENSITY
10,000–225,000 2,000–10,000 0–2,000 no population
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SUBURBAN LIVING
95%
67%
89%
Suburban development continues as every day more people locate to the outskirts of cities. Close to 95% of recent growth in Canada’s 33 metropolitan areas took place in the suburbs.
67% of Canadians, or 22.4 million people, live in suburban neighborhoods.
Toronto, Montreal and Edmonton lead the way for suburban living, with 89% of each city’s population living in neighborhoods typically characterized by low-density housing and a dependence on cars.
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METROPOLITAN DEVELOPMENT
GTA
The first destination for foreign retailers who wish to enter the Canadian market will likely be the Greater Toronto Area (GTA). The GTA is the most populous metropolitan area in Canada, with a population of approximately 5.7 million people. Within the city limits, the population is approximately 2.5 million. It is a vibrant, growing area that is rich in diverse cultures and tastes.
The Winnipeg market is receiving United States based retailers, as it is considered an underserved retail market. Southwest Winnipeg is seeing a considerable expansion of its retail inventory with the development of new power centers such as the Seasons of Tuxedo. The development has capacity for nearly 1.5 million square feet of retail space on just under 200 acres of land. Cabela’s has joined IKEA and is building a 77,000 square foot store on site to serve the growing residential population in the southwest Winnipeg. Franchises such as Famous Dave’s, Woody’s, Five Guys, Papa John’s, Taco Del Mar, Pizza Pizza, and Papa Murphy’s have all begun to make inroads into the Winnipeg market.
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EAST & WEST In the Eastern Provinces, only Newfoundland and Labrador consistently exceeded the national average in terms of 2012 vs. 2011 sales growth.
Economic growth continues to be strongest in Western Canada, particularly in Census Metropolitan Areas (CMA) located in Saskatchewan (Saskatoon and Regina) and Alberta (Calgary and Edmonton), as they continue to benefit from strong primary sector activity, leading sales growth in 2012. 12 ON THE EDGE: A RETAIL BOOM IN CANADA
In the Western Provinces, as predicted, both Alberta and Saskatchewan continued to be the national leaders in terms of retail sales growth in 2012. Saskatoon continues to lead the Canadian retail market.
MAJOR RETAIL CONSTRUCTION PROJECTS Vancouver Airport Luxury Outlet Mall Richmond, BC 460,000 SF
Seasons of Tuxedo Fashion Component Winnipeg, MB 1,150,000 SF
YBR/McArthurGlen Group
Fairweather Properties
Target Completion: Q4 2014
Target Completion: Q4 2014 The Stockyards Toronto, ON
Boyers Lake Park Halifax, NS
1,000,000 SF
Paracom Realty Corp. Target Completion: Q4 2014
570,000 SF
CPPIB, RioCan REIT, Trinity Development Group Target Completion: Q2 2014 StoneGate Common Calgary, AB 1,500,000 SF WAM Development Group Target Completion: Q4 2016
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CANADIAN CONSUMERS: CONFIDENCE & LOYALTY Canada is the fastest growing nation in all of the G8. Approximately 250,000 immigrants enter Canada every year.
US CA
Canadians aren’t struggling as much as U.S. shoppers: 64% of Canadian shoppers say they can afford the “basics and more,” compared to 55% of U.S. shoppers.
Nine out of 10 Canadians participate in loyalty programs, a figure that outpaces the U.S., China, Brazil, and India.
14 ON THE EDGE: A RETAIL BOOM IN CANADA
76%
76% of Canadians describe themselves as cost conscious.
CANADIAN CONSUMERS: ONLINE VS. IN-STORE
79%
of Canadians research online before making a purchase.
E-commerce retail sales in Canada are about 1% of total retail sales, while U.S. e-commerce sales are 8.6% of total.
75%
of Canadians shop primarily in-store.
Canadian and U.S. sentiments differ widely in regards to shopping preferences, with 80% of Canadian consumers option to shop in-store for luxury items, versus only 52% of U.S. consumers. U.S. SHOPPER PREFERENCE IN-STORE: 52%
ONLINE: 48%
CANADIAN SHOPPER PREFERENCE IN-STORE: 80%
ONLINE: 20%
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BARRIERS TO ENTRY Development does not happen as easily as in the U.S., due to the shortage of available land and the restrictions many Canadian cities put on commercial space and zoning regulations (industrial/office vs. retail).
NO VACANCY Because there is a smaller population than in the U.S., each store will need to draw from a larger geographic area.
A limited number of regional malls and low vacancy rates may present an obstacle for U.S. retailers that wish to expand into Canada.
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Financing options are more limited, zoning regulations are stricter and the Canadian tax structure can be an obstacle.
REAL ESTATE STRATEGY For U.S.-based companies considering expansion into Canada, or for those who have already started the move, a foundational understanding of how their traditional core customer translates across the border is key.
Customer intelligence is crucial when navigating this international marketplace.
Brick-and-mortar is king, but where do you start? Opening new stores in large concentrations of the right customer type is more important than ever. Your first locations might be obvious, but it’s what you do next that can make or break you.
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REAL ESTATE ENTRY STRATEGY The need to evaluate customer data and map your U.S. customer segments to Canadian customer segments is a necessary first step. Understand your Canadian potential, market by market. What’s the competitive landscape? What site characteristics make a successful Canadian location versus a successful U.S. location? 18 ON THE EDGE: A RETAIL BOOM IN CANADA
ABOUT BUXTON Buxton advises its clients on real estate and marketing strategies based on customer data. We help businesses understand who their customers are, where their current and potential customers are located, and the value each customer brings to the organization. To learn more about how customer analytics can support your real estate, growth and marketing strategies internationally, contact us today. Buxton has the capability to assist with growth strategies in North America, Asian markets, Europe and more.
888-2BUXTON
•
buxton@buxtonco.com
888-2BUXTON
•
buxton@buxtonco.com