Canadian retailers are facing an uphill battle as they fight for market share in a competitive and changing industry. With continued store closures across Canada, retailers are urged to find ways to get in the game – or risk disappearing. Phil Lichtsztral, Partner at Richter Retail Consulting Services, discusses some of the causes and cures of the current retail landscape.
Understanding the challenges
“The number one challenge is the exponential growth of e-commerce. It has put domestic retailers at a disadvantage because they were late to get on board,” Lichtsztral states. The reason for the delay? Many businesses were concerned that online sales would cannibalize in-store sales; however, Lichtsztral emphasises that retailers that adopted e-commerce have generally seen an increase in same store growth.
“Traffic to regional malls is down across the board, and retailers that were late, or failed, to incorporate an online strategy have suffered twofold,” he says. “This is compounded by the lack of Canadian e-commerce expertise, leaving retailers ill-equipped to manage the complexities of starting and running an e-commerce business.” And it’s not just millennials that prefer the convenience and ease of online shopping, but baby boomers too, says Lichtsztral. “It’s a fundamental shift in consumer behavior for all demographics. It’s not a cycle – it’s a transformation.”
In addition, he says the quick entry and exit of Target in Canada had a major impact on the retail landscape. “When an anchor store like Target disappears it affects traffic to shopping locations, and developers are struggling to find replacements.” “Of course there’s this little company called Amazon,” he adds. “They are by far the biggest disruptor in the industry.” But it’s not all doom and gloom. Outlet retail has taken on strong growth as Canadians show affinity for discount shopping. In addition, retailers with legitimate brand equity are surviving and thriving, such as Harry Rosen, Aritzia and Canadian Tire. “Consumer loyalty is not dead, as long as retailers continue to provide exceptional customer experiences,” Lichtsztral reports.
Mitigating the pitfalls
Lichtsztral has seen successful retailers employ strategies that have helped them to grow sales and compete effectively. ”No one needs what you sell, they need how and why you sell it,” he says. “Top retailers are making customer experience and brand paramount – both on and offline. There’s no room for error anymore and a poor experience can be quickly amplified on social media.” Lichtsztral says a commitment to creating engaged and well-trained employees is the key to maintaining a culture of exceptional customer experience.Once considered a ‘value-add’, today’s consumer has come to expect great customer service as the norm.
E-commerce customer service is also a key component. “There is a subset of customer service around how stores deal with online order fulfilment, returns and exchanges at the store-level – it must be seamless,” Lichtsztral advises. Lichtsztral also urges retailers to employ a strategy on reaching consumers through the channels they prefer. “Historically, retail chains in Canada have had 100-200 brick and mortar stores, and now it’s closer to 75-100 and the rest is e-commerce. Retailers must have a game plan around holistic growth and marketing through all channels,” he says.
In addition to creating more potential revenue, it also gives retailers more leverage to access capital. It is critical to be savvy with inventory planning, execution and rationalisation. “You need to know what isn’t selling, how to get rid of it, and where profits are being generated. This may include the proper adoption of inventory management technology and adding senior expertise to your management team.” Lichtsztral suggests that even those retailers that are succeeding in the market might eventually consider a strategic partnership or an acquirer in order to take their business to the next level, gaining access to management expertise, capital and proven business models. Retailers that are in trouble will need to be restructured, which will likely require downsizing.
The future of retail
Lichtsztral predicts that there will be fewer, albeit stronger, retailers in Canada. He indicates that consolidation and dissolution will continue, but those that make it will have strong balance sheets, financial prowess and brand power. Unsurprisingly, online shopping will continue to grow, and as a result the brick and mortar realm will face an evolution. “Stores will have to think outside the box and focus on customer demand. They will need to create experiences beyond providing inventory,” shares Lichtsztral. He concludes, “Retailers will be forced to differentiate beyond price and create strategic vision, and will need a renewed focus on today’s customer.”
Phil Lichtsztral, CPA, CA is a Partner at Richter Retail Consulting Services Group, located in Montreal, QC.