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Canada Retail Outlook 2022: Which Stores Are At Risk?

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Canada Retail Outlook 2022: Which Stores Are At Risk?

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TORONTO – There could be upheaval for some Canadian retailers in the new year, with independent businesses in particular facing possible bankruptcy if the busy holiday shopping season proves to be aborted.

Retailers will take stock of their performance during the most important selling period of the year to assess their chances of survival amid supply chain issues that are not expected to be resolved anytime soon, analysts say . But whether 2022 will be better or worse than 2021 is open to debate.

“Our point is that a second perfect storm is coming after the holidays… we’ll see a number of bankruptcies in the new year, disproportionately self-employed,” said David Ian Gray, retail strategist and founder of the DIG360 retail consultancy.

2020 has been a ugly year for Canadian retailing, as a relentless string of bankruptcies and closures – accelerated by the pandemic – marked the demise of dozens of chains. Traditional fashion and clothing companies such as Le Chateau, Ann Taylor, Thyme Maternity and Addition Elle have been particularly decimated.

“What the pandemic did was it exposed all the problems all at once,” Gray said in a telephone interview with CTVNews.ca. The dressing solutions no longer worked.

Many “historic” multi-brand chains were faltering even before COVID-19. Some are now gone, while others have managed – under duress – to secure a stay of execution, Gray said.

In the end, 2021 turned out to be a lot less gloomy than some had anticipated; those who were able to overcome unprecedented upheaval in the first year of COVID-19 survived – and in some cases even thrived – in the second year.

As the pandemic enters its third year, however, a host of complicated circumstances could cause problems for some companies.

While a number of businesses have filed for bankruptcy protection and gained some breathing space, not everyone will be able to restructure appropriately.

“We don’t know half of the stories out there – they take place quite inconspicuously,” Gray said.

Signs of hiring are shown in this file photo dated Wednesday, May 5, 2021 (AP Photo / Keith Srakocic)

Ongoing staffing issues will also make it more difficult for stores looking to strengthen their customer experience. And uncertainties in the supply chain are expected to last until at least 2023. Companies that have received a lot of government aid or have been granted a stay on rent and loan interest payments will see these. helps disappear.

“For any sole proprietorship, where will the money come from when payment is required… for all the arrears? Gray asked.

“So it’s happening right now. But I think everyone is trying to hold on during the holidays because if you can get through the holidays you can get some good numbers. You might have a chance to fight. But I think it’s going to be a very uneven vacation. Some will do well. Many of them may not be.

Historically, recovering sales and revenue from January through June can be very difficult, Gray explained, and this will particularly affect independent retailers.

SURVIVE OR PROSPER?

Lisa Hutcheson, managing partner of global retail consulting firm JC Williams Group, expects large companies to cut back on the number of stores they operate, rather than shutting entire chains.

“Those stores that are right in the middle – and in the middle, which means they’re nothing special… they’re the ones that are most likely to leave,” Hutcheson said in a telephone interview.

“The most vulnerable are gone … those who survived are stronger.”

Those deemed “essential” and able to stay open during shutdowns, like Walmart, Costco, Best Buy and supermarkets, are ahead of the pack. While some of the gains have moderated, the previous windfall has allowed these companies to reinvest and gain traction, analysts say.

Canada Retail Outlook 2022: Which Stores Are At Risk?

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Masked shoppers crowd the aisles of a Costco in Burnaby, British Columbia on Sunday, December 13, 2020. THE CANADIAN PRESS / Jonathan Hayward

According to Hutcheson and Gray, many of the winners of the past two years, including sports and loungewear retailers, and those with a focused niche brand like Lululemon and Aritzia should continue to do well. Unlike some sluggish clothing companies, Aritzia has seen its share roughly double this year, while Lululemon’s has climbed about 20%.

Clothing and fashion companies have suffered a devastating blow during the pandemic as office workers working from home traded suits, ties and heels for sweatpants and comfort clothing. But it remains to be seen whether the expected gradual return to the office in 2022 will translate into better sales for fashion retailers.

“People are buying clothes again, they want to dress, but at the same time, they dress differently,” Hutcheson said, noting that retailers like Harry Rosen are advertising more casual and high-end clothing.

Multi-brand retailers, like department stores and generic clothing retailers that carry a variety of labels, are in a more difficult position, retail experts warn, unless they are excellent curators of niche brands or product categories.

“With a few clicks on your phone, you can find another option. But where you sell your own brand, like Lulu does, I think those stores have a big role to play, ”Gray said.

CHANGE FOR INDEPENDENT BUSINESSES

Independent businesses can also set themselves apart by stocking products that cannot be found elsewhere and offering many additional convenient services, Gray said. He pointed to a few current winners like independent bike and outdoor stores that have niche supplies at the right time and outperformed the chains.

Gray warned, however, that many independent retailers also sell products from foreign manufacturers, putting their businesses at risk given supply chain challenges, especially as suppliers prioritize deliveries to those who can pay. a supplement. He expects a big reshuffle in the first quarter of 2022.

“They sell products overseas, but they are the last in the pecking order. So I worry about them. But I think there is an interesting opportunity for a small fire to start – in a good way – under brands and products made in Canada, ”said Gray, adding that a lot of innovation is happening in the independent detail.

“We need them to have variety in our neighborhoods. They are an incredibly important source of our local community and they put a lot of money back into our community. “

Canada Retail Outlook 2022: Which Stores Are At Risk?

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Shoppers line up outside the Vaughan Mills Mall in Vaughan, Ontario on Sunday, November 29, 2020. THE CANADIAN PRESS / Cole Burston

BACK TO PHYSICAL STORE

With consumers tired of being locked away at home, Hutcheson expects more shoppers to flock to physical stores, with heightened expectations that retailers will provide a shopping “experience” – a trend that has begun. before the pandemic but was suspended.

“We see it as an opportunity to make it the year of the store, if you will,” she said, as customers seek some sort of normalcy.

“But they don’t want to go back to a boring store… and when I say ‘experience’… it has to be innovative. The addition of click and collect and the sidewalk is now an expectation, and no longer an innovation. “

With many millennials turning 40 this year, a new demographic is also emerging and entering purchasing power: Generation Z. Hutcheson expects many “pop-up” retailers to fill vacancies. through closures, as they attempt to generate buzz and excitement. , especially on social networks.

However, it is not clear whether retailers can deliver a compelling retail experience when staff and inventory are scarce.

Meanwhile, online shopping will continue to gain traction, although it remains second to in-store sales. They’re great for products like books and toys, Hutcheson says, but buyers still want the tactile experience of being able to touch and smell before they buy.

SUPPLY CHAIN ​​Ripple Effect

The retail network in its current state will also struggle to maintain significantly higher e-commerce volumes, Gray warned.

The compounding ripple effects of labor shortages and supply chain issues – from offshore factories to shipping to logistics to a customer’s door – mean it will take “well. in 2023 ”or even longer before the backlog subsides and a more reliable and stable environment emerges, Gray predicts.

Retail is a complex system that is quite destabilized, he said, explaining that small changes in one part of the system create bigger impacts in the rest of the chain. Many of the current issues date back to January and February 2020, when factories in Asia closed, Gray said. Now there is pressure from both ends of the supply chain.

He cites the example of a customer returning items online. While returns themselves are not new, the increase in order volume means a corresponding increase in returns – some products are returned to the warehouse, others are returned to a physical store, still others are returned to the supplier.

“All of this puts pressure back on the supply chain,” Gray said.

Since COVID-19, making predictions about the industry has been difficult and unreliable, he said, with too many variables at play at once.

“The pandemic was the catalyst for what was already a shaky system. ”


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