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Shopping Centers Today -> June 2003
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MISSING OUT?
Overall sales show uptick, but gains escape mall retailers
BY SUSAN THORNE
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| First-tier malls, such as Ivanhoe’s elegant Oakville (Ontario) Place, are not seeing a decline in rental income or tenant occupancy, owners say. |
Canada’s robust consumer spending in recent months has been a pleasant surprise for retailers, who enjoyed a 5.4 percent year-over-year sales increase in 2002 (excluding automobile sales). But the country’s malls are not celebrating. They have not shared in the bounty.
Retail sales totaled C$3 billion ($2.1 billion) last year, Statistics Canada data show. But malls showed negative sales productivity in the 12-month period ended Jan. 31, with sales per square foot dropping 0.5 percent compared with the previous 12 months, according to ICSC’s Monthly Canadian Mall Sales Report.
Why this discrepancy? The merchandise mix of shopping centers is a contributing factor, says L. Peter Sharpe, president and CEO of Toronto-based regional mall developer Cadillac Fairview Corp. “One reason why mall sales are flat,” he said, “is that they’re skewed toward fashion, while a lot of the sales strength at the moment is in home goods.”
Furniture, appliance and furnishings stores showed 11.4 percent growth in 2002, while total sales at clothing and shoe stores climbed just 2.1 percent for the year, according to the Mall Sales Report. Though such mall retailers as Williams-Sonoma and Pottery Barn accounted for some sales of home-related merchandise, “a lot of sales are in freestanding stores, which we didn’t share in,” Sharpe said.
In addition, department store retailers such as Sears Canada and the Hudson’s Bay Co. are increasingly taking their furniture offerings outside malls with the creation of freestanding big-box furniture and home stores, of which Sears Furniture and The Bay’s Home Outfitters are but two examples.
Home goods are only part of the story, however. A more direct challenge to the malls’ fashion base is the growing share of apparel sales taking place in the large-format stores of Canada’s 200-plus power centers, where value retail prevails. The total market share of such retailers is difficult to identify, but discount’s rise is illustrated in the history of the Winners apparel chain, which is owned by Framingham, Mass.-based TJX Cos. Winners has grown from five to 131 stores since 1990 and now accounts for 2.7 percent of all Canadian apparel sales (up from 1.8 percent in 2000), according to information from Trendex North America, a Toledo, Ohio-based marketing research company specializing in the Canadian market.
Today’s value-fashion sector presents a stronger competitive challenge to the mid-priced retailers typical of malls than earlier price slashers did, says Trendex President Randy Harris.
“When I was growing up, the apparel that discounters sold was, frankly, schlock,” he said. “Over the past 10 or 15 years, they’ve really improved the price and quality they offer, and the Canadian consumer has taken note of that fact.”
It is becoming harder to distinguish discount apparel from lower-mid-price offerings. In May 2002, for example, Zellers brought in the Mossimo clothing label that is also carried by Target in the United States (Target does not operate in Canada). The Bay, meanwhile, has contracted for several apparel brands of Federated Department Stores, including Clubroom, I.N.C. and Style & Co. These lines offer good value at a lower price point than mainstream, says John C. Williams, a partner at Toronto-based retail consulting firm J.C. Williams Group.
The power center lineup also includes more apparel tenants in the mid-price range typical of shopping center fashion retailers.
“One of the biggest threats to malls is the Marks Work Wearhouses of the world,” said Trendex’s Harris, referring to the 321-store, Calgary, Alberta-based casual clothing chain (recently acquired by Canadian Tire) that is increasingly locating in power centers. Harris also named men’s specialty clothier Moores, formerly a mall-only retailer, and warehouse operations like those of plus-size chain Pennington’s (a branch of Reitmans Canada) as examples of the broadening of above-discount apparel offerings in power centers.
For all this, spokesmen for leading Canadian regional mall corporations deny that there are any serious effects from the retail growth happening outside the malls.
“Clearly, the general public has become more price-oriented over the last several years, but we see no evidence of lower pricing in the malls,” Sharpe said. “We continue to enjoy growth in our rental rates and have had a vacancy rate of under 3 percent in our malls since the early 1990s.”
In fact, he says, the addition of full-price merchandise in power centers will eventually work to the advantage of enclosed malls. “The reality is that we’re no longer seeing the same value proposition [in power centers]. As the public becomes aware of that, they will prefer to be in the mall, where they have a variety of different offerings.”
Overall market share for Montréal-based Ivanhoe Cambridge’s 50 regional malls in their respective trade areas has held steady since 1994, while the average length of shopper visits to these malls has increased from 62 minutes in 1999 to 71 minutes in 2002, says René Tremblay, the company’s president and CEO. The demise of Kmart and Eaton’s gave his company the opportunity to add such big-format tenants as Chapters, Old Navy, Sport Chek, Staples, Winners and even Wal-Mart, a step that has improved traffic volume and sales, Tremblay says.
Both Tremblay, who serves as ICSC’s vice president for the Canadian Division, and Sharpe insist that the drop in mall sales productivity reflected in ICSC’s data is coming from smaller ‘B’ and ‘C’ shopping centers — those that are not leading players in their markets. Well-positioned neighborhood centers can thrive, Tremblay says, but mid-market malls that lack the critical mass to be destinations, particularly community projects anchored by a supermarket and/or a junior department store, are vulnerable in the new competitive environment; many such centers have been “demalled” in recent years.
Still, the regional mall players are taking pre-emptive action to avoid the effects of current trends. Ivanhoe Cambridge has moved to dispose of a number of ‘B’ and ‘C’ centers over the past several years, while Cadillac Fairview plans to cut the number of fashion retailers in its total mall mix, Sharpe says.
Other factors favor malls, Tremblay says. More than a decade has passed since any new regional mall has opened in Canada. Continuous improvement is helping to keep larger centers competitive, too. Tremblay notes that over half of the country’s regional and super-regional centers have been renovated, remerchandised or expanded within the past five years.
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