Covid-19 Impact on Retail Stores in Canada

Will COVID-19 be the Catalyst for Canadian Retail Reinvention?

Empty storefronts lead to significant concerns, significant progress for Canadian retailers; Omnichannel and e-commerce key to the future of the industry

Few businesses have been spared from the wrath of COVID-19, but the combination of government lockdowns and substantially reduced foot traffic has meant an extended period of concern for Canadian retailers. With sales plummeting fast, many feared the worst for the industry and its many players.

According to Statistics Canada, retail sales plummeted to $33.9 billion in April 2020, an almost 30% decrease from February and a 26.4% decline from April 2019ⁱ. However, the warmer weather brought many customers back to retailers across the country, resulting in a bounceback to nearly $54 billion in sales during the month of Julyⁱⁱ.

According to Richter Canada retail consultant Philip Lichtsztral, not all retailers experienced the same impact.

Retailers of hard goods like furniture and electronics have seen minimal negative impact on sales – and in some cases have even seen steady increases in demand. Brands that had a strong omnichannel approachⁱⁱⁱ before the pandemic also benefitted from a swift increase in online sales.

“Store closures are obviously detrimental to top-line growth, but the retailers that have been successful have been the ones with a strong e-commerce offering,” says Lisa Langhart, Director, Global Banking – Wholesale and Consumer Goods, HSBC Bank USA, NA. “They’re the ones that have seen e-commerce sales go up 50-200% year-over-year during the pandemic.”

But soft goods retailers (like those in apparel and footwear), and those without a developed e-commerce presence, bore the brunt of the short-term impact. Minimal desire to visit bricks-and-mortar stores and income uncertainty caused many Canadians to think twice about discretionary spending, impacting sales.

Lichtsztral estimates that many soft goods retailers are seeing sales that remain 30-50% below the average year, with little change week to week at this stage in the pandemic.

Rapid response was key for Harry Rosen

According to Larry Rosen, CEO of menswear leader Harry Rosen Inc., COVID-19 was a “black swan event” for apparel retailers that immediately shifted priorities from driving sales to managing cash and relationships.

“We had to pivot our business and our focus. We started looking at our key relationships like our bankers and our landlords, and discussed how things were changing. Focusing on our cash position was critical.”

The realities of COVID-19 ultimately sped up trends that Rosen had expected to reshape the business over the coming three to five years.

“Things like more purchasing power from younger men and less purchasing influence from boomers, greater casualization in workplace attire and more online purchasing were all areas we were expecting to face in the next few years,” adds Rosen. “Thanks to COVID, they took place in a three-to-five-month period.”

For Rosen, the accelerated changes that have been brought on by COVID-19 are permanent, and retailers will need to adjust to this new reality.

Playing catchup in e-commerce

Most industry-watchers agree that Canadian retailers entered the pandemic woefully behind in e-commerce adoption. Few were meeting established industry benchmarks of bringing in 15-20% of topline income via e-commerce.

COVID-19 changed everything. CAPEX immediately shifted from physical assets to technical assets, with more spend going to ramping up support, logistics, planning and other elements of providing a robust e-commerce experience. Some retailers shifted product levels from physical stores to online sales to keep inventory in control and limit the impact of potential supply shortages.

“If there is any silver lining to this period, it’s that it caused both the rise of activity in and significant support for e-commerce to take its rightful share in topline sales with Canadian retailers,” says Lichtsztral.

Innovation critical to emerging from COVID-19 stronger

For Richter’s Lichtsztral, what’s next is clear: In all aspects, there is a fundamental redefining of the retail environment ahead.

“The fall will be a challenge, but retailers are thinking in a proactive way. Many are already planning earlier promotion events to stimulate sales, meaning less reliance on one to two events like Black Friday,” he says. “Expect promotional events to start as early as Canadian Thanksgiving, gradually building through the end of the year to capture share of wallet.”

Rosen says that as online sales become a greater part of the revenue mix, the need for bricks-and-mortar locations will decrease. But they’re unlikely to disappear completely.

“Stores are important. People will always want to touch things, try them on and get fitted. But we as retailers need to work harder to make the value of an in-store experience and the value of connecting online better,” he says.

“We have 18 stores now, and may only need 10 five years down the line,” he adds. “With less demand from retailers for space, rents will need to come down.”

Lichtsztral agrees.

“The days of the 200-store chain in Canada are long gone. Retailers will need 50-75 physical locations at most, and need those physical locations to be complemented and augmented by an aggressive and well-thought-out omnichannel strategy.”

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