2018 to mean more challenges for Canadian retailers

Shifting shopping expectations driven by demographic changes, the growing move to online consumerism, and evolving technologieswill continue to shake up the Canadian retail scene in 2018, experts say.

Some in the Canadian retail sector may be forgiven if they seem glad to see the end of 2017, a year that brought upheaval and closures.The year was punctuated by the failure of Sears Canada. The department store chain sought creditor protection inJune and ultimately went into a liquidation process that will see it close about 190 stores, ending the jobs of about 15,000employees.

• Sears Canada demise named Canadian Press business story of 2017

Another retailer, the venerable Hudson's Bay Co., is also facing challenges in today's competitive environment. The company said in Juneit was cutting 2,000 jobs as it restructured.

Meanwhile,moves by retail giants Walmart and Amazon continued to shake the market inCanada.

'Wake-up call'

As retailers count their take from this year's holiday shopping season,Willy Kruh,global chair for KPMG's consumer and retail practice, says he expects a"relatively reasonable"increase of five per centin holiday sales, and healthy margins.

"I think the point is that Canadian retail needs a real wake-up call about what's coming in 2018 and in the future, based on what we are seeing today," Kruh told the CBC's Meegan Read in a recent interview.

Kruh saidthe most storeclosures on record in the U.S. was back in 2008, when they hit roughly 6,100 stores. However, this year, he said, that figure is projected to be between 8,500 and 9,000 stores.

"More than they've ever had in their history, and that is at a time when the [U.S.] economy is strong, consumer confidence is relatively high, [and] the wealth effect, stock market, [and] home prices are high," he said.

"So there is a lesson there, and there is something to be seen by that," he said."It's not a coincidence, and similar things are happening in Canada."

Retail casualties

Bruce Winder, co-founder and partner at Retail Advisors Network, said online shopping has grown to a point in the U.S.that it is creating casualties in traditional bricks-and-mortar retailers that are weak financially orstrategically, or thathave not adapted to the new normal. He saidthe same thing will happen in Canada in a few years, as we arebehind the U.S. and the U.K.

"This has been happening for a few years but we are now at a tipping point where larger, well-known chains are being impacted," he said, pointing toToys "R" US, Macy's andHBC.

Canadians will continue to shop more online through companies such as Amazon, which is increasing its infrastructure in Canadawith a new Calgary warehouse and hiring in Vancouver, he said.

That growth in dollars going into online shopping means lower profit margins for bricks-and-mortar stores who are forced to participate in it, Winder said.

He said no one will be able to catch Amazon, which scooped up the Whole Foods chain in 2017 in a move into the grocery sector, while Walmart has been one of the few big retailers to embraceonline shopping head on.

Kruhseesthree factors driving the retail scene, including:

• changing demographics.
• new technologies.
• geography and geopolitics.

The generation of millennialswill be the biggest demographic group within a few years, and Kruhsaid they seek an "experience" when they shop.Retailers willneed to understand the experience and entertainment quality that consumers wantand millennials, particularly need, whether they're goinginto a store or doing their shoppingonline, he said.

"If you don't grab them they're moving on and never coming back," he added.

Meanwhile, technological change in the retail sector will also see growth in the use ofartificial intelligence, the useAmazon's Alexa voice-control system and Echo smart speaker, robotics,drones, and virtual and augmented reality, Kruh said. He added that Walmart and Amazon are already testing new concepts for storesthat haven't even yet hit Canada.

Population growth inCanadais driven by immigration, making it critical that domestic retailersadapt to the shopping habits of new Canadians, Kruh's KPMG said in a recent forecast.At the same time, awave of populism and nationalism is affecting retailing in the U.S. andEuropewith spill-over effects inCanada, the firm said.

Among the winners

Canada continues to polarize in the retail industry, just as it has in income and wealth disparity, Winder said.

To that end, he sees retailer Dollaramaamong the winners for 2018 in the value segment. The company recently confirmed it will begin online sales of some popularitems in bulk within the next 13 months.

He also cited clothing company Canada Goose, which is a manufacturer with some traditional stores and an e-commerce division, as a strong brand withgood financing for growth from the success of itsinitial public offering.

Winder also sees Loblawsas winning at both the high andlow ends of the marketwith its different banners andcustomer groups. It will also benefit from its new partnership with Instacart and its strong loyalty program, he said.