Don’t be surprised if plenty of Canadians take the philosophy of “Treat Yourself” to a whole new level through the rest of 2021.
Throughout the pandemic, when most of us hunkered down and focused our spending on necessities instead of vacations, experiences and luxury shopping, Canadians put together a savings war chest of about $212 billion, according to an estimate from Borrowell. That's roughly $184 billion higher than pre-COVID levels.
And now, as shopping malls, boutiques, restaurants and high streets start approaching normalcy as vaccinations hopefully start to get a leg up on the pandemic and the Delta wave, we can expect much of that cash to start flooding back into the retail economy in what people are calling "revenge spending”.
Spending with a vengeance
Canadians who were fortunate enough to remain gainfully employed during this crisis were able to save more money than normal with fewer places to go and less space in their lives for big ticket purchases, experiential shopping and splurging.
But now that demand for shopping, recreation and travelling is ready to be unleashed on the market as manyseek a sense of normalcy, control and retail therapy. As we stand on the eve of a revenge spending phenomenon in Canada, it’s also important to recognize that we’ll be stepping back into a retail world that looks, feels and functions differently than the pre-pandemic shopping culture — and that’s a good thing, for the most part.
Retail is evolving, not dying
The pandemic accelerated our shift from shopping at physical stores to online buying — and that’s a transformation that will continue to happen. Online retail will account for 13.4% of all retail this year, up from 6.9% in 2019, according to data from eMarketer. Overall, Canada’s total retail sector will surge this year, growing by 6.4% after falling back by nearly 5% during the 2020 pandemic year, the Canada E-commerce Forecast 2021 showed.
However, the decline in store traffic will start to reverse by the fall of 2021and retailers will need to adjust and strengthen their offerings as shoppers start coming back in large numbers.The number of retail tenants offering an e-commerce platform doubled during the pandemic, yet 77% of tenants still say profitability is highest when customers shop in-person, according to Colliers’ new Retail Recovery report.
Data shows increasing traffic, changing appetites
During the pandemic, many landlords modified leases with their retail tenants to help keep retailers in business. Many of these deals resulted in revised lease rates based on factors like sales per square foot. That means we have more data available to us than before about shopping habits and store performance.
We're already seeing signs of recovery. For example, Lansdowne Shopping Centre in Richmond B.C., a Colliers-managed property, is seeing foot traffic now surpassing 2019 levels, while sales per square foot are now climbing.
Meanwhile, in Fort Erie, Ontario, it had been challenging to write deals at a shopping in the two or three years leading up to the pandemic, but we've now seen three or four deals in the last half year, mainly due to the mass exodus from urban by people who never thought they would leave Toronto. The pandemic and side effects of remote working are pushing urban dwellers into suburban areas and smaller cities, bringing their retail and spending preferences with them.
The customer journey is more important than ever
It’s important for retailers to know and understand their customers better, while aligning to new customer service needs that online retail simply can't fulfill. Customers are looking for more seamless in-store experiences to meet their “revenge spending” needs.
The customer journey has changed. It’s no longer simply about visiting a store; it now involves an overall brand experience through the omnichannel platform. Having done their research online, customers arrive at the store already knowing exactly what they want (in many cases, knowing more about a product’s features and benefits than the sales associate).
The role of the in-store sales associate must be elevated to someone fully versed in the product they are selling, who can understand and find a solution for the customer’s needs.
During the pandemic, retailers had to extend themselves and find innovative ways to support the customer journey. For a time, that journey went online, but as revenge spending takes off, customers will increasingly be turning their attention to items that require interaction, feeling, touching and trying on.
Additionally, high-tech shopping will help set the winners apart in the retail business. New augmented reality such as virtual, or smart, mirrors and artificial intelligence such as personalized item suggestions and tailored sale notifications should emerge as priorities for retailers.
We can expect to see more appointment-driven shopping, personal shopping services and specialized one-on-one interactions.These shifts will be born out of our need for safety while also emerging as a byproduct of buying more expensive products that require an elevated experience.
High service-fashion, grocery-anchored poised to thrive
For some retailers, the pandemic has been crippling. Since February 2020 until April 2021, 16,600 retail businesses closed in Canada, according to StatsCan.
In some cases, retailers that failed in 2020 had already been at risk and the pandemic only accelerated the demise of locations, and even brands, altogether. In particular, retailers that failed to add value through experiential shopping or that lagged behind in online, or Estore, channels, felt the most pain. Those lessons are being learned. For instance, prior to the pandemic, 27% of retailers surveyed by Colliers had an online sales platform. Now, 58% of retail tenants have, or are developing, an online store.
Other segments have strengthened. While the dust continues to settle on the pandemic, we can expect large, open-air shopping with grocery anchors to continue to thrive, stoked by their appeal to consumers that intensified during lockdowns. Our data shows that enclosed shopping with a grocery store earned an average of 7% more foot traffic than those without one. These tend to be easy to get to, provide ample parking and offer a one-stop shop for a combination of essentials and want-to-have products.
Meanwhile, we can expect a boom in business at enclosed shopping that specialize in experiential shopping and elevated fashion or trend brands that people were not purchasing during the pandemic. These will be the of the "Treat Yourself" shopping experience of 2021.
The Retail Recovery report shows that retail is stabilizing and rebounding. In 2020, Colliers’ retail brokerage specialists saw completed retail deals fall by about 25% when compared to pre-pandemic figures from 2019. This year, brokers are seeing completed deals on track to match, or possibly surpass, all of 2019.
Overall, look for tenant mixes at your shopping to be a little less fast fashion-oriented, as people will maintain their habit of shopping online for lesser priced items. But retailers that focus on specialized, experiential, higher-end products will start to see much of the revenge cash hitting their tills.
Alanna is National Director of Retail Leasing with Colliers Canada Real Estate Management Services.