Amid shuttering storefronts and business closures, the pandemic’s small business devastation has brought discount real estate opportunities for retailers with bulked-up balance sheets.
One of the companies picking up on this trend is Aritzia Inc. RBC analysts Irene Nattel, Alex Carette, and Martin Gravel found that the “current environment is likely to surface compelling real estate opportunities” for the company, expecting this expansion to drive stronger returns.
Aritzia Chief Executive Officer Brian Hill described in a broadcast interview on Friday how new leases will help bolster the company’s performance through 2021. “We’re continuing to open and sign lease deals. We’ve never seen real estate opportunities like we’ve seen right now,” he said.
International retailers may also take this opportunity to strengthen their presence in Canada. Industry news site Retail Insider reported that at least 13 international brands made forays into Canada in 2020 despite the ongoing pandemic.
One of those companies expanding to Canada is QuanU, a Chinese furniture retailer. After opening its first location in Toronto back in July, the retailer expects to open 10 to 15 locations in key retail locations in 2021, including in the city's downtown core, according to Retail Insider.
“There's gonna be industry consolidation here,” said Bruce Winder, the president of industry consultancy Bruce Winder Retail. “It's one of those situations where the strong are going to get stronger and bigger and the weak are either going to be bought up or probably liquidate.”
A wave of store closures left more inventory on the retail commercial real estate market. CBRE’s fall 2020 retail report found that the total national vacancy rate jumped by 100 basis points to 4.1 per cent from the end of 2019 to July 2020, one of the largest half-yearly increases on record. With an estimate of 181,000 businesses considering permanent closures in 2021 from the Canadian Federation of Independent Business, the market could see more leasable space at a lower price point.
A company expanding its retail footprint at a time when more consumers are turning to online shopping may raise some eyebrows, although Winder said there’s a benefit for the big players to expand their bricks-and-mortar presence. Winder also suggested these spaces could fill a crucial business function during the pandemic: distribution space through “dark stores.”
“Many stores are becoming last-mile pickup spots or last-mile shipping spots for merchandise,” Winder said. “It's called the ‘dark stores.’ And what they do is they actually leave stores dark and use the real estate not so much as a store for shoppers, but as a mini-warehouse to pick and pack inventory for that neighborhood.”
Amazon.com Inc. tested out this concept with its first online-only Whole Foods Market ‘dark store’ in Brooklyn, New York, that it opened last September.
Jennifer Marley, retail expert and partner at business advisory firm Sklar Wilton & Associates, said this desire for a larger footprint may reflect consumers’ need for an in-person retail experience, despite the recent surge in online shopping sparked by COVID-19 lockdowns.
“I think that consumers are tired of not being able to have that more interactive experience with being able to touch, feel, try on, look at different colors, be motivated by different styles,” she said.
Marley added these large retailers buying up real estate may be thinking ahead to how consumers will behave after the pandemic.
For CEOs like Brian Hill, it’s a strategy positioning Aritzia for stronger growth in the new normal.
“We’re actually not that worried, we’re actually really excited about what’s going to happen when we put this pandemic behind us.”