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‘Streetfront renaissance’ under way in Canada

By Susan Thorne

You're a multi-unit, expansion-oriented shopping center retailer in Canada, but no new regional mall developments are expected in the foreseeable future — in fact, the last such project was launched a decade ago. So where do you find good sites and strong customer markets for your new stores?

Many traditional mall retailers are striking out into alternative locations such as power centers, super-convenience centers and downtown Main Streets — to the benefit of those venues.

"It has meant a streetfront renaissance in the last five years," said Gordon Harris, a partner with Harris Hudema Consulting, Vancouver, and national chairman for public relations and community services for ICSC in Canada. "If you look at the major, high-profile main streets such as Toronto's Bloor Street or Robson in Vancouver, you'll see national retailers that are associated with regional malls, such as Roots [apparel], Banana Republic, Gap, La Senza [lingerie] and Payless Shoes," he said. "Five to 10 years ago you wouldn't have seen these names there." The transition to streetfront stores has its pros and cons, Harris pointed out: Main Street sites may perform less strongly than mall locations in bad weather, and retailers run the risk of competing with themselves when they open two stores in the same market area. But on the whole, he said he sees cannibalization as a minor difficulty and feels a Main Street presence can complement a retailer's mall operations. "Those streets are very different types of locations from shopping centers," he said.

Another strong alternative for mall retailers is the unenclosed power center. "Power centers are where all the action is," said Harley Oberfeld, retail chairman for ICSC Canada and president of Oberfeld Enterprises, a retail leasing consultancy with offices in Toronto and Montréal. "It's been very, very difficult for retailers because of limited opportunities in malls. They want to expand, they need to grow their businesses, yet rents in strong malls have increased because of supply and demand." Power centers on the other hand offer lower overhead per square foot, he noted, "and many retailers are saying, 'If I can pay half of the rent I pay on the street, it's worth giving it a shot.'"

Power centers are no longer just for big-box stores, Oberfeld said. Fashion retailers in particular are putting smaller outlets of 6,000 square feet to 10,000 square feet in those centers, often reinventing themselves with new formats to suit their new venues. "They size up [in store footage] and go downscale a little in price," he said.

Oberfeld said he believes this trend will be boosted by the arrival of Old Navy, which announced in December that it will expand into Canada in 2001. This will not only give power centers a boost — "almost like Wal-Mart did" — but will also stimulate the fashion element in those centers, Oberfeld noted.

Toronto-based Danier Leather Inc., purveyors of leather apparel and accessories, is one of the mall-bred retailers that has broadened its operations to power centers. President and CEO Jeffrey Wortsman stressed that his company is still expanding within shopping malls as well, upsizing or relocating many of its mall units. "We're still going into a number of malls. A multichannel approach is the key to retail today," he said. "Basically, opportunities are where the customers are — in power centers, on the Internet, in malls."

While his company chooses store sites on a market-by-market basis, assessing the quality of each location and the center's retail offerings, Wortsman said rent is definitely an important deciding factor. "You can often pay less rent per square foot in a power center than you would for the extras in a mall, where you might be charged $50 [Canadian] per square foot plus an additional $30 to $34 for extras," he said. Power centers also provide an opportunity to offer a wider selection of merchandise types and price points such as seconds, clearance items and specials, he pointed out.

Nonfashion retailers such as Black's Camera and Benix Housewares are increasingly joining apparel specialists in power centers, and Oberfeld predicts that the retail mix there will broaden further. "I think you will see more diversification over the next 24 months as traditional retailers look for avenues of growth," he said. "The power center is a venue that seems to be working for traditional mall-based retailers," he summed up.

Michael Kehoe, a broker and principal with Fairfield Commercial Real Estate, Calgary, Alberta, said the transition to power centers is also encouraged by power center developers, owners and managers. "They are differentiating their projects in the marketplace with fresh new retail and food-service tenants, catering to current demographic trends and consumer preferences," he said. Kehoe indicated that expansion-oriented merchants are also finding niche market potential in all-season resort settings, festival markets, airports and campus retailing venues, all of which are thriving in Canada. "E-commerce is another venue driving sales and market share for savvy retailers," he noted.

While out-of-mall experiences are becoming more common, the regional shopping center has great vitality in Canada and still offers the best location for many retailers. "There's still an amazing amount of interest in deals in enclosed malls," said John F. Marino, president of Snowcap Investments Ltd., retail leasing consultants, Toronto, and ICSC provincial director for Ontario. Apparel brands are expanding into a lot of regional centers, he said. For example, Esprit, which is currently relaunching its brand worldwide out of Hong Kong, and Guess? are looking for prime sites in fashion-oriented malls.

Tenant turnover is high at the moment, he said, sparked in some cases by rising rents in malls. "It's not just a question of whether the tenant is successful but whether the use is appropriate for that center," he pointed out. Corporate acquisitions are also giving some owners new access to mall locations.

Randy River, an apparel chain owned by New York City-based Venator Group, was recently purchased by International Clothiers, Toronto, for example. "With 70 stores, they got expansion in one swoop," Marino said. "There's a great deal of that." He also sees many of the same retailers expanding into both shopping centers and power centers simultaneously.

Despite the lack of new major malls, extension and refurbishment of existing stock is increasing the number of possible sites for retailers, Marino said, naming Chinook Centre (Calgary), Square One (Mississauga, Ontario), Scarborough Town Centre and Yorkdale Shopping Centre (Toronto) as current examples. The closing of several Eaton's stores has also opened up some new spaces at a time when they are needed, he said.

Retailers differ in their ability to expand out of the mall to take advantage of alternative sites. Harris pointed out that retailers of home furnishings and accessories, apparel, electronics and sporting goods have most successfully made the transition outside the mall. "In power centers, generally commodity-based large stores with high volume, relatively low margin and a fairly well-established name do best," he said. "You have to be a destination in power centers." The regional shopping center remains the best way for the service-based or small specialty retailer to reach large numbers of customers, said Harris.