The retail sector is both a punching bag and litmus test in any economic recession. When the scent of bad news hits the air, a chorus of consumers’ wallets snapping shut as they rein in their spending can be heard across the land. After that comes the hair-splitting of statistical data measuring. If consumer spending goes up or down even half a percentage point, first it is reported in the media then a ripple effect spreads out, affecting many industries and markets.
Since we’re part of the media, let me do my duty and report on these statistics: retail sales rose 0.7 per cent in January, and retail sales in volume terms increased 0.1 per cent, according to Statistics Canada. Stores selling home improvement products were large contributors to the gain in January, no doubt a response to the Home Improvement Tax Credit deadline. Interestingly, retail sales volumes have been following an upward trend since the beginning of 2009.
So what does this mean? Are we out of the woods yet? Have we dodged economic Armageddon? I don’t know, but let’s listen to what a couple of retail real estate insiders think.
“There is no doubt that these are difficult times for retailers and for retail real estate property owners,” said Michael P. Kercheval, president and CEO of the International Council of Shopping Centers, Inc. (ICSC), during his address to members at the ICSC 2009 Canadian Convention this past September. “However, times like these also hold tremendous opportunity to reinvigorate consumerism, reposition business cooperation and restore confidence.”
Sounding even more confident, Peter Sharpe, ICSC chairman and CEO of Cadillac Fairview Corporation Limited, delivered his speech at the same convention by leading with this: “First and foremost, I’m happy to report that the global shopping center industry, particularly in Canada remains stable and is showing its resiliency.”
As Sharpe points out, since the U.S. housing bubble burst, the whole retail real estate industry has had to make adjustments. A transition from aggressive development and redevelopment to a focus on prudently managing existing assets is already occurring. “A key to turning the corner will be our ability to adapt to capital and consumer spending constraints which have become a worldwide phenomenon,” he says.
“For those accustomed to an industry focused exclusively on development and with almost limitless capacity to obtain financing for it, the times have changed. No doubt, we are in the midst of a period of adjustment,” says Sharpe. “But for those landlords that are multidisciplinary, and have the agility to adapt to these new circumstances, there are significant opportunities. For now, that opportunity may focus on improving leasing strategies and repositioning centres rather than building new ones in the coming years.”
Clairvoyance aside, Sharpe is certainly right about one thing: retailers will not stop expanding, but their approach to expansion may change as a result of what they are learning from this recession.
In any event, the ripple effect of the recession and consumer spending is still working its way through the retail real estate system, and we will be seeing its aftermath, both good and bad, for years to come. As Kercheval puts it, “Historically, every downturn in our industry has fostered creativity and generated new ways to merchandise, retail and develop. The enclosed mall, power centres, lifestyle centres, town centre projects and even internet retailing all had their genesis in response to economic crises within our industry. I have no doubt that this crisis will generate its own innovations to the enduring success of our industry.”
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