The Canadian retail landscape is set to experience a dramatic change as American retailers set their sights on the lucrative Canadian market over the next five years, according to Colliers International’s 2011 Canadian Retail Report. The strength of the Canadian dollar coupled with an increase in retail spending per capita, which is now equal to the U.S., make Canada a valuable market for U.S. retailers as economic conditions continue to level off. Major brands rumoured or confirmed to enter the Canadian market include Target, Marshall’s, J.C. Penny, Nordstrom, J. Crew, Kohl’s and Dick’s Sporting Goods.
Looking back on the progression of American retailers on Canadian soil, Drew Keddy, VP Canada, Colliers International, notes that, “not since the acquisition of Woolco by Walmart in 1994 has the topic of retailer’s expansion into Canadian markets gained so much attention. Currently, the combination of exchange rate, higher sales per square foot and room for growth in retail square footage, all play a part in this recent wave of announcements.”
Compared to U.S. markets, Canada provides a wealth of untapped potential. While Americans have access to over 23 square feet of shopping centre space per capita, Canadians have only 14 square feet per capita of shopping centre space available. Larger municipalities with high growth rates, such as Surrey, British Columbia, Brampton, Ontario and Calgary, Alberta, are attractive markets for retailers and developers looking to build new retail in growing communities. These markets are especially attractive for destination retailers that need large trade area populations (see attached chart).
The surge of American retailers in the Canadian marketplace will be of benefit to consumers, expanding selection, improving convenience and creating a more competitive pricing environment, although retailers may not be as lucky. “Canadians can expect to see some of their most familiar national chain stores disappear as foreign retailers look for opportunities to set up shop north of the border,” says Keddy. “Some retailers will face a decreased market share as U.S. retailers gain prominence in Canada, while others will become prime targets for acquisition as American retailers look to move into the market quickly and easily, rather than on a store-by-store basis.”
According to Colliers, owners of existing retail properties where foreign interests are actively being explored are in an excellent competitive position provided they maintain an attractive environment for new retail players. “To maximize these potential opportunities, landlords should review their existing tenant mix to optimize clustering of complementary uses and consider potential conflicts in customer profile between proposed and existing retail anchors and sub-anchors,” says Jim Smerdon, Director Retail and Strategic Planning with Colliers International. “Landlords may also want to consider modest but high impact property upgrades designed to meet the needs of new retailers.”
Colliers also predicts a major shift in market dynamics for property developers, creating both challenges and opportunities. As Canadian markets increasingly become the target of foreign expansion efforts, developers will face new competition from U.S. developers but will also see opportunities for joint ventures with U.S. developer partners. One recent example of collaboration is the partnership announced by Canadian-based Riocan REIT and U.S.-based developer Tanger.