Online spending, sometimes also labelled ‘home shopping,’ is consistently achieving double-digit growth and slowly taking a bigger share of overall retailing. In the first quarter of 2014 online sales in the US represented more than six per cent of all sales and 4.7 per cent in Canada. However, in product niches such as travel, books and media, the share is significantly higher. Fashion and lifestyle brands have entered the online retailing space including Everlane, Dollar Shave Club and Gilt.
There have always been non-bricks and mortar ways for consumers to access goods and services. If we go back far enough in history, producers such as farmers and guilds-people sold directly to consumers. Even just before the advent of the Internet, catalogue sales via telephone, wholesaling, direct-to-consumer clubs, door-to-door sales, TV shopping channels and the like had varying degrees of consumer acceptance.
Today, wholesale clubs (e.g. Costco) are basically considered retailers and all other alternative forms of selling have been eclipsed by the “omni-channel,” an approach to sales that seeks to provide the customer with a seamless shopping experience whether the customer is shopping online from a desktop or mobile device, by telephone or in a bricks and mortar store.
The non-store distribution channel is marked by low entry thresholds. Compared to store retailing that requires retail premises, inventory and cash flow to hire staff, non-store retail start-ups usually have to invest little to reach out to potential buyers of the goods and services they offer. Non-store retailing is therefore also used by established brick and mortar business retailers to increase market share.
In Canada, non-store retail sales amounted to $23.0 billion in 2014. This almost certainly under-represents the scale of online sales in this country, since it only counts sales to registered Canadian businesses which “predominantly” sell through non-store channels. The worrying statistics for mall owners are that non-store’s growth rate has averaged three times that of bricks and mortar retail. If we assume that on average, bricks and mortar retailers in Canada were achieving sales productivity of $300 per square foot, then non-store sales represented 76.7 million square feet of retail floor area in 2014. For reference, 76.7 million square feet of space is equivalent to the shopping centre inventories of Vancouver, Halifax, Ottawa and Victoria combined.
Colliers calculated that in 2012 non-store sales in Canada replaced 61.9 million square feet of retail floor area. Therefore, in only two years, the growth of non-store retail sales in Canada was the equivalent of 14.8 million square feet.
Despite the growth of non-store sales, malls in Canada are strong – especially in major markets. Bricks and mortar locations still provide experiential satisfaction and are increasing the place to find the best deals. Furthermore, retailers like Loblaw’s are offering ‘click and collect’ services which blend the selection and ease of online shopping with the convenience, price and speed of in-store shopping.
Finally, landlords who are seeing smaller and smaller CRU sizes as a result of retailers’ lack of on-site storage needs are, in many markets, diversifying into industrial districts where the retailers are bidding up the value of warehousing and logistical space for well-located fulfillment centres. Online retailing does not replace the retailer’s need for space, it just re-orients it.
James Smerdon is vice president and director of retail consulting at Colliers International in Vancouver.
