Second Wave of Retail Bankruptcies Expected in Canada Amid COVID-19 Pandemic: Expert

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He now works on his own as a freelance writer and consultant in communications and media relations/training.

More By Author

L.L.Bean Continues Canadian Expansion with 1st Toronto Store [Photos]

The iconic US-based retailer is looking to expand into new Canadian markets coast-to-coast.

How Twin Brothers from Western Canada Founded 2 Rapidly-Growing Direct-to-Consumer Home Furnishings Brands

The entrepreneurs discuss building growth, taking risks, and where retail is going at an unprecedented time.

Cadillac Fairview Innovates with Virtual Food Court Experience Platform

The new CF Eats aims to help food vendors in the landlord’s malls grow revenue at a challenging time.

Quebec City’s 1st Suburban Mall Marks 60 Years with Plans for Mixed-Use Development

Les Galeries de la Canardière will see site densification that will include new residential and commercial space.
- Advertisement -

The Canadian retail industry can expect a second 2020 wave of retail bankruptcies on the heels of the wave we saw in January and February, says a national retail expert.

David Ian Gray, founder and strategist at DIG360 Consulting Ltd., said in an interview last week that will be the inevitable consequence of the devastating economic impact the COVID-19 (coronavirus) pandemic is having on retailers across the country.

“What I find ironic is that for a long time there’s this repeated phrase ‘retail apocalypse’ and it really wasn’t happening that way,” Gray said.

“There was an erosion of physical retail to online, but it wasn’t as if Amazon came in and then overnight retail was gone. In Canadian grocery, for example, the percentage of people buying online was so very small. Single digit,” he said.  “And now a real virus has an excellent chance to leave behind a true ‘retail apocalypse’.”

He said that he sees three phases: the current “Triage” phase (crisis management and reactive); an “Assessment” phase once we see the social restrictions end and stores re-open, where retailers take stock and reassess their own health and opportunities; and a longer term “Adapting” phase, where a return to strategy and business planning is based on a new ‘normal’.

 “The three biggest variables coming out of Triage will be firstly, the drastic drop in revenue (for most), secondly the handling of April and May payrolls, rents and taxes (with some of this being addressed by public policy and growing pressure on landlords to show their support), and thirdly, consumer sentiment and the near term consumer interest in your product.”

“It’s almost a mathematical relationship with balance sheets with cash reserves and the length of time that people are staying away from stores,” said Gray. “The most at-risk retailers are going to be independents and certainly we’re already seeing it in bars and restaurants. In services. We’re likely to see permanent closings of any that were already in a precarious position.

In last week’s interview, Gray said in the key concern now is the length of time of slashed revenue but in the longer run concerns will be for the whole system.  “For example, how are orders for fall being placed with disrupted supply? How even would one forecast fall demand right now? Many typical retail decisions are in question now.”

Gray noted the work of Supply Chain expert Gary Newbury and others.  He said the supply chain network for the retail industry will disrupted over the next few months or even more.

In a blog, Gray said retail logistics have been hit hard, not only by the unpredictability in demand, but more importantly by the foreign vacant factories and warehouses where workers have been told to isolate.

“Yes, they are getting back online now, but not uniformly and in a couple of months we will see shortages caused by the production and shipping gap,” he said.

“When we hit the summer, we’re probably going to see in some product categories with some stock challenges because China was shut down for a few weeks which was really the factories. There’s already stock for the now but that’s going to be where that flows into the next seasonal batch of goods that are coming through the pipeline,” he said.

In the short-term, he explained that Canada is at basic levels in Maslow’s hierarchy of needs versus wants.

“This is actually good for those supplying consumable household items, healthcare, grocery, and food at home. Not only because we are not dining out, but people are working at home and kids are at home beyond March break,” said Gray in the interview.

“We are going through a crisis with a focus on reacting day-to-day and minute-by-minute to COVID-19. We will generally turn to the tried and true brands we know. We will have little bandwidth for researching and discovering a wide range of new products and stores unless driven by a specific need.”

PEOPLE ARE FOCUSING THEIR BUYING ON NECESSITIES IN PHARMACIES AND GROCERY STORES. PHOTO: FOOD ALLERGY CANADA

“The back half of this period, boredom will be creeping in. That will cause some trying of new things – maybe new fitness of family activities in the home. Perhaps Peleton and other home-based fitness models will gain. And then we will look ahead to what’s next. Spring items, things we have put off.”

He questioned how many retailers are set up for a sudden volume boost. “Retailers should be ready for a sharp rebound in demand, but only for a moment, once we return from isolation. There may be signs of retail-therapy and consumer hedonism, but general exhaustion, lost jobs and household income, and concerns for savings that have been decimated by the stock markets, will put a long shadow over a consumer bounce-back,” added Gray.

By the fall and the longer term, he says that ‘a new normal’ will set in for the consumer. “Many will think about what is important and others will still be economically impacted. However, in the Adapting phase there will be opportunities for surviving retailers, as well as ongoing threats.”

“For example, the shift to online will be profound in grocery and home meal delivery. Those signing up for monthly in-home fitness may dampen motivation to return to fitness centres.  Other long-term ramifications will involve the travel sector which will likely take more time to return back to some degree of normalcy. Retailers and shopping centres that rely on tourism will take longer to rebound.”

PEOPLE ARE FOCUSING THEIR BUYING ON NECESSITIES IN PHARMACIES AND GROCERY STORES. PHOTO: SHUTTERSTOCK

Gray said that the biggest change might be a step-change bump in long-term online shopping replacing physical stores.  “I think for those who were reluctant or occasional, if they now shop online, say for groceries, once a week for the next month that’s going to be four experiences with online. If it works okay, well, they’ve gone through that learning curve. That’s the apocalyptic bump we had not yet seen,” he said.

Gray concluded, “it’s a mistake to try to predict all the changes now, but we can be sure there will be long run shifts in consumers behaviour. Retailers will need to monitor shifting competition and consumer needs. The key is to work internally on baking in resiliency and recovery with a sharp eye for shifts on the outside.” 

Gray says that he is working with other thought leaders, including a group by retail supply chain and last mile specialist Gary Newbury, to frame out a range of industry possibilities across the short, medium and longer term.  He believes now is the time for consultants to share and pool support, not lock down and try to own solutions.

LULULEMON STORE AT CF TORONTO EATON CENTRE. PHOTO: QUADRANGLE

In his blog, Gray last week wrote the following short-term impacts of this current retail crisis:

  1. A lack of consumer interest in categories other than ‘necessities’. We are not ‘self-actualizing’ much right now. Many households will be wondering about livelihoods. General fiscal stimuli may not flow through to real consumer spending;

  2. We are not consuming much messaging other than virus-related or Netflix binging. I would expect there is a drop in clicks of consumer social marketing and email. With less time for ‘noise’ likely the biggest brands and names are getting through right now;

  3. North American chains, such as Lululemon, Roots, Canada Goose, with stores in China or other markets hit first by COVID-19, were the first to feel pain. They closed first and took the first earnings hits. We can learn from their experiences and that of European retail;

  4. Domestically, malls are reducing hours and at some point will look at indefinite closures. A lead round of retailers have begun this already. Once a few more bellwether chains follow suit, the dominos will fall and we will see wide ranging closures;

  5. There will be more selected stock-outs. Irrational as they may be, consumers herding themselves into panic buying will happen again, as replenishments occur. Perhaps in new categories (flashlights? batteries?);

  6. Fast-food, restaurants, and bars are becoming very quiet, particularly adjacent to tourist districts. Now these are being asked to close in Quebec and it is expected many will close in the days ahead. My deepest concern lies with local, independent stores and especially restaurants and bars. I wonder how many will reopen?;

  7. While HQ workers will continue to be employed as they Work From Home (WFH), front-liners will be at risk. It is unclear how much retailers can support full-time sales associates, let alone part-timers – and for how long; and

  8. Financially, overall declines will sweep through the sector. There are some early and scary indicators from the Chinese experience. Keep in mind, numbers from China tend to be presenting in the best light. Those without the cash reserves will be hard-pressed to emerge unscathed. And retail shares will be caught in the crashing stock markets.

Gray also listed the following silver linings amidst the gloom:

  1. Leading retailers in grocery, pharmacy and any at the forefront of keeping households safe and sufficient during the worst of the outbreak will gain in the short run;

  2. Favourite restaurants that set up properly for home deliveries will likely see some wins. Grocery chains could include prepared meals in their delivery system;

  3. Will there be more time to explore new products and new brands if we have more time to spare during a prolonged self-isolation?;

  4. There will be some bounce back when shoppers get the ‘all clear’ signal. Not just for needed items put off, but perhaps a need for some feel-good retail therapy;

  5. There will be a big opportunity for retail leaders to build or rebuild systems to proactively identify and mitigate risks;

  6. We might develop a portfolio approach to global sourcing, as opposed to the historic linear approach based on economies and efficiencies. Perhaps even so far as to reboot some Canadian production; and

  7. There might be a return to retail basics: the energy and resources to adopt leading edge “customer experience” tools may be parked while retailers focus on just getting basics of the business back to normal;

  8. Those who have been investing in ecommerce should see the biggest payback; and

  9. Publicly traded retailers face real hurdles to making the right long-term investments and changes. Depleted stock prices might be exactly what is needed by retailers, such as the Nordstroms, to take their business private. Yet Montreal-based thought leader Carl Boutet convinced us that cash will be so precious that there will be higher order priorities for buybacks, leaving companies exposed for takeovers.

SUBSCRIBE to Retail Insider's Daily E-News for Free:

* indicates required
- Advertisement -

1 COMMENT

  1. I would disagree to some point. I am Amazon user and used few others online retailers. During this crisis, Amazon and bunch of other online retailers left me hanging without my monthly subscriptions, as they were allowing some occasional customers to empty their warehouses of essentials with large orders. Also, Amazon has stopped delivering packages to doors in high-rise buildings, and now forcing me to get out of self isolation to pickup my packages at security desk. I am sure I am not only customer that is disappointed how online retailers , especially Amazon started treating their long time customers during this crisis. I will be cancelling my prime membership on my next renewal and can’t wait to go back to traditional retail stores once they reopen .

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -

Latest articles

Brief: Mendocino Shuts All Stores, Okaïdi Canada Files

Other news: Gap closing most mall stores, co-working space replaces Shinola store, Star Bédard rebrands, Nobis gets charitable.

Grocery Supplier Fees Harm Food Manufacturers and Independent Grocers: Expert

Sylvain Charlebois says that a code of practice is required to save the industry, and if nothing is done the consumer will also suffer.

L.L.Bean Continues Canadian Expansion with 1st Toronto Store [Photos]

The iconic US-based retailer is looking to expand into new Canadian markets coast-to-coast.

How Twin Brothers from Western Canada Founded 2 Rapidly-Growing Direct-to-Consumer Home Furnishings Brands

The entrepreneurs discuss building growth, taking risks, and where retail is going at an unprecedented time.

Cadillac Fairview Innovates with Virtual Food Court Experience Platform

The new CF Eats aims to help food vendors in the landlord’s malls grow revenue at a challenging time.