Why This Crisis Means Retail Is Hitting A Tipping Point

The retail industry may have reached a 'tipping point' with the coronavirus pandemic, allowing e-commerce to emerge as a logical successor to the traditional brick-and-mortar model, an expert said Thursday.

“This is a transformational moment for retail,” Retail Insider founder and Editor Craig Patterson said. ”Just how it all plays out should be fun to watch. And by fun, I mean terrifying.”

Patterson, who is also a consultant for  The Retail Council of Canada, said the pandemic is just the latest setback in ‘a perfect storm’ of problems for traditional retail.

Even before we had heard the word "coronavirus," retail was experiencing a serious revamping. According to Statistics Canada, 2019 sales growth was the lowest since 2009, when a decline of 2.9% was recorded during that economic crisis.

Things got worse this January, when Patterson predicted that 700 Canadian stores, with names like Holt Renfrew, Pier 1 and Lowe’s/Rona, would shut down some, if not all, of their Canadian stores.

“I think that number (700) was low actually,” Patterson said.

Still, there is some hope in successful malls that have moved to profitable, high-end boutique shops, and announced plans to reinvent themselves with multipurpose residences and entertainment properties.

“Despite the extensive list of store closings, many landlords, brokers, and retailers have high expectations for this year, as innovative concepts expand while some outdated brands shutter stores,” wrote Patterson in a January Retail Insider article.

Then the coronavirus reared its head and retail hit the pause button. Bars closed; restaurants reverted to takeout. Malls and big chain stores reduced their hours, with iconic outlets like Hudson's Bay and Nordstrom shutting their doors temporarily.

For how long? No one knows.

“The length of the lockdown is one key,” Confidant Asset Management Senior Director Noah Shaffer said. “If Grandma or Grandpa get 30 minutes to figure out how to use a [shopping] app, they might actually keep using it.”

Patterson isn’t sure the stores will ever fully recover.

“Given some were already in challenging financial situations, I think the time retailers are shuttered will put some over the edge,” he said.

Still, it’s not like consumers have stopped consuming. Benefitting most from the COVID-19 crisis will be e-commerce, whose retail footprint is likely to emerge stronger on the other side of the pandemic. It’s a trend that’s been building for years, with e-commerce earning $22.1B in sales in 2019, up 22.4% from 2018, according to StatsCan. Patterson puts the e-commerce piece of the retail pie at a historical high of 10%, a statistic shared by our southern neighbours, according to the U.S. Census Bureau.

Now, you’ve got a whole captive Canadian population that is unable or unwilling to leave their homes. If the crisis extends to weeks or months, even the most fervent anti-computer consumer will be forced to seek out online solutions for the most basic needs.

“At 30 days, you start to get more comfortable with online shopping. And at 60, there might be significant pull to stick with it,” Shaffer said.

Patterson said e-commerce has already increased substantially in virus-ravaged China and Italy, where isolation is mandatory. “I’m not trying to be a doomsday-ist,” Patterson said. “But you can see what’s happening.”

Of course, whether in store or online, a sale is a sale. Stores hoping for a future will have to adapt to the times or die. Patterson notes that the temporarily shuttered Nordstrom was supposed to launch an online Canadian shopping site this spring.

“They’ve been here for five-and-a-half years. I was at the opening. And it’s just happening now?" he said. "They could lose millions potentially. I mean, holy cow, right?”