With uncertainty in the job market, declining values in stock portfolios and plummeting house prices, consumer confidence in the U.S. declined to new lows in the fall of 2008. In an effort to boost sales, retailers slashed prices for the holiday season much sooner than usual trying to get the attention of a much more price sensitive consumer. While retail sales in Canada have softened, we have not experienced the same degree of carnage our neighbours to the south have endured. 2008 ended with sales in Canada up an average of 2% over 2007.

Retail sales for 2009 are difficult to predict given the volatile economic climate but what is clear is that the retail landscape will change. The number of American retailers in danger of bankruptcy, or retrenching to survive continues to grow. This has implications for the Canadian retail scene where much of the growth comes from foreign expansion of U.S. and European retailers. Roughly one third of our retailers are based in the United States. 2006/2007 and early 2008 saw unprecedented numbers of new entrants to our malls and street fronts. The steady injection of new players will be greatly diminished over the next few years as most American retailers are planning no new stores until 2010 or beyond.

The marketplace will adapt and, although we will all be challenged, new opportunities will be created. The Canadian market is not overbuilt and good locations are still in short supply. Whereas, up until now, retail growth had been stifled due to limited available real estate, the inevitable store closures in 2009 will become opportunities for retailers with cash.

Fifteen things to watch for in 2009:

1. Luxury goods will be hardest hit. This is the easiest category for consumers to eliminate spending.
2. At the other end of the spectrum, value retailers will thrive. Dollar Stores, Wal-Mart, Winners and STYLESENSE are all positioned well. Extreme Value Retailers are buoyant as the Bargain Shop announced bold expansion plans for 65 new stores. In August of 2008, Bargain Shop purchased 93 of the former Saan Stores.
3. Emphasis on health and wellness is a strong trend among “boomers”. Look for a continuing gain in popularity of organic and healthy alternatives both in terms of products carried by retailers and the types of retailers themselves.
4. Diversity will also play a role in redefining retail. With growing ethnic diversification we will continue to see retailers catering to the needs of first and second generation immigrants. One such example is T&T Supermarkets, Canada’s largest Asian Supermarket chain.
5. There will be fewer new entrants to the market in 2009. Brooks Brothers have made commitments for 2009 and 2010 and Anthropologie has made commitments for 2009. We understand Victoria’s Secret is considering Canada and a European specialty chain called Arthur is exploring opportunities.
6. Sales will soften, pinching retailer bottom lines. Certain costs are fixed and as sales volumes decline prices will be reduced, resulting in lower margins. Retailers will not spend as much on store design; freshening stores with new fixtures and cosmetic changes will only be done when it is absolutely required.
7. Grocery store sales will remain stable. Loblaws have overcome huge challenges and are back on track. As well, Sobeys, Metro and Safeway are enjoying steady performance.
8. Rents will decline in some areas. Linked directly to sales, rents will soften in 2009 but not necessarily in premium malls. The top 20 malls will be able to maintain rents because sales volumes are most reliable at these locations. If a retailer is cutting expansion plans from 20 new stores to five, they will always want to place new stores in the premium locations.
9. Greening- like other industries mall landlords are focused on the environment and this will continue in the future. Enterprising retailers are taking advantage of this trend, most notably Indigo’s new concept store Pistachio. This gift store sells recycled and environmentally friendly products. Plans are currently set for up to 10 new units in 2009.
10. On-line sales strengthened again in 2008 and according to Statistics Canada on-line sales increased 61% between 2005 and 2007. Once feared by traditional retailers, the internet has emerged as a great supplement to conventional retailing.
11. Wal-Mart- the world’s largest company will likely outperform everyone else in 2009 as they are almost in a retail category all of their own.
12. Hot Retailers- yes, there are actually quite a number of hot retailers in all categories which bodes well for many landlords. Retailers that will continue to grow in 2009 include: Winners, Wal-Mart, STYLESENSE, Fossil, Pistachio, Indigo, Apple, Sephora, MAC, Shoppers Drug Mart, Murale, Aeropostale, Forever 21, Guess, Abercrombie, Hollister, American Eagle, Aritzia, lululemon, Coach, Bath & Body Works, Crate & Barrel, Williams Sonoma, Pottery Barn, West Elm, Lacoste, Richtree, Swarovski, Bell, Telus, Rogers, H&M, Zara, Dollarama, and The Bargain Shop. Canada’s financial institutions are also expanding their retail presence. This is by no means an exhaustive list, but it demonstrates the depth of the Canadian marketplace.
13. Premium Casual Restaurants like Earls, Richtree, Milestones and Moxies will continue to do well in 2009 as many consumers will elect not to patronize higher end restaurants. In the current economic climate with expense accounts are being scrutinized, bonuses reduced and incomes uncertain, high end restaurants will take a hit.
14. Urban retailing- street front locations in downtown areas will remain in demand as condo towers continue to be added to the markets and achieve occupancy. With the amount of supply added to residential markets in recent years, many big box retailers are reinventing their store formats to cater to the urban environment.
15. Home renovation stores, furniture, home furnishings, appliances, carpet and flooring, draperies, lighting and any home related retailer will see a drop in sales volume in 2009. With an uncertain job market and financing difficult to secure, the residential market will soften with corresponding decrease in sales for retailers catering to the residential market.

Certain niche markets will do just fine in the coming year. Canadian banks are solid, there is limited exposure to the subprime crisis and our general economy has remained steady, although expected to experience recessionary conditions in 2009. Retailers in Canada have had the benefit of seeing the struggles of merchants in the United States throughout 2008 and know that the Canadian marketplace will not go unscathed. As such, Canadian retailers are preparing to weather the upcoming unstable economic conditions in 2009 by trimming expenses now, passing along sharper prices and offering improved levels of service to their customers.