Vancouver Commercial Real Estate Podcast

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April 26, 2023
VCREP #94: Why Nordstrom Left Canada with David Ian Gray of DIG360

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Yet another major American retailer will exit Canada, as the Nordstrom brand is set to shutter eleven Canadian retail operations under two names operated by the American giant.

This week, Cory and Adam welcome to the show retail expert David Ian Gray of DIG360, who is here to unwrap everything from how the retail environment has changed, why American big box brands haven't fared as well this side of the border, and he even touches into how technology has impacted the retail world and gives us his thoughts on why Nordstrom is pulling out... and his answer might catch you off guard.

David also provides his insight into the post-COVID retail landscape and why retail was on the decline prior to the pandemic. A true professional and expert in his craft, this is an episode that provides some much-needed answers to what is happening within the retail industry.

Why did Nordstrom leave Canada while other brands, like Aritzia and Lululemon, are expanding? Why is Dollarama growing while Starbucks closes 300 stores? DIG360 Founder David Ian Gray answers these questions and talks to us about retail technology, independent stores and the future of retail across Canada. 

Why is it so important to monitor retail in Vancouver?

Cory: Retail prices in Vancouver are extremely high and many of our retail businesses rely on tourism dollars and people’s disposable income. When people moved out of Vancouver and when tourists weren’t coming during covid, these places struggled.

Are big retailers becoming smaller retailers post-pandemic now that online retailers are so big? Are companies struggling in downtown Vancouver? You can look at the retail landscape as a report card of the economy.

The price per foot on Robson Street is extremely high. A lot of businesses that go in there do it as a brand play, rather than a profit play. It’s the Rodeo Drive of Vancouver.

But then there are other companies, like Lululemon and Artizia, that are expanding. They operate on a vertical model where they make their own products and sell them in store, whereas the traditional wholesaler model has many hands in the supply chain.

Who is David Ian Gray? 

I have an advisory group, DIG360, that works nationally but is headquartered in Vancouver. We’ve been around for a number of years and have a tight focus on the retail sector in the Canadian context. We work with a lot of national and regional retail chains, as well as direct to consumer brands.

What have been the big challenges the retail industry has had to adapt to coming out of the pandemic?

In 2010, I was having a crisis of faith. I found retail incredibly boring. But it’s so interesting to see how things changed. It actually changed before the pandemic with the “death of retail.” The seeds were already planted.

Questions came up like, “Is your system able to serve shoppers online and offline in an integrated fashion? For example, can you start an order online and pick it up in-store?” Leadership really wasn’t getting it at the beginning.

The businesses that weren’t getting it were the least adaptive when the pandemic hit. Many didn’t make it through. Others, like BestBuy, were investing in their systems and logistics in a very serious way. They were putting in effort prior to 2020 so they could pivot a lot quicker. 

It wasn’t like everything was fine leading up to the pandemic and then retailers had to make a quick decision. There was an underswell. The ones who were adapting already were pushed further, faster. The ones that were struggling either got in trouble or got on with it.

The pandemic gave us dramatic winners and losers. Fashion imploded unless you were doing onesies or sweats. But anything to do with home furnishings – especially home offices and home gyms – surged. So some companies were given a gift.

Because factories were closing in China and there were supply chain issues, that contributed to inflation and items being out of stock or overstocked. The landlord-tenant relationship was also under stress with bad faith on both parties.

Does retail look the same as it did pre-pandemic or has it transformed dramatically?

I’d say we’re halfway through a period of transformation for the retail industry. The model pre-pandemic was fractured so I don’t think anyone wants to go back.

But the question is usually, “Will stores matter again?” We’ve learned that stores are fundamental. The need to pick up items from stores, return items or get problems resolved isn’t going anywhere.

When lockdowns were eased, we saw people flooding back to stores. There were spikes to e-commerce but they all tailed back down. E-commerce now plays an important part in the mix of how shoppers behave. But physical stores are still vitally important.

Stores are not gone for good. This settled the debate. They’re not dead.

How is technology impacting the retail environment?

The sponsors of the big retail events over the last 15 years have all been technology companies. Retail is technology now. It’s an on-going development and companies need to hone in on how to adopt the right tech.

Every era has a new shiny object in tech. Metaverse was getting hyped as the next transformative tech for retail. But it’s limited in the face of a pragmatism about technology. Pragmatic retailers want to know, “Is there a real problem being solved by this tech? Does this tech enhance something that will drive revenue growth or help us operate faster or leaner?”

For example, food delivery technology was in place before the pandemic. The bugs were worked out and it was able to solve problems quickly when the pandemic hit. It was a boon for restaurants who had to pivot during the pandemic.

There’s really interesting tech happening in the supply chain that consumers won’t see but is making the process better. For example, IKEA is using drones in their warehouses to do inventory counts. Imagine how fast that is compared to people going up and down on lifts!

Why did Nordstrom leave Canada?

I was sad to see Nordstrom go. They were a refreshing and exciting take on retail when they landed on the scene. Good competition lifts everyone, so it’s a blow.

My view might be a bit contrarian. There’s a lot of buzz about how Canada failed Nordstrom or how strong US retail can’t make it in Canada. But I don’t think that’s what happened here at all.

Of the 100 Nordstrom stores in North America, there were 13 in Canada. If we ranked all the stores in terms of sales, I don’t think Canada’s 13 would be the bottom 13.

I believe the untold story is Nordstrom is in a bit of a mess in the US. Fashion was hit hard by the pandemic and Nordstrom is a great example.

Department stores are a clunky format. Nordstrom were pretty good operators as far as department stores go. Once the pandemic hit, demand for clothing plummeted. If you think of the size of those stores, it’s hard to recapture such a huge loss.

The Vancouver flagship store was either one, two or three in the whole network. Nordstrom saw an opportunity to pick up the right retail in Canada. They may have been over-stored across Canada but they did have some good stores here.

I think it came down to a CFO saying, “If we declare bankruptcy in Canada, we can save a boatload of money and get out of some obligations.” If instead they had chosen to close their bottom 13 stores, it would have cost a lot more money. I think they saw this opportunity to exit Canada and took it. They were never as invested in Canada as we hoped they would be.

Why are some clothing retailers, like Artizia and Lululemon, expanding while others are shrinking or leaving?

The moment in retail right now is chaotic; there isn’t one storyline that applies to everything. Both Artizia and Lululemon have had phenomenal success in the last few years. A lot of people see value in these brands.

Lululemon is a mono-brand that is vertically integrated. They control everything. Artizia is quite close to that with a portfolio of mono-brands that is well-managed. Nordstrom, on the other hand, is a mass multiple-brand reseller. The department store format doesn’t make sense and hasn’t for quite some time.

Case by case, you can win in retail today even with economic uncertainty.

Dollarama is a fabulous Canadian success story; they’re adding locations all the time and growing by leaps and bounds. But Dollar Tree, which came up from the States, has been flailing. So you can’t even make a universal statement about dollar stores.

Why is a retailer like Harry Rosen in a better position than Nordstrom?

Harry Rosen is a more contained entity aimed at a more distinct market. A department store aims at a mass audience with a wide array of product in a huge selling space. The Nordstrom store in Vancouver was 330,000 square feet. You have to have that stocked and looking great with staff.

Rosen does sell private label but they are also a great curating of menswear. They know their audience and have a smaller footprint than Nordstrom. They can focus on their category and do it well. Urban Outfitters kind of does the same thing for a youthful audience. They really know their audience. It’s like a department store but it’s manageable with a tight segment.

Pressure always brings out the best or worst. For Harry Rosen, they invested in their back of house systems and their e-comm. When the pandemic hit, they were ready to go. Of course, the demand wasn’t there but they were able to pivot to more casual lines.

They also have a third generation leader, Ian Rosen, at the helm who went out and got experience at another retailer. So he’s bringing a broader, more youthful and technology-focused perspective.

Why did Starbucks close 300 stores? Were they shedding expensive leases and hiding under the excuse of covid changing consumer habits? 

I’ve talked to people at Starbucks and no one is saying that’s what they did but I think it’s what they did. I don’t think their pivot was consumer-driven.

One thing that did change throughout the pandemic that I have a concern about is the push for drive-through. This hit Starbucks and other places like McDonalds, Tim Hortons, etc. We’ve seen data that sit-in traffic dropped during the pandemic and has continued to be low while drive-thru and delivery has jumped.

The issue is we’re trying to get into an era where we get people out of cars and walking places. I’m worried the investment into this change will leave us stuck in a model that doesn’t make sense now.

What makes Vancouver unique when it comes to the retail landscape?

Pre-pandemic, I would have said the impact of Asian tourism and people who are living and working in both Vancouver and Asia made us unique. It was unique to Vancouver and got the attention of a lot of luxury brands. Whether that comes back in the future, I don’t know.

Our sense of fashion in Vancouver is remarkably different from other places in North America. You see the same thing in Seattle and Portland. How we dress professionally or on the weekends is very different. I don’t know if Lululemon would have come out of another place in the world.

In terms of the supply of retail, something happens at the Rocky Mountains. We have some really cool home-grown retail like Artizia, Lululemon, Urban Barn, Dollar Giant and Future Shop. We see the same thing with restaurants like The Keg, Earls, Cactus Club, etc.

Are Vancouverites as shoppers dramatically different than anywhere else? No. But on the margins, there are differences. We still want to be served well and get good value. We might have been a bit ahead on sustainability but a lot of the world has caught up.

Are independent stores following the same trends as big box stores?

Independent stores are facing a lot of the same pressures as larger stores. The challenge in retail is the bigger, stronger companies who have money to invest continue to get bigger and stronger. But we need thriving independent stores to make our communities great and to create differentiation. 

Independent product retail has never been under duress like it is today. As shoppers, we expect integrated online and offline service and storytelling. That’s often beyond a mom and pop shop.

Where the winners come out are where there’s less reliance on technology. For example, there’s a fishing store in downtown Vancouver where the owners are on-site and have extensive experience with fly-fishing. They’re passionate about it. If you want that knowledge, you’re going to their store to pick up some stuff.

The younger generation starts online but is finding their way into physicality. And there is room for independent shops who have that firsthand experience to offer. I see hope there. But I see a lot of carnage on the independent scene too.

What about independent service stores? Or restaurants or cafes? 

When it comes to food and coffee, it’s a bit different. There’s still room for independent cafes where people want to have a sit in experience. But the economics are hard right now. Those independents work when there’s an owner-operator on site. When they add two more locations, that’s when they may get caught up in the economics.

The truth is, there is some crappy independent retail out there. In my opinion, we should try to lift that instead of preserving it. But there are also some really great independents. We need those people to have really great communities.

If Nordstrom had set up the northeast US as a separate company and had the opportunity to bankrupt it, they would never do that. But Canada is just Canada! Similarly with a Canadian brand, they’re not going to bankrupt their homebase; they’ll choose somewhere farther away.

The 6 Pack: Getting to Know Principal and Retail Strategist of DIG360, David Ian Gray 

Where is your favourite vacation spot?

I like paddling. Somewhere out in the wild in late August would be perfect. But I like variety!

What would your last meal be on death row?

I think I’d want to do a chef special with 12 courses, wine pairings and a lot of time between each course.

What’s your go-to karaoke song? 

I would never do Semi-Charmed Life as I took that on once when I was kind of tipsy and realized I only knew the chorus. But anything by Bob Dylan I think I could handle. There’s quite repetitive phrasing.

Share a book recommendation with our listeners.

I have a few books I’ve reread many times. Two favourites are The Razor’s Edge by W. Somerset Maugham and The Great Gatsby by F. Scott Fitzgerald. I think the shared theme might be around what success really means. They’re classic stories and so well written!

I’m also a fan of anything Malcolm Gladwell puts out. He can take anything and make it interesting. I used to be a big reader as a kid and it’s something I want to get better at.

Favourite band or music genre?

I have a special place in my heart for early 90’s alt rock and mid 90’s Brit pop. Maybe I’m aging myself! I have a bunch of concerts coming up; live music has been a lifelong passion of mine.

I recently saw The Chameleons UK. They played the Commodore, which was pretty fun. I also love Canadian artists.

What is something you’ve purchased recently for under $1500 that has had a positive impact on your life?

This was a lot less than $1500 but I’ll say my first ultra-light backpack and tent. It allowed me to do overnight things without being tethered to my car.

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Vancouver Commercial Real Estate Podcast

For all the curious minds interested in commercial real estate investing, grab a coffee and pull up a chair because we have exclusive stories and tips from commercial real estate brokers, investors, developers, economists, urban planners, and everyone in-between. From the successes and failures to the motivations and lessons learned, the Vancouver Commercial Real Estate Podcast is your insight into commercial real estate in Vancouver, Victoria, Kelowna, and beyond.

What's the best real estate market to invest in? What are the commercial real estate asset classes and property types? Hosted by Cory Wright, founder of William Wright Commercial, and co-hosts Adam and Matt Scalena of the Vancouver Real Estate Podcast, our podcast opens the door to real estate investing for everyone from beginner investors to experienced real estate professionals. New episodes are released every Tuesday. Follow the Vancouver Commercial Real Estate Podcast on Apple Podcasts, Spotify, Google Podcasts, or your favourite streaming platforms.

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.