MEMORABLE MOMENTS IN ONTARIO RETAILING

 

© John Winter Associates Limited

Two Wheeler Avenue, Suite 201

Toronto, ON, M4L 3V2

416-691-1870, fax: 416-694-6258

 

THE NINETIES

 

Turning Point: March 1994

 

Highlights: Sunday Shopping, GST, Cross-Border Shopping, Retail Meltdown, New Format Retailing, Power Centres, Eaton's folds.

 

1990    Ontario reaches ten million inhabitants.

 

1990    I begin the awful 90s with a prediction: this is the era of the warehouse store. The warehouse will be a better mousetrap to catch consumers. The 1990s will be obsessed with price; the 1980s was obsessed with convenience.

 

1990    Eaton's begins everyday low prices, a disaster in fashion, where the margins should be healthy. When this adventure fails, Eaton's turns floors and at times whole stores (Sheridan) into "outlet stores". George Eaton, a former race car driver, makes a rare appearance at the 1992 ICSC conference to claim there is still room for traditional department stores: "You'll just have to come to us for wool when you've going to darn your socks".

 

To do what?

 

There just wasn’t enough socks in Canada to support that marketing approach.

Eaton's falls back on its traditional high-low strategy, banging out national advertisements about the low price for some widget this week, and another next week. Fashion is the only area where hi/low is appropriate: you start very high, just in case it's a hit with the customers, and as that season goes on, you gradually reduce the price to clear the goods. You say "what's new?" by colour: spring is navy (not yellow; second week in February, Fifth Avenue is blue on the floor and in the windows); early summer is white (dark to light); late summer is black (dark to light to dark); fall is earth tones (browns, beiges, forest greens, plaids); holiday is metallic, jewel tones; early spring is pastel.

 

1990    March. Prime reaches 14¾ percent. Retail sales plummet. Retail came into 1990 like a lion, and went out like a lamb. High interest rates kept the dollar high and gave each Ontario resident another reason to shop across the border, particularly when they could get four loaves there for the price of one here. While "power shopping" was the fashion of the later 1980s, "power bargain shopping" became the rage in the early 1990s.

 

The high interest rates accelerated the coming of the recession. Consumer demand is the gas that fuels the economy. When demand is suffocated, retailing suffers. Weakness feeds on weakness, jobs are lost, consumers feel bad and retailers, who are generally on the cutting edge of economic changes, are the first to feel the hardships.

 

One in 15 Ontario jobs are lost in the recession with a particular concentration in the Metro area (whose unemployment rate exceeds the national average for the first time since statistics were collected, beginning in 1916). Personal incomes were lower in 1990 than 1980 in real terms, and government taxes were higher.

 

1990    Miracle Food Mart and Miracle Ultra Mart are sold to A&P, 69 Ontario stores for $235 million ($3.4 million per store, or some $75 per square foot). Most are located in the GTA. A&P buys share to again temporarily leap ahead of Loblaws, to some 33 percent (A&P 20 percent, Miracle Food Mart 13 percent).

 

1990    Guelph tries to exclude 913719 Ontario Limited, Adult's Only Video, from a neighbourhood plaza due to its undesirable nature. The OMB rejects the attempt: in theory you are planning land use, not user. Zoning is not to become company specific.

 

1990    Zellers buys Towers/Bonimart from the Oshawa Group, 51 stores for $181.5 million ($3.6 million per store, or some $60 per square foot). Zellers buys another half billion dollars in sales and gets an 18 percent market share. President Paul Walters predicts Zellers will overtake Sears in 1991 sales. He also promises that Zellers will remain headquartered in Montreal ("Our roots are here; we wouldn't think of changing that").

 

Towers is doing some $90 per square foot. The Zellers marketing will bring most of the stores up to the Zellers productivity.

 

1990    Alive & Well, "the amazing fashion warehouse boutique" opens on 10,000 square feet on Woodbine in a Markham industrial area. Donald Cooper operates it after he sold the Cooper sports empire. Their symbol is Zelda, a pet goose (click here). For their annual conference, the Retail Council borrows their "Border Crossing Post" and their Buffalo wings bar-b-q (set up in such a way that customers appear to be crossing from the USA into Canada to shop at Alive & Well).

 

Donald Cooper sells Alive & Well just in time, just before T.J.Maxx buys out the Ontario Winners chain. He finds that he can make more money on the inspirational circuit, teaching people how to compete ("Human Marketing"; 180 lectures a year @ $5,000 a pop, plus double that on the tapes, with low risk).

 

1990    The first celebrity casualty of the recession is Creeds in November, just before the peak selling month for furs. A woman in The Financial Post is reported as saying "I can't imagine Toronto without Creeds". Upscale restaurants are also feeling the pinch.

 

Creeds fur storage gets recycled as residential condominiums.

 

Discretionary spending stops. Per capita retail sales drop 17 percent, an astonishing $1,948 in just two years (click here for data). As in the 1930s, it will take 11 years for per capita sales to recover. (The reduction, $1,948 per capita, exceeds the equivalent of the spending in supermarkets).

 

Now there are some things that are predictable about retail. For instance, in the aggregate, when income drops, sales drop. (There is a positive relationship between income and retail sales, suggesting that a ten percent decrease in real per capita income would lead to a 13 percent decrease in real retail sales per capita. The elasticities for interest rates and the unemployment rate are negative, and lower: income = +1.34, interest rate -0.11, unemployment rate -0.03, all significant at the 95 percentile). The retail and real estate response is predictable (someone will be going under). But, the response to get us out of the predicament is not predictable, because of the concentration of retailing; those decisions about new formats or new centres are taken by a small number of entrepreneurs.

 

Vacancies begin to appear more frequently along arterial roads, and would have appeared in many more malls if developers had not offered extraordinary deals, either to keep weak tenants going, or through offering enormous tenant inducements to attract new tenants. Tenant inducements, which had been common in office leasing, suddenly arrived with a vengeance in retail leasing.

 

Developers even started to do something new by adding services to their malls: babysitting, giftwrap, coat checks and strollers, better security in the parking lot, all to make their malls more user-friendly.

 

1990    Sunday Shopping suddenly arrives in Ontario. The rejection of the Ontario Retail Business Holidays Act by the courts opened the way for wide-open Sunday shopping throughout the Province. What Sunday shopping did in Ontario was to add another popular family activity to the roster of things that residents and visitors can do in Ontario on a Sunday.

 

In 1970, the all male Ontario Commissioners on Sunday Observance feared that their wives would not have the time to do all their housework if Sunday shopping were introduced. And this is exactly what has happened: in 1970, with only the convenience stores open, two-thirds of Toronto respondents reported doing some two hours of housework the previous Sunday. In 1990, with wide-open Sunday shopping, just less than half reported doing housework on the Sunday previous to the survey. Clearly, people would rather shop, than clean (click here for the statistics).

 

Besides the advantages for time-pressed couples, an over-looked advantage of Sunday shopping is that it gave single people something to do on a Sunday. Singles do not go to church alone, nor do they go to the movies alone, nor to restaurants alone on a Sunday. But they would go to a mall, and browse (partially because shopping centres are such a secure and well-policed environment).

 

Contemporary ICSC research shows a third of the shoppers are in a mall just for recreation (there are no differences between men and women in this respect). Only a third of the mall shoppers shop alone: two thirds are there shopping with family or friends (indeed, half of them are shopping with their families).

 

Comparative surveys of Sunday activity in 1970 and 1990 show absolutely no effects on Church attendance. Indeed, Torontonians had more contacts with family and friends when Sunday shopping was allowed than when most stores were forced to close, mainly because shopping is such a family- and friend-oriented activity. Compared with 1970, however, more people are watching more television, for longer hours, on a Sunday.

 

1990    Christmas was the eighth in a row for low margins. Boxing Day sales appeared before Christmas as retailers reeled under the economic punches. Whereas markdowns of 25 to 35 percent were enough to entice the shoppers in 1989, this year retailers had to really rewrite the sales dockets. Discounts of up to 50 to 70 percent appeared. At such depths, no-one can make a profit. It is particularly unfortunate for those chains who lose money in the first two quarters and rely on the fourth to make it all back. Few people are going to pay retail at Christmas for a very long time.

 

Because consumers were already feeling so miserable, the pre-GST buying boom did not materialize. The post-GST slump did.

 

1991    January, the Goods and Services Tax begins, at seven percent rather than the initially suggested nine percent. The consumer hostility and resentment to the GST is immense. We have never encountered such opposition to a tax, nor such avoidance of it. The net effect: tax avoidance, visibly by cross-border shopping, second by the underground economy and third by a general downgrading moral standards in that it was somehow acceptable to cheat the rotten government.

 

The first indication of a sharp increase in the underground economy came from Peter Spiro of the Ontario Ministry of Finance, when he notices a distinct increase in cash in circulation, starting with the imposition of the GST. With the increase, Statistics Canada studies the matter: they now assume that small (retail, independent) businesses skim ten to 25 percent of receipts (The Size of the Underground Economy, 1994). In jewellery, where there are also excise taxes, under-the-table sales may reach 60 percent.

 

The federal government defines the underground economy to only include skimming in legal areas, and the worst culprits are in cash-heavy areas of unlicensed restaurants, motor vehicle repair, licensed restaurants, small grocery stores, home improvements, vending machines, apparel and then barber-beauty. On this basis the underground economy is some 4½ percent of GDP. The Fraser Institute includes illegal activities such as smuggling, prostitution and the illicit drug market. Then the ratio is nearer to 20 percent of GDP. On the think tank basis, the underground economy has increased from 3½ percent in the mid 1970s. This Institute also documents a sharp increase after the imposition of the visible GST. (The OECD average for the underground economy is thought to be some 13 percent GDP).

 

 

1991    Cross-border shopping grew exponentially over 1991. It was triggered by (a) the particularly high exchange rate, which valued the Canadian dollar at 86Ę American (it has been only 75Ę in 1984), (b) a row of new-format, every-day-low price retailers with “eye-popping” prices in U.S. border locations who had not yet gotten into Ontario, (c) the strong reaction to the Goods and Services Tax that made visible government sales taxes at least twice as those of neighbouring states and encouraged "voting with the vehicle" just to avoid taxes, and (d) Canada was the "Nicaragua of the North" in terms of competition, with overlapping distribution and many stages in the wholesale delivery process. (Prior to late 1990, as well, the Ontario stores were closed on a Sunday). The philistines had gotten it right.

 

Our calculations of Ontario's loss of a billion dollars in retail sales were based on surveys of (a) the market share lost within progressively more distant zones from the border, and (b) the estimated population and expenditure in each zone (click here for the news item, and here for the survey data).

 

Like all retail, the cross-border outflow demonstrated a decreasing intensity with distance. Distance decay showed 29 percent of the gasoline purchases lost in a five-minute drive zone. The further the distance from the border, the less it made sense to purchase gasoline there.

 

The City of Orillia ran a survey and were surprised that, at two and a half hours from the border, no outflows were registered.

 

This should not be surprising, because we had identified four zones (click here for the illustration):

 

1.      The Fifteen Minute Convenience Zone (or the "Weekly/Bi-weekly Gasoline and Grocery" zone, or the "Way of Life" zone) is the first ring. After a certain, relatively short distance, it does not pay to cross the border just to fill up the tank. Nor after a certain distance does it pay to get three chickens for the price of one Marketing Board bird. Retailing is devastated in any town or city within a 15 minute drive of the border. Niagara Falls, ON is particularly hard hit as Niagara Falls, NY becomes a recognized "dumping ground" for distressed merchandise that cannot sell elsewhere in North America. Other devastated communities include Fort Frances, Sault Ste. Marie, Brockville, Cornwall, Sarnia and Windsor. A line develops in Grimsby beyond which no new retail investment occurs.

 

2.      The Monthly or Bi-Monthly Clothing or Small Appliances Zone, lies between 15 and 60 minutes from the border. Almost half the Canadian population (and retailers) is within an hour of the border.

 

3.      The Quarterly Big Ticket Zone, the third ring, lies between 60 to 90 minutes from the border. Consumers in this third zone do not buy their chicken nor their clothing on a regular basis across the border, but they discovered that big ticket items may be worth the journey.

 

4.      The Happy Retailer Zone, the fourth ring, is protected by distance.

 

1991    Simpson's nameplate is retired. The HBC no longer has three chains: upscale (Simpson's), mid-market (The Bay) and discount (Zellers). Robert Simpson (1834-1898) opened his pioneer department store in 1872, and a decade later moved it to Queen and Yonge. Sears can now enter the Metro market (it was excluded by the Simpsons-Sears initial deal). It obtains surplus Simpson's or Bay stores, particularly in the prized locations of Scarborough Town Centre and Yorkdale. (The new Sears stores are in malls where The Bay already has outlets). Sears retrofits in 72 days (2½ months), an absolutely astonishing achievement, because it usually takes a year. The new Sears stores actually open in September, just in time for the fall selling season.

 

1991    Tiffany joins the elite retailers of Bloor Street.

 

1991    On a freezing October day, Business Depot opens its first 20,000 square foot unit on Steeles Avenue near York University. The President and his managers make long speeches. Everybody shivers. Grand & Toy has 50 percent of the office supply market (with 38 Metro stores, of about 3,000 square feet each). Within four years, however, the two new format retailers--Business Depot and The Office Place--have fifty percent of the market. Another retail revolution has taken place. These office supply stores are built everywhere, in malls, on arterials, in industrial areas, and no one takes any notice.

 

Office supply is such a wide-ranging set of merchandise and services that Business Depot/Staples/Office Place take a "little from a lot of enterprises". Grand & Toy still operates. Business Depot and Office Place (like the new format home improvers and the computer stores) are not counted as retail stores by Statistics Canada, so their success is not reflected in the annual retail sales.

 

It has only taken seven years for the concept to arrive in Canada; the first Staples was opened in Boston in 1986.

 

1991    At the Barrie store wars over a new regional shopping centre at Highway No. 400 and Essa Road, I point out all the designated land suitable for free-standing retailers in the south of the City. The OMB takes no notice: it's not relevant. Costco, Wal-Mart (click here for photo), Sobeys, Home Depot soon think it is very relevant, so relevant in fact that the approved regional never gets built.

 

1991    We plan the Milner/401 and Morningside/Finch power centres.

 

1991    Stores go bankrupt just before Christmas. With the liquidation sales, margins are in chaos. The 1991 selling year began with January sales off by five percent and department stores off by 12 percent. Then there was the gulf war that kept people in front of their televisions. February registered the greatest year over year sales decline since the beginning of the collection of the new retail series in 1961. Recession + the gulf war = a devastating combination.

 

1992    Retail Council sets shrinkage ("five finger discounts") at 1.8 percent of sales, up almost a fifth since their last survey. Cameras will improve matters. One point eight percent on Ontario's total sales = two billion dollars siphoned off annually. On a worldwide basis, it's in the trillions.

 

1992    Jimmy Kay is ousted from the Dylex board after bidding against Dylex (Bi-Way) for the bankrupt Bargain Harolds Discount Ltd. The chairman of Bi-Way (a former president of Zellers) resigns after two years of losses.

 

1992    Joel Garreau writes Edge City, in which he states that the farthest distance a consumer will willingly walk before getting into a car is 600 feet. A very pleasant environment might encourage up to 1,500 feet of walking, but "at the substantial risk of everybody saying forget it and choosing not to patronize your highly contrived environment at all" (page 464).

 

1992    Justice Farley refuses to compel Citibank to honour its continuous operation clause at Islington Village. Farley outlines the burden of proof required, including value declines, dropping percentage rents, renewal difficulties, and proof of impact on other tenants. No judge in Ontario, unlike Quebec (where the legal system is different), has enforced a continuous operations clause. Watch out mall owners!

 

1992    The Food Institute demonstrates that discounters can charge less for food because their logistics are light years ahead of the typical supermarket chain. It is astonishing the number of separate trucks a typical supermarket receives a day.

 

1992    Warden Woods, developed by the last of the ten percenters at Cadillac, and with no good market rationale for the $28 million joint venture (1982), is about to lose its anchor (Simpson’s, now The Bay). Can we recycle this as a Chinese mall, asks the management. Unfortunately, there are no Chinese in the immediate trade area. Why not try a power centre? I suggest. And the Warden Power Centre is born (click here for a photo).

 

1992    Cott lures David Nichol as President. But he loses control of the supermarket shelves. Private label share of the soft drink market had increased from one percent in 1988 to 20 percent in 1992. The branded colas had an exponential mark-up.

 

1992    Loeb sets off an Ottawa price war in February, Loeb “Club Prices Plus”.

 

1992    We are commissioned to study Power Centres by a private client. The economic advantages of these facilities, notably their big market traffic without the big mall overhead, guarantees that the power centre and the power strip arrangements will become dominant for all non-fashion categories.

 

The target shopper of a power centre is a working spouse with children, a median age in the lower 30s, and a moderate to low household income, who tends to shop once or twice a week for bulk family purchases. This shopper also tends to focus on minimizing total shopping trip time and reducing shopping hassles (such as long lines at the cash register, carrying shopping bags long distances from store to car, forgetting where the car is parked, parking lot congestion, etc.). While it is currently a longer drive to the power centre, the direct access to selected stores may shorten the shopping trip time wise.

 

The land needs and particularly the construction costs of a typical power centre are a fraction that of a regional centre. The construction time, since there are no special marble floors or ornate glass atriums, is much less, generally around six months. Rents and Common Area Maintenance charges are also considerably lower than the regional shopping centres, meaning that all the cost advantages can be passed onto the consumer.

 

The client takes our advice. Within a decade it is the second largest operator of commercial space in Canada.

 

1992    Hudsons Bay Company closes its catalogue stores, Shop-Rite, in January. Consumers Distributing, with double the sales, just remains for a short time. Catalogue is a difficult business: you have to predict sales in advance and guarantee prices for a specified period. These prices are clearly available for all competitors. Specialty catalogues fare much better: they have private label goods for niche markets, with fancy margins that cover the costs and the deliveries.

 

1992    A particularly cool summer is bad news for air conditioner and barbeque sales.

 

1992    Woolworth closes, after 80 years in Canada. Their first store was beside Eaton's, exactly at Queen and Yonge. Woolworth of course knows that head office has already sold its Woolco chain (it sold its Bargain! stores the previous year).

 

Frank W. Woolworth (1852-1919) was raised in Great Bend, NY, some 60 km south of the Canadian border (he eventually marries a girl from Picton, ON). He worked on his grandfather’s farm (108 acres, eight cows, plenty of spuds). He left for the big city, Watertown, and became a clerk in Augsbury & Moore, a dry goods store (he works the first three months for free). At a country fair one day, he sees the success of a table selling household items, "Any article, 5 cents". A year later he opens his first "Great 5-Cent Store" in Utica, NY (1878). It fails within a month. He expands the merchandise and opens his second store a year later in Lancaster, PA. The five and dime concept was a roaring success. The concept lasted for a hundred years.

 

It was Frank’s cousin who opened the five and dime at Yonge and Queen in 1897. The property survives demolition for the T. Eaton Centre as it is one of only two portions of the superblock not owned by the Eaton Company, but by McMaster University. “No Nickel and Dime” corner, according to Mike Filey (Sunday Sun, June 4, 1978).

 

1992    Price Chopper chain is launched by Oshawa Group in the recession. It has a limited selection at low prices, and Air Miles.

 

1992    Cabbagetown BIA wants more sales. You have the highest residential densities in the City, I say, to the north (St. James Town) and south (Regent Park) and great pedestrian traffic infront of your doors. First send them a roster of your stores. They might not know what’s available.

 

1992    Loblaws opens a store on Rideau Street at Nelson, in Ottawa, with the safest and most beautiful underground parking in Ontario: panic buttons, emergency telephones, natural and fake-natural light, cameras, wide aisles, pretty designs (click here). Clearly an engineer did not design this. If all underground garages were as consumer-friendly, the retail experience in the central city would be much improved.

 

1992    Approved large enclosed shopping centres in Ajax, Barrie, Brampton North, Cambridge, Kanata, Ottawa South, Thunder Bay, Vaughan and Waterloo try to get off the ground. Even with zero rents for the anchors, the numbers do not work any more. All nine sites and their vicinities become leading power centres by the end of the decade. Aurora is proposed for a regional which ends up a free-standing centre.

 

1993    The 905 area code begins in October, forever branding the suburbs as the suburbs.

 

1993    Terminal Three opens at Pearson airport masquerading as a shopping mall. Did anyone tell them that travellers don't buy that much caviar?

 

The malling of North American airports really began a year earlier with Airmall, Pittsburgh, built by the BAA, who had the experience with Heathrow. JFK, LAX, O’Hare are just a jumble of terminals, and the Europeans, who built big airport complexes later than the North Americans, figured out how to sell to the passenger experience. Every international traveller is directed through Heathrow’s International terminal mall. Atlanta fails miserably in this respect, while Orlando does it reasonably well.

 

1993    Jurassic Park is released. In the scene where the T-Rex is coming and the ripples occur in the water, is like the effect that a rumour is having in the marketplace, that a new US retailer is coming. The rumour arises every three months. Apparently, the deal has already been done.

 

1993    Loblaws versus Price Club engenders more store wars. By the time Loblaws opposition is withdrawn, the chain has in place all the agreements for its own bulk sections. Price Club has been arguing that it is not a retailer and that it should be able to buck the Sunday closing legislation because it was "members only". Loblaws consultants scour North America for examples of supermarkets forced to close due to a Price Club. No examples are found. (Click here for shares lost to Price Club by distance band).

 

The new entrant changes the rules at the OMB: if supermarkets can survive at $200 per square foot, why are analysis applying $450 per square foot in their spreadsheets, just to keep Price Club out? Henceforth, the Board will want to see evidence from objectors of their real balance sheets.

 

The OMB also dismissed the Loblaws claim that warehouse clubs enjoy an unfair cost advantage over supermarkets by locating on cheap industrial land.

 

The Brampton hearing costs exceed $5 million. Both Price Club and Loblaws are fined for "pointless and wasteful" arguments that transformed a short hearing to an eight-month ordeal. Price Club president says "There is no other place in the world that we do business in, that condones this type of behaviour".

 

Loblaws drops its opposition to Price Club in Markham. Loblaws maintains its objections in Etobicoke, Ancaster, Burlington and Nepean.

 

1993    50 square feet of commercial space per capita are needed in Markham, according to our contemporary research. (Click here for the tabulation by frequency of shopping, and here for the tabulation by type of space). The (real) Larry Smith was very prescient in his Journal of the American Institute of Planners article of February, 1961, page 36, which I devoured at University.

 

1993    Generation X, the baby busters, are defined. They are “20-somethings” looking for work in the midst of a recession. This unlucky generation is also called the “Thirteeners” in the U.S. because they are the 13th generation in that country’s history, the first generation to be smaller than the cohort proceeding it.

 

1993    It's the awful 90s for enclosed shopping centre developers and traditional retailers. They are dropping like flies in the recession, including Cadillac Fairview, Campeau, Bramalea, Trizec, Olympia &York, York Hannover, JDS, Landawn (nation's sixth largest) and a roster of the old-style retailers, Macs, Peoples, Au Cotton, A&A Records and Tapes (259 stores), Elks (79 stores), Henry Birks & Sons (12 stores), Silcorp, Multitech Warehouse Direct Inc. (49 stores), Macleod-Steadman Inc., Beaver Canoe (20 stores), Sketchley Cleaners (157 outlets), Maher (142 stores), Atlantique Video, Agnew Group (54 stores), Olde Hyde House, Club Biz, Wise Stores, Toys and Wheels (78 stores), Liptons International (70 stores of Goodman Manteau, Easy Pieces, Heritage House, Liptons), Etac (20 stores of Alfred, Alfred Sung), Parachute, Majestic Electronics, InterTan (Radio Shack), New Generation Fitness, Dalmys (245 stores of Dalmys, Cactus and Antels), Ira-Berg, St. Clair Paint and Wallpaper Corporation (41 stores), Penningtons, Valdi, Pascals (21 stores), Town & Country (162 stores), Grafton-Frazer (220 stores, including Bimini and Madison), The Steals People, Ayres lines of J. Michaels (31 stores), Kristy Allen (13 stores) (click here), Berries, Bargain Harolds Discount Ltd., Robinsons, Granada Canada Ltd. (37 stores), Cotton Ginny, and others. Retail bankruptcies hit a record level in Ontario, with 882 filings. Retailing would change more completely this decade than any other.

 

The CCAA process saves some of these chains from annihilation. There are only a few phoenixes in the ashes.

 

What was astonishing was that PROFESSIONALS ran these bankrupt retail chains. In the 1990s recession, it wasn't just the mom and pops that were biting the dust. It was also the professionals, who had the money and the banks behind them, and who had bet the store on the market continuing in the same old way (see below: 1995 Dylex, for further explanation). Of course, professionals also built the Titanic.

 

The other thing that was astonishing was many of these chains had been eating the department stores’ lunch, but the food was poisoned. They all paid the price for too much expansion, lured by the incentives and easy money, into less-than-stellar flawed B and C markets.

 

1993    Landawn Shopping Centres, with 75 malls, seeks bankruptcy protection. It has specialized in small to medium town Ontario where the centre was the hub of commercial activity, in suburban Grimsby, Listowel, Stoney Creek, Five Points Oshawa, Black Creek Mall, Shoppers’ City, Oakville Town Centre. Counsel Corporation, itself a survivor of the real estate slump, manages 51 of the distressed properties, at a four percent fee.

 

Jerome Sprackman, an “entrepreneur’s entrepreneur”, was always able to read zoning by-laws: he discovered that there were no parking requirements for basement space in Vaughan, so he effectively doubled the size of The Main Exchange, at Bathurst and Steeles, by building a basement for the first, short-lived teen club. Jerry later runs the very successful Dock’s nightclub in the port lands, also apparently contra the prevailing zoning.

 

1993    Toronto Stockyards (click here for photo). On doing the background market work, we find that a trip to a big-box store is not just a single-purpose destination trip, but for every dollar spent, another 40Ę is spent in other, compatible merchants, within the general vicinity.

 

No wonder the new concentrations of new format retailers in power centres are becoming so popular. The new boxes share their customers with other free-standing boxes, creating similar agglomeration effects as are found in the more traditional malls, with lower rents.

 

1993    Sears Roebuck discontinues its catalogue in the United States. Here’s a Craftsman lawn tractor from the US 1993 edition ($1,197; click here for photo). The identical 12½ horsepower lawn tractor was in the Canadian catalogue for $2,699. Guess why they shut down the US and not the Canadian edition. Guess why there was so much cross-border shopping. Oh, did I say the tractors were “identical”? The Canadian version has a flange going left rather than right, or is it right rather than left, so it’s not identical after all. Sorry to mislead you.

 

Here are comparable prices from the US and Canadian catalogues when the dollar was trading about 86Ę: Guardsman Performance Tire, P195/60SR14, $US49.76, $Cnd 117.99; Kenmore Heavy Duty Plus Upright Vacuum, 6.4 amp motor, $US164.99, $Cnd 404.28; Craftsman 4HP lawnmotor, $US 319.83, $Cnd 631.94. Guess why the lawn tractors were lined up at the front of Price Club in the early days at $Cnd 1,400!

 

1993    We advise The Right House which is in the throws of avoiding bankruptcy. Their accountant had bought the three store department store three years previously. With no money from the bank, and disastrous locations (The Right House in the Wrong Location), I advise trying the Japanese way of functioning, goods on consignment. You don't make as much profit, but someone else shoulders the risk. Employees invest their retirement savings to save their jobs. It works reasonably well. One of their dog locations is Brantford Plaza. Then the Woolco is taken over by the largest retailer in the world. "How can they sell so cheap", asks the president of The Right House.

 

1993    We plan the new Aikenhead’s on Curity. After operating, there has been absolutely no negative impacts on the strip across the road.

 

1993    November. Miracle Food Mart's workers in the United Food and Commercial Workers Union launch a three month, winter strike against A&P. A&P is seeking rollbacks for full- and particularly part-time workers. The result (only a 25Ę per hour more difference than A&P suggested) is that in next June's system wide negotiations, A&P can reduce costs by franchising, so a new chain is born for the older and poorer stores, Food Basics, that with non-union labour, can offer significantly reduced prices. Twenty-five stores may be converted at first ("with the option of converting other stores at their discretion”). Miracle Food Mart’s union wages were at $17 per hour; non-union chains pay $7 per hour.

 

The union and Miracle Food Mart have a secret agreement over which stores will be closed, such as the downtown Chatham anchor of Chatham Centre. Only nobody tells the affected workers: they picket two months during the bitterest cold winter for many years.

 

1993    Kanata has restricted new retail in order to obtain Campeau Corporation’s promise of an enclosed regional shopping centre. The promise was made without any market research. Indeed, the site is in the shadow (“radius restrictions”) of the highly successful Bayshore regional shopping centre just five minutes drive away across the greenbelt. Never mind the regional shopping centres, there’s not going to be any more, I advise, you can be first in the new retail economy, of freestanding power units. The mayor was tremendously upset with this advice (“You’ll never work in this municipality again”, she says). The gregarious Mr. Campeau had personally promised her a regional shopping centre and a pedestrian link across Highway No. 417 had already been built for many years. In quick succession, however, Kanata gets a big Canadian Tire, a big new Loblaws, Chapters, Wal-Mart, Business Depot, Home Depot along with other big boxes and a new cinema with stadium seating, which quickly reduces the $200 million annual leakage to Nepean, Ottawa and elsewhere.

 

1993    Markham wants a City Centre with 30,000 people. Nice idea, but the site is within the radius clauses of its regional shopping centre, Markville, and none of the name brand retailers can be expected there.

 

I evaluate a preliminary plan from the developer: none of the retail is on the sunny side of the street. The poor pedestrians will freeze in the wintertime. No—they’ll just not turn up.

 

1993    We plan the Railway Lands. There will be quite a delay between the construction of ground floor retail and the arrival of a support threshold for any new retail.

 

1994    On St. Patrick's Day, Wal-Mart takes possession of Woolco. Fears are expressed in the popular press of dire consequences for other retailers, without recognizing that Ontario had good roads for years and that no settlement was very far from the best that Ontario previously had to offer (nor really far from what the border communities had to offer also). Kresge's wisely shuts down in January when the deal is announced.

 

The CBC National newscast a week later on 'The Battle of Main Street' gave balanced information, but not balanced conclusions: "The shelves of expired businesses on Main Street of the Town of Nowata. Wal-Mart came here a decade ago, about the same time that the bottom fell out of Oklahoma oil. The battle of Main Street here was over quickly" (transcript of the National). If the oil industry collapses, of course retail sales will drop, and the independents are the most vulnerable. The same phenomena is identified, obliquely, in an American Demographics article of June 1990, page 59: "Thirty miles west of Indianapolis, a Wal-Mart opened in Greencastle (pop. 7,780) in March of 1986, a year before an IBM distribution centre shut down. With the IBM centre went 1,000 jobs, almost half of them white collar ... The appearance of Wal-Mart and the disappearance of high-paying jobs hurt local merchants".

 

Eager to see the purported devastation first hand, I travel the United States. The colour supplement of the New York Times has written up the downtown devastation in Independence, Iowa due to the opening of a Wal-Mart. But, four other things happened at precisely the same time: (1) the federal dual carriageway from Waterloo, IA was built, taking traffic off Highway No. 22 (through the downtown), and directing it to the by-pass, (2) the major employer, the John Deere factory, closed; (3) the second largest Independence employer, the psychiatric hospital, cut back on employment; and (4) the regional mall and big box complex in southern Waterloo expanded (it was now only 20 minutes away by the divided highway). Of course sales were falling prior to Wal-Mart and the downtown was affected: but which factor was the most detrimental, the loss of jobs, the better access, or a new retailer arriving? When I visited the downtown, in 102 degrees Fahrenheit summer heat, six years later, at first there was something strange. I couldn't understand what. Then it dawned on me: there were no vacancies (click here for downtown Independence). The fundamentals had reasserted themselves.

 

Within one year in Ontario, Wal-Mart had convinced consumers that it had the lowest prices. No other chain scored near to the new entrant on a wide range of questions. K-Mart received the lowest scores, and soon exited the market (Queens University, Shopping Habits at Kingston Department Stores).

 

The collateral damage was ameliorated by the fact that the new Wal-Marts had such a drawing power that many new consumers were drawn to their market area. That's why the sales in Independence, IA, increased sharply after the Wal-Mart entered (click here for the sales history of the town). A big draw brings new customers and their spin-off expenditures.

 

The literature on the effects of by-passes and the effects of new suburban retailers actually come to very similar conclusions: "If a local population is growing rapidly, increased local demand for services will be enough to offset any losses experienced as a result of the by-pass ... evidence exists of a by-pass detrimentally affecting small communities if those communities exhibit declining tendencies before the opening of the bypass ... The local merchant is not a passive actor when a by-pass circumvents a community. His initiative and imagination can help minimize the impact felt by his business" (Fothergill, The Effect of Highway By-Passes on Business Activities in Small Towns, 1997, MA, Queens University).

 

Wal-Mart paid $353 million for the 122 Woolco stores that it wanted (it didn't pick up any of the downtown stores, like downtown Barrie, downtown Stratford, downtown Halifax NS), which equals some $2.9 million per store, or about $30 per square foot, far below replacement cost. It begins a crash programme of refurbishment and upgrading of the utilities. No one in Ontario has ever seen a retailer upgrade at night: customers are not to be disturbed during the day.

 

In probably a move designed towards a forthcoming European entry, Wal-Mart hires Tibbet & Britten to run its distribution facilities. Major retailers in Europe also contract out their distribution. Tibbet & Britten's first Ontario client was the Oshawa Group (1992).

 

On day one, a Saturday, the greeters apologize for the state of the stores and offer clients a candy.

 

Target drops its plans to enter Ontario. (We have looked at a couple of their potential sites).

 

Its just incredible what a little merchandising will do for an obsolete store in a not visible location (click here to see how Woolco sales are transformed by Wal-Mart’s marketing magic).

 

1994    I join the line of consultants advising retailers from Vancouver to St. Johns on how to survive Wal-Mart. You do what my Uncle Johnny did: work harder, and be particularly good at what you specialize in (see The Early Years).

 

1994    Also in March, the Ontario Government publishes its prescient New Format Retailing and the Public Interest, authored by Emrik Suiches, in which it notes that (1) new big-box retailers are welcome for their new employment opportunities, (2) the mix and size of older shopping centres may no longer address the needs and preferences of contemporary consumers, (3) where land use planning considerations permit, the hierarchy of shopping facilities in the Official Plan should make provision for a wide range of retailing formats including free-standing warehouse format stores and groupings of warehouse format stores in power centres, and (4) the rapid change in retail formats, the scrambling of merchandise and specialized retailing has made obsolete the generic hierarchy of retail centres that dominates the Ontario suburban commercial landscape.

 

1994    First police station opens in a shopping centre, Scarborough Town Centre (at an annual rent of one dollar). Swarmings stop.

 

1994    The Metro Toronto Official Plan has no policy support for the downtown. We do some background calculations about its loss of market share (click here). We get the opportunity to ask the same questions as Eaton's did in thinking about its new store there:

 

“You should get dressed up to go shopping downtown”: 1969 93 percent said yes

 (25 years later) 1994 25 percent said yes.

 

Women in lace gloves don't shop downtown anymore, and whatever you think about that, you have to deal with the reality, and not look backwards.

 

1994    Stratford nixes the Wal-Mart site (which is located just outside the City) ostensibly because they don’t want the theatregoers to see it on the way to the theatre. When a site is found within the City and not visible to the tourists, the City changes its tune.

 

1994    London tries to stop the slide in its downtown (click here for shares) by targeting entertainment as the saviour of the downtown economy. Entertainment is supposed to represent the triple grand slam: people come more frequently; they stay longer, and spend more. But its encouragement in downtown London needed the prohibition of new cinemas in the suburbs (A Summary of Potential Strategies for Revitalizing London's Downtown).

 

People are now driving past the multiplexes to patronize the stadium seating outlets with their good sound, just as people are driving past the old retailers for the new ones. Consumers no longer minimize travel time: they will travel until their expectations are met. This phenomenon revolutionizes the commercial structure. Good-bye Reilly’s Law (consumers patronize the most convenient). Hello Winter’s Law (consumers travel until their expectations are met).

 

London, with Service Commercial designations everywhere, which are now open to retailers, particularly free-standing big box retailers, tries to change its policies. Planning for New Format Retailers states myopically that “commercial development can be successfully directed, i.e. commercial development will go where you tell it to go”. All the “unanticipated locations” are wrong, and the City should be directing the new retailers “to appropriate locations where costly infrastructure is already in place, transit servicing is viable”, such as the impoverished downtown. By trying to work against the market, no wonder London has failed.

 

1994    I have the opportunity to work on a neo-traditional community with Andres Duaney. My client has a huge piece of badly located moose pasture; he figured, rightly, that a name brand cachet would get it quickly designated and approved.

 

Neo-traditionalists promote and promise houses within a five-minute walk of a convenience store. It's a fraudulent promise: at the densities at which Ontarians want to live, there's not enough purchasing power to support a convenience store. You would need 80 persons per acre, not the 20 ppa, to make the walking trip commerce work, as well as to make public transit function properly.

 

The biggest problem for the New Urbanism has been its inability to attract the commercial infrastructure of everyday life: grocery stores, pharmacies, bakeries, barber shops, bookstores, etc. It takes a whole street full of merchants to make a village. Without them, New Urbanism will not change the suburban way of life. Two problems: (a) no critical mass of consumers in the early days of the project, and (b) not enough density even when they arrive, to support a full panoply of local retailing. Anyway, no one walks to a supermarket carrying a family's weekly food needs. If they promised retail within a five-minute drive, then that promise would be legitimate. Or if they just promised day care within a five minute walk, that promise would be possible. But New Urbanists forget about day care.

 

Walking as short a distance as possible to get convenience items, just condemns the consumer to high prices.

 

Duaney says he loves the Beaches, Bloor Street West, the Danforth, Yonge in North Toronto, but they are all streetcar suburbs, built under a different dynamic. Two thirds of the Beaches general merchandise sales comes from the tourists on the weekends. You can't replicate this in the far reaches of suburban Markham (as Woodbridge Town Centre tried to replicate Unionville Main Street, unsuccessfully).

 

(Other prime disadvantages of New Urbanism are: (a) you have to build two roads for each house, one in front and a laneway in the rear to access the garage (thus cutting down on garden area and limiting densities); and (b) these laneways must be much wider than Florida to allow the snow ploughs to store snow out-of-the-way (that is, if the municipality ever gets to these low priority routes).)

 

When residential densities are high—Manhattan, Zona Sul in Rio, within the Periferique in Paris—you can do anything at retail. Not in a low-density peripheral suburb. Duaney later repudiates his Cornell plan after changes are made to make it more realistic to the market.

 

The five minute walking distance criteria was first applied in the 1929 New York City Regional Plan, but the densities are much higher in Manhattan than in Cornell. The five to ten minute criterion was first outlined by Edward Bellamy in 1888 (Looking Backward, 2000-1887): “When you had such a vast number of shops, each with its different assortment, how could a lady ever settle upon any purchase till she had visited all the shops? … Why did you put up with such a shockingly inconvenient arrangement? … There was nothing in the exterior aspect of the edifice to suggest a store to a representative of the 19th Century … Edith said that there was one of these great distributing establishments in each ward of the City, so that no resident was more than five or ten minutes’ walk from one of them.

 

“That must be a tremendous saving of handling,” I said. “By our system, the manufacturer sold to the wholesaler, the wholesaler to the retailer, and the retailer to the consumer, and the goods had to be handled each time. You avoid one handling of the goods, and eliminate the retailer altogether, with his big profit and the army of clerks it goes to support … Under our system of handling the goods, persuading the customer to buy them, cutting them off, and packaging them, ten clerks would not do what one does here. The savings must be enormous”.

 

“I suppose so,” said Edith … “The system is certainly perfect; for example over yonder in that sort of cage is the dispatching clerk. The orders as they are being taken by the different departments in the store, are sent by transmitters to him… The packagers are then delivered by larger tubes to the city districts, and thence distributed to the houses. You may understand how quickly it is all done when I tell you that my order will probably be at home sooner than I could have carried it from here”.

 

That’s what might have happened if the horseless carriage and the telephone had not been invented.

 

1994    Ontario Assessment Review Board decides that a 20 year old law on how shopping malls were to be assessed applies to 32 GTA malls, including Yorkdale, Sherway and Scarborough Town Centre. Stores now have to pay property taxes based on “fair market rents”, i.e. on the rent they pay to mall owners. Previously mall tenants were assessed based on the replacement cost of the chunk of space occupied. Since smaller stores pay (much) higher rents per square foot than department stores or supermarkets, the change shifted a greater proportion of the tax burden onto the small merchants, resulting in tax increases of up to 700 percent, just as the recession appeared about to end. It’s awesome to watch the gathering of the titans in the Eaton's boardroom: they voluntarily decide to pay additional taxes to alleviate the staggering increases.

 

The assessment fight had been led by the Hudson’s Bay Company and was a stunning win for all the department stores. About half of what they won was handed back to the CRU (Commercial Retail Units). In a subsequent reassessment, under the Tories, caps and claw backs effectively abandoned the magnanimous deal.

 

Anchors get the lower rental rates because they take more space for a longer time (and they draw in the crowds). The CRU space is of a smaller dimension, on a shorter lease, a higher risk, and thus at a higher rent. After obtaining its anchors, the Landlord usually goes to bat for the CRUs, because the lower their tax, the higher the rents can be. At the Assessment hearings, there are usually three interests in play: the Landlord, the CRU and the Assessment authority, in a three-way battle.

 

1994    Ontario is the only Province to ban tobacco sales in drug stores. Shoppers Drug Mart fought the inevitable, but should have tried to get their competition, the supermarkets, included in the legislation as well. There's nothing like having your customers addicted to a substance: it brings them back more often. Drug stores respond by increasing their front store space.

 

1994    Hawkesbury downtown has a 68 percent share of the local commerce, the highest in Ontario, truly a market that time forgot, a throwback to the way of life of the early 1950s. Francophone clients throughout eastern Ontario can get service in the language of their choice along the main street leading to the bridge to Quebec. But suddenly Canadian Tire (10,000 square feet) upgrades in the suburbs, Loblaws (25,000 square feet) upgrades nearby, and Zellers arrives, also nearby in the suburbs, and Hawkesbury becomes like any other anglophone community of 10,000 people.

 

1994    The CPI for goods took a dip in 1994. This is what everyday low prices meant to me:

 

-         Diapers, Pampers, 65 units. In January 1994, a package cost $19. When there was a “special” at $16, the shelves were bare because people stockpiled. Wal-Mart opens with $15. Everyone else follows suit.

 

-         Christmas Tree. My local dealer in the Beach charges $10 a foot at Christmas 1993. Aikenhead’s (soon to be Home Depot) charges $6. Not per foot, but for the whole tree.

 

1995    Dylex disintegrates into insolvency. It closes 20 percent of its stores (193 out of 947 units). All their stores go in Sheridan Mall, for example, in Mississauga. It dooms this mall: it started as a very successful strip community mall. It was rashly developed into a glitzy fashion mall anchored by Dylex, Eaton's and its original K-Mart. Eaton's plus K-Mart never made any sense: weak fashion plus weak general merchandise, creates no "umbrella effect". Mall management make a gutsy investment to turn things around after Dylex leaves: they subsidize the Consumers Distributing growing from 3,000 to 35,000 square feet. Consumers Distributing does not increase sales at this location. That chain too is doomed (it started strongly, but when it became large, with all the trappings of a conventional retailer, including the warehouses and Teamsters and their trucks, it faced the same costs as a traditional retailer, which doomed its low-cost strategy. Low cost retailers need very high volumes to make such a strategy a success).

 

One among a number of Dylex problems was that, in the early 1970s, they had accepted the "unheard" of rents of $20 per square foot, and inflation had covered any problems. In the 1980s, clothing rents for clothing stores hit $40 per square foot. In a low inflation environment of the 1990s, however, high rents were a problem that could not be avoided. But, high rents should not have killed the retailer: it's the lack of sales that is a problem. Dylex had too many brands, but no recognizable fashion statement, like a Gap. And too many stores in less-than-stellar B and C markets. The CCAA reorganization closed the stores in the B and C markets.

 

Why did so many chains and the professionals who advise them, so enthusiastically embrace the gamble of new enclosed shopping centre space? This is what went wrong: (1) They had been proven correct before. (2) The lemming effect: their competitors were doing it. (3) It was the era of the mega-deal and the leveraged buy-out (and the savings and loan euphoria in the States), and the extravagance of success, that led people to assume ever-increasing sales with inflation factors built in (plus: high profit margins seem to prevent executives from thinking). (4) By mid decade 1980 there was a retail boom (though the high rents should have forced the retailers to think through their business). (5) There were the inducements: perhaps a million dollars for four stores, all to encourage them to go into marginal markets ahead of any consumer need. (6) Some of the new malls were predicated on them “growing into the market” (i.e. there was no support at opening from all those greenfields).

 

We conduct post-mortems for the banks on what happened to their money. A typical situation was like this: if we can dominate the market with more stores, we can (a) raise gross margins from 37 to 39 percentage points, while simultaneously (b) decreasing operating expenses from 33 to 26 percentage points (thus raising a net operating income from 4 to 13 percentage points). Since everyone was doing the same thing, gross margins fell and expenses rose, and the result was armageddon.

 

Most of the great Canadian chains of the enclosed centres of the 1970s have now expired in the new, low-inflation, high competition environment. All the well-known advantages of market power in purchasing, advantages of scale, ability to cover new store openings until they became productive, add up to nothing when expenses>margin.

 

Every-day-low prices changed everything: if all retailers can buy at virtually the same price, then retailing becomes a game of (1) systems, getting the right merchandise on the shelves at the right time when consumers want it, and (2) marketing.

 

A svelte Dylex emerges from bankruptcy protection, guided by Elliot Wahle, former president of Toys “R” Us Canada, to the best profits for a decade. The roller coaster ride has started again.

 

1995    Bay downtown stores does $100 million on a million square feet, paying ten percent of sales in municipal taxes, compared to Bloomingdales in New York, paying one percent on much more higher priced real estate (Star, May 7, page D6).

 

1995    Staples takeover of Office Place is approved in Canada, but nixed by the Federal Trade Commission. It all depends on how you define the market: broadly (Staples), a fragmented $20 billion market, or narrowly (FTC), an "office supply superstore market" ($1 billion).

 

FTC relies on a measure of concentration known as the Herfindahl-Hirschman Index (HHI). Squaring the percentage share of each firm in a market, then adding them all up calculates this. A market cornered by a single monopolist would have a HHI of 10,000; one shared equally among 50 firms would have a HHI of 200. Typically, the FTC rates a market as highly concentrated if its HHI exceeds about 1,800. Well, if you did the calculations on the broad market definition (Staples), the HHI may be as low as 50. If you do the calculations only on an office supply superstore market (FTC), the numbers exceeded 3,000. While the information in the United States suggested that consumers would not pass one office superstore to shop at another, the damaging information suggested that prices were somewhat lower in markets with three rather than two superstores.

 

1995    Shoppers Drug Mart buys the 135 store Big V pharmacy chain, and extends its influence to 40 new communities in South West Ontario ($243 million, $1.8 million per store).

 

1995    The Netscape IPO marks the beginning of the internet boom. Optimistic projections (based on the “hockey stick” growth extrapolation) suggest that advertising on the internet will be larger than advertising on radio, by 2000.

 

1995    OMERS Realty moves strongly into commercial real estate, buying Yorkdale, Scarborough Town Centre and many others. OMERS is the pension board that manages pension savings for Ontario government employees, including the members of the Ontario Municipal Board.

 

According to OMERS statistics, the ten top performing malls in terms of sales per square foot in Ontario are: (1) Toronto Eaton Centre, (2) Yorkdale SC, (3) Bayview Village, (4) Intercity SC in Thunder Bay, (5) Toronto Dominion Centre, (6) Carlingwood Mall in Ottawa, (6) Bayshore SC in Nepean, (7) Fairview Park in Kitchener, (8) Rideau Centre in Ottawa, (9) Square One in Mississauga and (10) Fairview Mall in Toronto.

 

According to their statistics, the worst performing malls in terms of sales per square foot in Ontario, leading up to the worst, include (10) Place D’Orleans, (9) Mapleview in Burlington, (8) Westmount in London, (7) Cloverdale, (6) Tillsonburg TC, (5) Galleria London, (4) Meadowvale TC, (3) Hillcrest Mall, (2) Erin Mills TC, and then (1) Shoppers World Brampton.

 

Despite the weakness of Eaton’s, when Eaton’s and the Bay appear in the same shopping centre, ancillary store sales are the highest. If that sales ratio is 100, then Eaton’s + Bay + Sears is 91, Bay + Sears is 79, and Sears + Eaton’s is 74. The presence of any second line store drops the ancillary store average by ten percentage points, and the inclusion of a supermarket, by another ten percentage points.

 

1995    Malls designed for the new Chinese residents are booming, with incentives from the national immigrant entrepreneurial programme (click here). A minimum investment of a quarter of a million dollars got a Canadian passport. But buying a 600 square foot retail condominium unit meant that there wasn't much room for the common area within the 600 square feet: the new Chinese malls looked like rabbit warrens with narrow corridors.

 

They also operated differently: Our report notes that according to the current retailers "the natural elements are not in sync in downtown Toronto. Too much water, too close to the Lake. Not enough earth. That is why the lower fountain needed the dragon, to perpetually drain the soil. But the development went into liquidation before the dragon arrived. The liquidator--a number's man for an accounting firm--didn't understand any of this. The soil is not bad on Spadina, but the elements remain out of sync. Five years of bad luck. This is not your typical type of shopping centre ...".

 

The Chinese residents of Markham spend half their dollars with Chinese merchants, giving rise to additional space requirements. Remarkably, the Ontario Planning Act does not permit municipalities to zone for specific ethnic uses in a growing multi-cultural community. For instance: an ethnic entrepreneur may wish to establish a food store far smaller than the prevailing industry average. A municipality cannot take that demand into account.

 

1995    Raptors play in Toronto. Boosters claim the NBA spins off $347 million to the local economy. Gee, that's about a million a day.

 

1995    October. Quebec votes 49.4 percent for separation. The dollar quivers.

 

1995    Chapters formed from the merger of Coles and Smiths. It is placed under three years of monitoring from the Competition Bureau. The previous year, Borders Inc. had been stymied in setting up stores in Canada featuring its partner the Second Cup.

 

1996    Retail accounts for 30 percent of the Metro Toronto jobs, according to the Planning Department, in some 39,000 stores (an average of 6 jobs per store, $130,000 sales per job) and a sharp increase in stores from the 17,900 in 1971. There are some 84,100 stores in the GTA in some 810 nodes. The New Format retailers may have a market share double that of the downtown (Greater Toronto Area, 1996, p. 81).

 

1996    Sports Mart (1992-97) and Sports Authority report low sales from their new big box stores. Investors have been combing the merchandise aisles for new boxes to spring onto the public. The sports store box is particularly inappropriate: the problem is the lack of synergy. A golf enthusiast doesn’t buy the bowling balls. The tennis player doesn’t buy the hockey equipment. It's just a collection of unrelated and very seasonal businesses. Both fold their stores in Canada.

 

1996    Reichman brothers propose a 500 foot enclosed ski hill on the Downsview airport lands with some 300,000 square feet of themed specialty retail. Unlike Lawrence Square, this would directly compete with Yorkdale, opposite.

 

1996    Wal-Mart, after two years of operation, has the top market share, 24 percent compared to Zellers 23 percent, Sears 18 percent, Bay 15 percent, Eaton’s 12 percent and K-Mart eight percent. Last place (Woolco) to first place in two short years is an amazing achievement of marketing (the real estate and the locations changed very little).

 

1996    Waterloo Region. In examining their 15 million square feet of commercial space, one percent of the establishments control one quarter of all the commercial space. Thus, it only takes a small change in the way these larger stores do business to profoundly influence the commercial structure. (Ten percent of the commercial establishments comprised half the commercial space of the three cities).

 

1996    We plan Legacy Park in Windsor, Phase I and then Phase II. It has a Costco, a new Famous Players Silvercity, Business Depot, and various roadhouse restaurants.

 

1996    Loeb franchisees sue Loeb wholesale. Each store's sourcing costs are higher than the everyday low prices in Loblaws. At the end of each year, Loeb does the fancy calculations (about each franchisee's share of the slotting fees, the bonuses, the volume rebates, etc.), to produce a just sufficient income for the franchisee. They know, however, they are not making serious money if they start with high sourcing costs. Before the case gets to court, Loblaws has swallowed Provigo (Loeb).

 

1996    Cambridge Centre opens in the fall as a re-cycling of the depressed John Galt Centre. John Galt had lost a OMB store wars to Cadillac Fairview on the highway. (Cadillac was in its phase of promising a municipality whatever it wanted: hotels, skating rink, convention centre, etc.). The failure of the Fidra enclosed regional shopping centre on the highway meant that there was still life for the John Galt Centre. On opening night, Ashley D'Silva, one of the shopping centre's developers, personally shakes the hand and welcomes each invited guest. He has booked another class act, a $50,000 Las Vegas conjuring act for the opening ceremonies: there is still a little magic left in retail development.

 

Fidra had guaranteed Cambridge that, if its centre were not constructed within five years of approval, the City would receive the taxes equivalent to the approved space. But, after a little while, Cadillac was in bankruptcy protection and the City received nothing.

 

Cambridge Centre's rents are some $50 per square foot plus some $20 in CAM and taxes. The new power centre that develops on the Fidra lands charges $14 per square foot plus some $6 in overages.

 

1996    Paul Walters suddenly leaves Zellers. The Montreal headquarters is closed and is moved to Toronto. Walters’ final comment is that Zellers must not give up the low-cost position. A Wal-Mart executive (Barrow) is appointed at a much higher salary. A Wal-Mart executive is then appointed to oversee The Bay (Fields). They last one year.

 

1996    We plan a power centre on the General Motors Van Plant lands on Eglinton Avenue East in Scarborough (click here for photo). With the misguided actions of the municipality (who had tried to curtail warehouses), of the municipal consultant (who had crunched the wrong figures and forgot dollar inflows to Scarborough) and the OMB (who had turned down a Knob Hill Farms warehouse food store because Eglinton purportedly couldn't handle the traffic), there is an enormous pent-up demand for warehouse space. Lines at the Wal-Mart are 30 deep at peak periods (the store serves some 500,000 consumers). No one has ever seen the Wal-Mart signs of the United States, if there are more than three consumers waiting in line, they will open up another checkout. With half a million consumers in the trade area to serve, there would never be enough checkouts.

 

1996    OMB defines three tests in Comissos hearing on when it will hear market evidence (R950254):

 

1.         When the municipality’s planning documents call for it;

 

2.         When the proposed commercial development will jeopardise, undermine, destroy or have a significant deleterious or harmful effect upon a planned structure of functionally-related concentrations of existing and future commercial uses, which structure i.e. established the he municipality’s planning documents.

 

“I see no magic in the vertical alignment of components that use of the word ‘hierarchy’ implies. I think that the real question is whether there is in the municipality’s planning documents a deliberate organization of the various types of commercial uses, and planned concentrations of those uses. Furthermore, that organization must explicitly provide for, or necessarily imply, a functional relationship between the various concentrations. That, in my opinion, is the substance of the phrase ‘planned function’, which crops up consistently in discussions of market impact evidence.”

 

3.         When the proposed development may have a massive, overpowering and catastrophic effect throughout the municipality (not just on the downtown), or a significant area of it.

 

Commissos Food Terminal had objected to a proposed Zehr’s supermarket (in an area not covered by the Welland City Plan). Commissos was concerned that the proposal would preclude its long-standing plan to open a supermarket at another location. Without presenting any market evidence, the hearing was devoured by technicalities, what was a commercial structure versus a commercial hierarchy?

 

1996    Consumers Distributing, after 40 years of operation, seeks bankruptcy protection. Sales had dropped from $1.8 billion (1988) to $580 million in the previous year. Debts amount to a quarter of a billion dollars. Of the 217 outlets, at first only 20 will be closed under CCAA, then 70, then 129, then all. We had advised the company to make an advantage out of their prime drawback, waiting for an employee to bring the goods out of the warehouse (if indeed they had it in stock). Signs appeared encouraging customers to time how fast the employee could do it. But consumers preferred going into a new format warehouse and getting the goods themselves.

 

1997    Cambridge buys Markborough, and obtains control of a further 20 major shopping centres, including Fairview. Cambridge failed to take over Cadillac Fairview when it was bankruptcy protection in mid-decade. Cambridge sells Intercity (Thunder Bay), New Sudbury SC (Sudbury) and Markville SC (Markham)- to the Ontario Teachers Pension Plan Board, and buys the Teacher's interest in Bayshore (Nepean).

 

1997    RealFund, a Toronto real estate investment trust, acquires one million square feet of First Professional Shopping Centres, including Thunder Bay, Goderich, Barrie, New Liskeard, Ajax and Orangeville.

 

1997    Murray Frum sells nine Ontario shopping centres to RioCan for $46 million. Like Landawn, Frum has specialized in smaller markets, including Sudbury, Hamilton, London, Stratford, Ottawa, Brantford, Sault Ste. Marie. It also buys Heart Lake Town Centre and three malls from Orlando Corporation in Oshawa, London and St. Thomas. RioCan is developing malls in Ancaster and in the Windsor Power Centre (which we helped plan) with Famous Players cinemas.

 

1997    Wal-Mart has one unionized store out of some 3,000, in Eastown, Windsor, after the Ontario Labour Relations Board overturns hourly employee's overwhelming vote against the United Steelworkers of America. Then, the first vote on a new contract is rejected, 102-68, but the union claims a second vote win, 109-39. Another hearing is presented with affidavits from 75 hourly workers that they voted against the second vote. The local is ultimately disbanded.

 

1997    Evening shopping comes to Timmins. Timmins is the last outpost in Ontario to prohibit evening shopping. We had advised Ottawa the year earlier to change its regulations that kept stores closed in the early part of the week and we had the pleasure of arguing the case before Timmins Council. Canadian Tire was against it. Sales would not really improve; it just meant keeping the stores open when people were available to shop.

 

It's a particular pleasure to see Timmons Square, the only place in North America where Sears, Wal-Mart and K-Mart are in the same enclosed mall.

 

1997    Tip Top goes upmarket, ads feature a Richard Gere look-alike. Eighteen months later the company goes downmarket again with a huge write down.

 

1997    Maxi & Co., Provigo's food (55,000 square feet) and general merchandiser (30,000 square feet), invades the Ontario market in response to Loblaw's poaching in the Montreal market. Each store requires an investment of up to $20 million and anticipates revenues of some $50 million a year (almost a million dollars a week). The first store in the Hole in the Donut in Mississauga generates very disappointing sales after opening week: $450,000 per week, versus $550,000 breakeven, and $650,000 experience in Quebec; the Macho Challenge of the superstore has failed Provigo, just like it failed Loblaws 15 years earlier.

 

Then Loblaws buys Provigo and sells its 41 Loeb stores in Ontario to Metro-Richelieu Inc. ($3 million per store). Consolidation in the food industry continues with Sobeys $1.5 billion takeover of the Oshawa Group ($2.1 million per store). Sobeys has 948 outlets and Oshawa 707.

 

1997    Vaughan Mills is proposed as a joint venture by Cambridge Shopping Centres and the Mills Corporation for 180 acres at Highway No. 400 and Rutherford Road. The 1.3 million square feet should have a trade area radius of one hundred miles. The opposition shapes up to be the next major "Store Wars". Cambridge settles with each of the objectors, however, and avoids a hearing. The principal condition is that 1.3 million square feet is proposed, and 1.3 million must be open on day one. Not a million. Not three quarters of a million. Cambridge must do what they have promised. They immediately announce half a million square feet tentatively leased, and there's only another 800,000 square feet to go. Rumour has it that IKEA is interested in 300,000 square feet of space, thus only another 500,000 square feet to go.

 

When built, Vaughan Mills will be the first enclosed shopping centre in the province since 1989.

 

1997    Paladium announces a downtown complex of interactive entertainment, movie and video games on 50,000 square feet. The entertainment component of downtown is very difficult and expensive to maintain current. Subsequently, Disney Quest rejects downtown Toronto.

 

1997    Mondex begins its first test in Guelph. The Mondex card holds out the prospect for the banks to take a percentage on every small cash transaction. Guelph changes all its downtown parking meters to accept the card. Unfortunately, Mondex is not compatible with the new debit card technology, which is receiving enormous consumer acceptance with the early adopters. Mondex implodes in Canada within four years. (Meanwhile, the Japanese are implementing a phone-based credit system on their digital cellular).

 

1997    Zellers buys K-Mart, $240 million for 128 stores ($1.2 million per store). Forty stores will be closed in downtown Waterloo, downtown Cornwall, Cambridge, Chatham, Jane Finch Mall, Centre Mall Hamilton, Mountainview Midland, Rockwood Mississauga, Bayview Village North York, Shoppers World Albion, St. Catharines, Stratford and Whitby.

 

Note it’s the chain with the lowest productivity that gets gobbled up (as occurred with Miracle Mart, Towers and Woodwards previously). Now Zellers and The Bay are at the bottom, with little or no improvement in productivity this decade. Prime targets, therefore, for a takeover (click here for data).

 

1997    February Eaton's seeks bankruptcy protection. Some $318 million is owed to suppliers and landlords. As he signs the CCAA document, Justice Holden says it is “unbelievable”. The Eaton brothers in a press conference blame the US retailers who arrived after the free trade agreement (but none of them were fashion retailers). Sales had dropped half a billion dollars over the previous five years.

 

The chain has 85 outlets and two warehouses. Thirty one stores are to be closed immediately, including London downtown (sales an incredibly low $35 per square foot), downtown Kitchener (Eaton Market Square, shared with a farmers’ market), downtown Guelph (Eaton Centre Guelph), downtown Brantford (Eaton Market Square), downtown Sarnia (Sarnia Eaton Centre), downtown Thunder Bay, downtown Sudbury and downtown Peterborough (Peterborough Square). Only five stores are performing above the industry average (In Ontario, these stores are Masonville in London, Limeridge on the mountain in Hamilton, Sherway Gardens and Upper Canada Mall in Newmarket).

 

Mike Bradley, former mayor of Sarnia, and John Millson of Windsor, who spearheaded the Committee of Mayors on Cross-Border Shopping, take up the issue of Eaton’s stores closing downtown. Sarnia, the first recipient of Ontario Downtown Revitalization Programme (ODRP) largess, borrowed $6.5 million under the 1970s ODRP, and $6 million is still owed because the payment schedule was tied to the profitability of the mall. Mr. Bradley said the programme was a “failure” and the communities are left to pick up the financial pieces. It was so easy to throw taxpayer money at a problem, so difficult to add real value.

 

Just as with another white elephant, Mirabel, when the “high street from hell” is seen as inconvenient, there is no bailout, no quick fix resuscitation for the living dead. There is no point throwing more public money at bad projects.

 

Eaton’s lost $200 million in the previous year (more than their stake in the real estate of the downtown Toronto Eaton Centre project). I do the business commentary for the CBC (click here for the windows). They try to revive with a new upscale strategy. But, there are not many phoenix retailers.

 

For the previous three years Eaton’s had been fixated on the notion that their core customers were the psycho-graphic segment “Brie & Chablis”. There were just two wee problems: that segment covered less than one percent of the Ontario households; and the mapping programme had an unfortunate bug (when there was an industrial area or a park beside some brie nibblers, the whole industrial area got coloured in as if they were all imbibing Chablis, leading to wild market overstatements, as if they had been prepared by a “drunken sailor”).

 

1997    We help the BIA of Barton Street, a faded Main Street in Hamilton. They don't realize the disposable income available in the nearby streets, nor the spending potential of all the doctors and staff in Hamilton General Hospital.

 

1998    The biggest spenders at the Beaches Jazz Festival are the bikers. Most people spend at least four hours there, during which time they get hungry and thirsty. The $10 million spin-off bonanza primarily goes to the restaurants and bars.

 

1998    Loblaws Markets opens at Christie and Dupont, a perfected one-stop shopping environment, "Main Street in a Box". First day sales shatter all previous records.

 

These new "Main Streets in a Box" deliver on one-stop weekly shopping, and may save a time-pressed consumer 30 to 60 minutes a trip, rather than running around a group of different stores and services, all the necessary weekly needs can be accessed at one point, even if they are no longer "near" one's home, but some distance drive away. Anyway, people can only eat so much and no-one can build a sufficiently large parking lot: so you try and sell your existing customers more services. It is the key 25 to 30 percent of customers who are truly loyal, and generate 70 to 80 percent of net profits.

 

Groceterias have always been the first to break free of the mould: they function as giant merchandising laboratories which, because Ontarians spend so much cash there each week, are among the first to reflect market trends. One trend that the supermarkets are finally coming to grips with is appealing to ethnic markets. As over half the Ontario population is not derived from the founding ethnic groups, they have asked "look whose coming to dinner!", and been surprised by the answer.

 

1998    The new Wal-Mart and Canadian Tire modules in Orangeville are a significant success, extending the trade area of the municipality (by this process a dollar of potential expenditure suddenly becomes $1.50, because there are so many more consumers within the new catchment area). The local paper, the Orangeville Banner, notes on July 22: that the chairman of the downtown BIA "points to Broadway's new stores as examples of Wal-Mart's positive influence: 'Small businesses are more willing to invest in the downtown area because we're becoming more of a regional shopping centre' {a typical comment of new big-box towns}. Other store owners on Broadway echo these opinions, defending Wal-Mart's role in the community, and denying any long-term hardship. Orangeville's larger retailers are quick to dismiss the idea that the new competitor has hurt their sales. 'We don't feel we've lost any market share to Wal-Mart' said Royce Hill of Home Hardware, pointing out his store count was up from last year".

 

Orangeville Council also had the foresight to invest in a new town hall complete with theatre which has also increased confidence in the downtown Broadway strip, and encouraged investment there.

 

1998    Coliseum, Famous Players new flagship cinema near Square One and Highway 403, rakes up 1¾ million visitors in its first year of operation of its 2,555 seats (4,800 customers per day, $7.50 per customer in theatre tickets, plus the highest concession sales in Canada because you can’t get into the movie without falling over the concession stands). The early stadium seating cinemas generate a 30 percent return on equity, that is, they pay for themselves within three years, and then you are playing with someone else’s money.

 

1998    June. The Eaton’s IPO is subscribed at $15 per share and nets the company $166 million. Eaton’s share of its employee’s pension fund is even larger, $175 million (Eaton’s Retirement Annuity Plan). New equity from the family and savings on the bad leases (which CCAA ordered closed), put the new company on a strong financial footing.

 

The renovations of the downtown Toronto and Yorkdale stores are behind schedule. The new upscale merchandise dazzles, but only reaches downtown, Yorkdale, Sherway and Scarborough Town Centre. Brampton only sees the DKNY pantyhose, and the other 60 stores see none of it. Kosich has also phased out lower margin merchandise of electronics, appliances, furniture and furnishings. Like Simpson’s in the early 90s, the flagship and the suburbs are quite differently merchandised, with the same disappointing results.

 

1998    September: reverse cross-border shopping occurs with Harry Potter III being released in Ontario three weeks before the United States.

 

1988    Livent is bankrupt. Allegations fly that, like the normal independent retailer, there are two sets of books.

 

1998    One of the best Ontario Christmas seasons on record with sales up in the fourth quarter by ten percent. It does not help Eatons’s, who keep reducing their sales estimates and revising when the restructured company will become profitable.

 

1999    Interviewing in north-east Scarborough we need native speakers of Urdu, Tamil, Gujarati, Cantonese, Mandarin, Spanish and, of course, English. Quite a change over the quarter century since the opening of the Scarborough Town Centre when the municipality was characterized by "exceptional homogeneity" (see The Seventies). You wouldn't know it by the leasing in that centre, however.

 

1999    Zellers gets its first rebuke from the OMB in attempting to delay the opening of a Wal-Mart, in Leamington (PL980797): “Don’t complain, compete”.

Click here for the new Leamington Wal-Mart and A&P, and for the existing Zellers. The residents of Collingwood were less fortunate with their OMB members, who established such onerous delays and restrictions, that the new Wal-Mart was not built (PL922682).

 

1999    "Eatertainment" is the next fad. Rainforest Café opens in two malls (and closed in Scarborough Town Centre within a year). Planet Hollywood fades. The prevailing wisdom is that consumers just wanna have fun, and either you create it, or someone else will do it down the block. But the jury is still out on the true effectiveness of entertainment. When a family staggers out of the Rainforest Café or after seeing Schindler’s List, are they in the mood to buy? Or is a Starbucks better, a quick infusion of energy?

 

1999    September. With Eaton’s shares valued at 23 cents, and with no buyers interested in the total company (I meet the Federated guys in the locked room, laughing over the pitiful performance. “Hey, here’s only $25 bucks a square foot” (US)), Eaton’s finally expires. An Angus-Reid poll sponsored by the Globe and Mail identifies only 12 percent of the consumers who “really liked Eaton’s” (15 percent women, nine percent men, 20 percent +55 years). Only twelve percent is a trivial level of support after 129 years of operation. A majority said Ontario retailing would be stronger without Eaton’s. A third identified high prices as felling Eaton’s, a quarter identified mis-management and a fifth blamed them for not changing with the times. It wasn’t the competitors destroying traditional retailers; they did it all by themselves. Once a dinosaur, always a dinosaur. A dinosaur never changes its spots. To the bitter end, they are still selling cloth handkerchiefs. Didn't they see we use Kleenex now?

 

All Fred Eaton, former ambassador to the Court of St. James, can do is get drunk (Star, September 20, 1999). At the end his shares are worth 13 cents each.

 

1999    OMB upholds Durham's restriction that retail stores of 20,000 square feet or smaller must go to contemporary retail centres, not power centres (PL968505): "With no demonstrated need and a flawed analysis, I have no proof that the contrary position may be valid".

 

1999    Dylex launches Labels to compete with Winner’s. Labels is closed within a year.

 

1999    Electronic shopping goes bust. We have been unable to find any significant online sales in our monthly monitoring, and this phenomenon is confirmed by Statistics Canada (total sales well under one percent of retail sales). The initial vision and paradigm--unlimited choice, unlimited shelf space, inventory dispensed with--has been clouded by warehouses and truckers and mammoth expenses to maintain the web sites. Indeed, the new electronic retailers begin to face the same high costs as the traditional retailers, without the advantage of being near anybody. Perhaps most of the first wave of companies will go bankrupt. Consumers will not be able to dispense with bricks and mortar anytime soon.

 

1999    October The final kick in the teeth for Ontario retailing comes from Eaton’s. Their liquidators are bringing in new merchandise and intend to keep the stores open through the Christmas selling season and beyond, with any scuzzy junk accumulated from anywhere in North America. Of course, the Eaton’s leases never anticipated liquidation sales. Such permanent liquidation sales threaten to disrupt the legitimate business of all the shopping centres where they are located. All the big boys are back in court, including myself, in front of Judge Farley. Farley insists that only the normal Eaton’s merchandise can be liquidated, and the stores are not to run any non-stop discount derby.

 

1999    November Eaton’s is broken up into pieces: Sears takes six flagship stores for a re-launched, upscale eatons ($2.3 million a store, some $20 per square foot, way under replacement cost). The Toronto Eaton Centre store rent will drop to $1 per square foot in 2007 and will stay at that level until 2057. Awesome: a million square feet in the largest city in the country for just a loonie a square foot! Sears takes 30 suburban stores for a fire sale $30 million. The Bay takes ten stores, including Pickering, Mississauga and Hamilton mountain.

 

1999    There are two stand-out executives of the decade: (1) Lorne Braithwaite at Cambridge Shopping Centres who successfully dodged the bullets of the 1990s and emerged with a stronger company, and (2) Mitchell Goldhar of First Professional, who implemented a new vision of retailing over the 1990s (see Star, January 19, 1997, “Centres of Change”).

 

1999    OMB refuses to hold up central Kanata development and ends the millennium on a high moral tone (PL956159, December 6, 1999). Loblaws, who had a land use exclusivity with one developer, tries to hold up development of my client’s Signature Centre, a site surrounded by existing retail and with excellent access and visibility (click here). The Board quotes my testimony: “So one of the advantages of having a diverse market in land, not all controlled by one operator, is that you can let the market reach its potential, and if the market says another {supermarket} is warranted, then the food supermarket can locate on another site and is not governed by the restrictions”. Despite the protests of the main landowner that even at 400,000 square feet it hadn’t reached a critical mass, the growth of Kanata Centrum was not hindered by the adjacent Signature (click here). As the Board noted, “the evidence does not support X’s “scooping” theory. Centrum and Signature are fishing in different ponds. These are two very different malls, whose managers started off with different visions”.

 

1999    Computer glitches at Millennium turn out to be a non-event. We have upgraded all our computers at the great write-offs, however. I have more computing power on my desktop than all of MIT in 1975.

 

 


Comments, additions, anecdotes, public data,

published sources, photos (credited), and/or

corrections please send to

john.winter@sympatico.ca.