In retail supply chains, real estate and transportation form a tight relationship.
A country like Canada, where industrialization came about later, and more evenly than in the US, also has a very different retail history, notes Ian Gragtmans, executive vice president of brokerage house Colliers International, which services clients in the 3PL and consumer packaged goods sectors.
A speaker at the recent Surface Transportation Summit, sponsored by Transportation Media and Dan Goodwill & Associates, Gragtmans is also the co-author of a white paper, along with Colliers vice president Kate Hay, called ‘Distance Over Time: The interplay between logistics and real estate that has characterized retailing in Canada. A history and a glimpse at what the future holds.’
Canadian retailing has been shaped in large part by distance; distance between points in time and distance between points in space, note the authors in the white paper.
“It is clear to us that distance will play a key role in shaping the future of retailing in Canada, and that those who can deal with it effectively will be best positioned to succeed in the new retail reality,” the paper says.
Industrialization in the United States was a relatively rapid event that occurred in and around the mid-1800s across much of the country.
Conversely, industrialization occurred more slowly in Canada and even today it is not inaccurate to describe Canada as a country with a small population spread over a large mass of land. This “directly contributed to the fact that industrialization in Canada ran unevenly and almost two decades behind the United States in some provinces (Ontario, British Columbia and Quebec) and even further behind in others.”
The retail format that emerged out of industrialization – in both the United States and Canada – was the urban department store; a success due to its ability to provide a range of products and services under one centrally-located roof.
However, other than the timing of their development (and perhaps a consequently slightly more mature retail industry in the United States), by 1900 there were few differences between the United States and Canadian retailing environments. In the early 1900s, when chain stores made an appearance in the United States these began to quickly compete with traditional department stores.
Chain stores did not gain the same traction in Canada as in the United States, because of the significant logistical challenge distributing products to a number of stores positioned in remote urban centres nationwide.
“That challenge remains a Canadian retail reality today,” the paper states.
Canadian culture, discernibly different from that of the United States, is another key factor in how the retail landscape played out in the country.
Canada’s strong stated commitment to multi-culturalism “has led to a society in which people keep the traditions and preferences of their countries of origin. The results of this commitment are pronounced regional (and intra-regional) differences in tastes and preferences, and made (and still makes) the chain store model a difficult one to implement successfully in Canada.”
But with increasingly shared media and the continued entry of international retailers into Canada, the effect of this difference on the Canadian response to ‘chain’ retail is diminishing and should be expected to continue to diminish, the paper suggests.
Gragtmans says Canada has a more complicated and more difficult vendor structure. The perfect distribution formula has yet to arise here, he says, and a lot of time is spent with CEOs on corporate strategy as a result.
Today’s “blurring of retail formats” sees a mix of big box to small box, in store and online retailing (dual channel: ecommerce and bricks and sticks), and an incredible shift of product sourcing, from North America to Asia.
Onshoring will not happen overnight, and there is a considerable amount of product flow overseas.
Managing the transfer of product from intermodal transport to distribution centres is a key issue.
While some see an American “invasion” in the retail arena, Gragtmans sees more of an “internationalization” of the Canadian landscape.
The Canadian difference?
“There is a seeming Canadian affection for oligopolies, and a logistical challenge related to gaining a footprint in urban centres dispersed over a large geographic area,” he says.
The increase in non-store retail is resulting in a varied array of retail footprints.
“There is an increased use of technology in all phases of the supply chain, the requirement for a globally networked supply chain, for the rethinking of the role of logistics and supply chain in corporate strategy. It’s important you be at the table for setting the strategy with your client. You better offer more than you traditionally have in the past,” he says.
With the continued move to dual channel, and the pressures of JIT, offering more than just transportation will be the demands on transport.
“Vendor inventory management will be something you’ll see more and more-we want you to hang on to the product and we’ll let you know when we want it delivered to the person who ordered it. 3PLs will have to have more customers with different product coming out of the same DCs. There will have to be more collocation amongst vendors and retailers to come up with a remotely rational model for pricing under the same roof,” says Gragtmans.
One of the trends witnessed today is a return to urban shopping, but new urban stores are often part of mixed use developments – combining some residential and office components with a mix of retail formats. Many retailers, especially those who came of age during the power centre or ‘big box’ era are rethinking their traditional stores and realizing that a mixture of box sizes, configurations and product offerings is better suited to the realities of retailing in Canada today.
This also entails a ‘rethink’ of product distribution networks and facilities that for a large part were located and built to the requirements and specifications of a different time. Therefore, retailers and their suppliers are rethinking the real estate and logistics required to support this new “hybrid” of retail integrated with something else. Issues include: getting product in and out of urban locations in a traditional tractor-trailer, higher costs for downtown real estate making large amounts of stock-room or storage space cost prohibitive, and small stores resulting in smaller inventory of the same product on store shelves in order to effectively maximize the offering, says the paper.
Gragtmans also notes that in spite of its large geographical area, Canada’s desirable available retail real estate is relatively limited – Toronto has 22.4 square feet of retail space per person and Vancouver has 14.1 square feet of retail space per person.
This makes competition for and the price of that real estate intense, which results in sticker shock for a lot of entrants and adds an additional layer of complexity to the expansion of their networks. To the extent that their networks are not robust they remain harder to support from the perspective of supply chain and logistics.
There is a lot of discussion around the future of retail in Canada as retailers grapple to determine the correct channels through which to offer their goods. The questions arising from this discussion generally group around a few issues:
1. Are goods to be offered in store or on-line? Or both.
a. If goods are to be offered in a physical retail store, what form should that store take? Small and urban supported by larger distribution centres? A showroom more than anything else?
b. If goods are offered online how will they get to the customer? Should they come to the closest store to pick them up?
If on-line and customers can order anywhere in the country where do we have to store our goods in order to ship efficiently? How are we delivering to the consumer?
“Though critical, the ‘right’ answers to the questions set out above will vary from retailer to retailer and we would submit that there is still the opportunity for a smart ‘first mover’ to gain some advantage by answering its questions and quickly moving towards implementing new processes and technologies based on those answers. We are seeing an increase in the use of technology in all parts of the supply chain and we should expect to see even more technological advances in this area – as evidenced by the recent acquisition of Kiva Systems (and its fulfillment robots) by Amazon for $775Million (USD),” says the paper.
Retailers are contemplating the costs and benefits of such things as Just-In-Time inventory, white glove shipping, small and short-notice shipments, and requiring vendors to play a larger role in inventory management.
“Along with the change in the way we retail is a rethinking of the role of logistics and supply chain in the corporate retail organization. To the extent that they do not already, there is a general movement towards involving logistics and supply chain earlier and more deeply in setting corporate strategy. We would suggest that external suppliers of logistics and supply-chain related resources – from real estate, to transportation, to packaging – also request a seat at the table when retailers are setting their strategy, as opposed to being order takers to the business once the strategy is set.”