The perceived rush of U.S. retailers into Canada is cooling because of higher costs in Canada and a sharp recovery in U.S. retail sales, according to the senior managing director of national retail services for commercial realtor Cushman & Wakefield Ltd.
“There is a lot of publicity about American retailers coming here, but we are now seeing them turning back because [retail] sales have really rocketed back in the U.S. and the cost of entry in the U.S. is a fraction of what it is in Canada,” said Toronto-based John Crombie.
Real estate is much more expensive in Canada than in the U.S. and supply chain costs are also much higher north of the border, Crombie explained, adding that Canada has a “much more controlled market” where it takes longer to get development zoning and construction completed than U.S. companies are accustomed to.
“The Americans come in and they want to pay X and we want X times two,” he said.
The U.S. has many retail locations that are being sold or leased at discounted prices, Crombie added, a hangover of the financial crisis that has leveled U.S, commercial real estate prices since 2008. “American retailers can find an old shell in the U.S. and pop in there for much less cost than buying in Canada.”
Higher U.S. retail sales are also convincing some American merchants to stay home. Retail sales, excluding gasoline and autos, were up 3.7 per cent through the first 11 months of 2012 compared to a year earlier, according to the U.S. Commerce Department. In comparison, Canadian retail sales were up 3.2 per cent in the same period, reports the Department of Finance.
Crombie sees a trend towards U.S. and European brand name retailers setting up in new outlet malls in Canada, which are just now starting to be developed, rather than building stand-alone stores or buying into existing shopping centres, “Outlet malls tend to less capital intensive and sales are generally fairly strong.”
British-based McArthurGlen Group, with the Vancouver International Airport Authority, is developing a 340,000-square-foot outlet centre in Richmond, Crombie noted, and three other large-format outlet centres are under development in Toronto, Niagara Falls and Montreal.
