B.C. 2.0.: Retailers try reinventing themselves to survive the COVID-19 pandemic

The COVID-19 pandemic forced some provincial retailers to shut and left others struggling. But for those nimble enough to adapt to the new reality, it’s an opportunity

Blaine McNamee had already brought the dead back to life once in B.C.’s retail world. Then the pandemic came.

McNamee is the guy who took over the empty storefront that had been home to the cherished Wonderbucks on Vancouver’s Commercial Drive—an emporium of sometimes trashy, sometimes stylish but always cheap housewares whose demise in 2017 was widely reported as a sign of The End of Beloved Local Vancouver Retail as We Know It—and transformed it. It became a third successful outlet of the formerly west-side-only Rufus Guitar and Drum Shop.

During Wonderbucks’ final days, he’d visited the store, where its owners talked about rent zooming up and property tax increases that made the business unworkable. He heard what the rent was—then $12,000 a month, with a planned hike to $16,000—and thought, That’s actually not bad. McNamee opened the new shop in April 2019, after the property had changed owners.

In the first two months of this year, sales looked set to keep chugging on at a healthy pace. For the 38-year-old escapee from Edmonton, who had worked in music stores before buying the original Rufus at Alma Street and West 10th Avenue five years ago, his success was proof of his firmest belief: in-person, store retail is not dead

“Our whole business is run by people all under 40. We’re a new generation,” McNamee says. “We don’t have the attitude that retail is going to hell in a handbasket,” adds the former bassist. “Online, the rest of it, that’s our world we grew up in.” He’d doubled revenue at Rufus, growing from 22 to 55 employees and adding a small online component.

The results of his new approach were evident as McNamee, who resembles the late Philip Seymour Hoffman in his more raffish roles, walked around the Drive shop in the first week of March, just before the world took a sudden sharp turn into dystopian science fiction. His staff and contract teachers were busy: one talking to a guy at the counter about his beloved Les Paul guitar, another playing drums in the back, a third teaching a lesson in one of the two small soundproof studios.

That ended as the COVID-19 tidal wave crashed onto B.C. The store, along with thousands of others, closed, and McNamee had to figure out what to do next. As everyone shut down with no idea of what the future held, early reports trickled out that half of businesses in the province weren’t sure they would reopen on the other side. In a May survey by the Canadian Federation of Independent Business, almost a third of retailers felt that way. Survival would depend, in part, on how quickly they could transform their business models. That’s something B.C. seemed well poised to do, with its high proportion of entrepreneurs used to making it on their own.

What could go wrong?

B.C. was ticking along at about $7.3 billion a month in retail sales, seasonally adjusted, in the few months before the pandemic hit, doing relatively better than the rest of Canada. Analysts had sounded quiet notes of alarm starting last fall that retail was turning sluggish everywhere in the country, reaching lows not seen since the 2008-09 recession. But B.C. sales had increased by 1.2 percent year-over-year, 1.9 percent in Vancouver—the highest numbers outside of Yukon.

Economists, politicians and bureaucrats track those retail numbers fervidly. Purchases of leggings, camping equipment, banjos, ceramic teapots, lawnmowers and sofa beds might seem like simply a metric of bourgeois behaviour to some. But consumer spending, which makes up 58 percent of gross domestic product in Canada, is a prime indicator of a country’s economic health. And retail trade, which employed 2.2 million Canadians and accounted for 5.2 percent of GDP last year, according to Statistics Canada, is a big part of that spend.

Commercial real estate brokers painted optimistic pictures in their reports. “Although retail is facing global headwinds and experiencing declining sales, the Vancouver market holds a steady pace, buoyed by highly productive shopping centres and retail-oriented corridors,” chirped CBRE Group in November 2019.

Vancouver’s retail success stories continued to look successful. Aritzia, the Vancouver-based, now international, clothing chain that has focused on design, a living-room feel to its shops, and a delicate balance of affordability and quality, announced a 10-percent revenue increase in its January quarterly report.

Leases at the highest end, in Vancouver’s luxury retail principality centred at Alberni and Burrard streets, were pegged at $260 to $300 a square foot. True, the vacancy rate at regional malls in B.C. had edged up and was likely to stay there for a while, as elsewhere in Canada, thanks to the proliferation of failures among mall-friendly chains like Forever 21, Home Outfitters, Payless ShoeSource and Pier 1 Imports.

But unlike Twitter, those who work in the business of organizing commercial leases and sales are generally unmoved by the story of this or that historic business closing, an event that elsewhere sets off a weeklong “Vancouver is broken” meme. For brokers, it’s strictly about vacancies and square-footage rates. Those looked good for B.C. A few empty storefronts on South Granville? “It’s just going through a bit of a transition. It will come back,” David Knight, a Vancouver-based vice-president at real estate services firm Colliers International specializing in urban retail, said pre-pandemic.

Vancouver in general looked great, Knight maintained in interviews and forecasts at events like last fall’s Retail West convention. “There’s insatiable demand from offshore money for luxury goods,” he said. “A lot of it is the exchange rate for U.S. dollars for the cruise-ship traffic. Retail is not going away.”

Something extra

From main-street boutiques to international chains, the brick-and-mortar players in today’s vast retail ecosystem have one thing in common: they need people to want to buy their stuff. It used to be that just having a wide selection of products available in a physical space in a reasonably well-trafficked cluster was enough. Not now.

“You have to offer something you can’t get at Amazon: good price, luxury or exclusive,” says Stefan Read, vice-president, engagements, at Toronto-based Jackman Reinvents, a management consulting company. The extras can also be the specialized help and knowledge of staff, the convenience or the uniqueness of the product. But there has to be something more than just things on shelves and racks.

The something extra is what big, successful retailers plot strategically, figuring out the place on the checkerboard that isn’t occupied yet. But the smallest of shop owners can use the same techniques, and do. Throughout B.C., all kinds of independents attract dedicated followers by providing specialized service, curated goods, an experience, the virtuous pleasure of shopping locally. In every one of Vancouver’s commercial districts—even those with the highest vacancy rates, like beleaguered West 10th—there are shops defying conventional wisdom. 

On Cambie Street, Caroline Boquist’s Walrus is beloved by many for its esoteric selection of unique, design-focused housewares, books and clothing. Sales had mysteriously slowed somewhat over the past two years, Boquist noted mournfully last fall, with a few customers obliviously chatting to her about their Amazon purchases as they came in to pick up a birthday card. But she still had a solid core of regulars. And in some cases, Boquist said, smaller stores could deal with recessions better than the big ones. “We can be more agile.”

For Boquist and other retailers, no one knows what will emerge from the pandemic rubble. Statistics Canada reported a previously unheard-of 10-percent drop in national retail sales for March, when most non-essential stores had only been open for about two weeks, and a plunge of more than 24 percent in April. For both months, B.C. declined less than Ontario and Quebec. (Canadian retail sales climbed back to pre-COVID levels in June.)

Big chains and small shops announced closures or filed for bankruptcy protection within the first few weeks, but many were already struggling. COVID-19 was the final blow for companies with, as they say, pre-existing conditions. In Vancouver, there will be no more Army & Navy department store, J.Crew clothing or Ronsons shoe shopping. Red Cat Records, a local seller of vinyl, announced it would shrink from two stores to one.

That’s just the beginning. “Most of those [announcing now] will likely not come as big surprises,” says Jim Smerdon, a Vancouver-based VP at Colliers whose team is tracking closures and restructurings. But, he predicts, there will be more: “Others could come as surprises.” The more-resilient businesses haven’t thrown in any towels yet. What happens in the next year may bring some of them to their knees, though.

Post-pandemic, the future of retail in this province is potentially rockier than elsewhere, owing to a couple of made-in-B.C. factors. Vancouver and Victoria have been destinations for waves of free-spending American and Asian tourists. B.C. lost 400,000 jobs in March and April, according to Statistics Canada. That’s much more than some observers had predicted for a province where many sectors had stayed open, but our larger proportion of tourism and personal service jobs boosted the numbers. In Vancouver, in particular, tourism dollars have supported a level of luxury shopping and general consumption uncommon for a region the size of the Lower Mainland.

The other special factor for B.C. is the difficulty of doing business in the province’s retail power centre: the City of Vancouver. For many years, the city has been a brutal place to run a shop or restaurant, for two prime reasons. One is spiralling property taxes, driven by an intense pace of redevelopment. The second is a local bureaucracy that has turned commercial renovation permits into a Kafkaesque endurance contest. The same tortuous process has been spreading to other municipalities, explains Sean Ogilvie, vice-president of the retail division at Vancouver’s Lee & Associates commercial brokers.

There’s no data on how much of a drag a slow bureaucracy can create, says Jock Finlayson, vice-president of the Business Council of British Columbia. But he doesn’t doubt it’s had an impact here: “It makes intuitive sense that we had more retailers, more restaurateurs on the margins.” And the region will pay a cost for that. “I do think Metro Vancouver is in for some very painful adjustments,” Finlayson says. “For property owners, it’s been a very lucrative asset class. There will be more retail destruction.”

The new new world of retail

If the pandemic proved anything, it’s that people will find a way to shop even under extreme duress. Once B.C. residents recovered from the paralysis and sense of global doom in the early weeks, credit and debit cards were vibrating fiercely at places well beyond the essential food stores, pharmacies and liquor outlets. Vancouver-based Article, the online-only furniture company that has attracted attention for its savvy business model, doubled sales in April. Purchases boomed for the fast-thinking bookstore owners in town (Pulp Fiction and Kidsbooks among them) that offered easy ordering and free delivery. There were hour-long lineups at craft stores, garden shops, bike stores, and hardware and lumber outlets.

But for many other businesses—clothing, home decor, shoes, jewelry, electronics, musical instruments, day spas—the world shock of the pandemic meant having to move into a very different gear to generate sales and keep their heads at least a little above water.

That, in a way, was a good thing. “The pressure is forcing the thing that was taking far too long,” says David Ian Gray, founder of Vancouver-based retail advisory firm Dig360 Consulting. “There’s been a total reset, reinvention, transformation that, candidly, was not happening fast enough.” Some of the bigger—and often older—companies struggled to adapt. “They fell by the wayside because they were too cumbersome to change,” Gray says.

Those still standing will need to pay even more attention to the new new world, where every trend that was happening before the shutdown has now been accelerated. What is that new world?

The first rule pre-pandemic was that experiences are key. That’s why Nordstrom put a bar and a restaurant in the middle of its Vancouver department store, why kitchenware shops hold cooking demonstrations, why Staples is incorporating coworking spaces and studios into its Toronto and Montreal stores, and why many yarn outlets have carved out areas where knitters can come together to problem-solve.

It might seem like the pandemic has thrown that rule out the window. How can a customer have an experience if they’re worried about even going into a store? As it happens, smart retailers are already figuring that out, consultant Read says. “You’ve got to think about virtualizing the experience you deliver.” That means letting customers explore in a more compelling way and giving them something extra: offering custom-shopping service via iPad, adding exercise videos to your sporting-goods website or making online buying a pleasurable trip of discovery—not a marathon of endless pages.

The second observable change has been the shifting mix of businesses on both main streets and in malls. Main streets have changed noticeably in the past decade. They’re home to fewer things to touch and more services: restaurants, bars, gyms, dentist offices, nail salons, even children’s play spaces. Now malls, which have tended to be retail-dominant, with a food court or a juice bar stuck in the corner somewhere, want to be more like main streets.

At QuadReal Property Group, strategists have been studying successful shopping streets to see what they can borrow.  The Vancouver-based real estate arm of the provincial government’s British Columbia Investment Management Corp. owns the Oakridge Centre mall and the former main post office on West Georgia Street, which will house Amazon offices and a commercial hub. QuadReal wants to bring the same feel there has been in Gastown or Main Street or South Granville to its projects.

“We took bits and pieces from each one. Food and beverage is critically important. It’s the catalyst of the energy,” says Tara Brockelmann, vice-president of leasing. QuadReal, now redeveloping Oakridge, is looking at pushing up the food-and-beverage proportion there from the 4 to 5 percent it’s been in the past to a quarter of the space. In a targeted effort with the 242 lease transactions the mall did in 2019, it also aimed to integrate more of the wellness businesses that now populate many streetfronts.

The third reality of the new retail world is that there’s no dichotomy anymore between online and physical retail, no opposition between big bad Amazon and small local independents. Customers are increasingly combining online and in-person shopping strategies; so should every store, even the smallest. “Up to 80 percent of shoppers will look on their phones as they do research or they may transact online while they’re standing in a store,” says Chrystal Burns, senior vice-president for retail in the West at QuadReal. At Article, which is online only, marketing director Duncan Blair says the company hears from buyers who say they first did research by going to stores to look at other products.

On the flip side, products that were once offered only online are now migrating to storefronts. Vancouver’s West Fourth Avenue has recently seen the arrival of previously online-only bedmaker Casper and eyeglass provider Warby Parker, notes Jane McFadden, executive director of the local business improvement association. On South Granville, exercise-bike company Peloton now occupies a store that was once a high-fashion outlet.

This is the moment for retailers to jump at experiments in reaching and serving customers, if they haven’t yet. “You’ve got a massive amount of permission to try new things,” says Read, noting that people are trying out brands and methods of shopping that had been off their radar before. “It’s OK to screw up; just be transparent about what you’re trying to do.”

Oh, and this, too. Buyers have also gotten hyper-sensitive to which companies are doing the right thing, by their employees and the community. They don’t like the jerks. They have a lot of love to give to the good ones.

A kick in the ass

Vancouver companies big and small scrambled to remake themselves during the pandemic. Aritzia was a leader in adapting to the new retail reality. The 97-store chain went full-on e-commerce. Sales staff “switched to engaging in a highly personalized way with their clients digitally, communicating via text, phone and email to provide styling services for clients shopping,” CEO Brian Hill said in a May e-mail exchange. Even more important for its image, the company kept on all 3,000 employees, started two community support programs and adopted an International Labor Organization COVID-19 policy to ensure that suppliers got paid for finished work. Hill is now saying that although he expects revenue to shrink 45 percent year-over-year in the first quarter, the company’s plan to add new stores is still on track.

At Walrus on Cambie Street, Caroline Boquist, who runs the shop with a business partner and a few part-time staff, added all her products to the website and set up a system for delivery and curbside pickup. But, she admits, she’s tired of being told to pivot all the time, given the roller coaster she’s been on. Her landlord let her defer rent until July, but then it was due in full. Boquist isn’t eligible for the federal commercial rent relief program because her sales were only down 65 to 68 percent. The cutoff is 70. Until the threshold changed, she didn’t qualify for a $40,000 commercial loan from Ottawa because her payroll wasn’t big enough.

For now, Boquist is forging ahead. “I don’t know what else to do,” she says. That comes after years of struggling with the particular difficulties of doing business in Vancouver, where development has mostly been pushed onto commercial streets, resulting in huge jumps in land values and therefore property taxes. The goods that Boquist sells only account for about half of her costs. The rest is rent, taxes, utilities, advertising, salaries or dividends. Vancouver’s soaring property taxes—like most commercial tenants, she’s responsible for paying them—have wreaked more and more havoc with the other half of the budget.

That kind of pressure may kill not just weak businesses but good ones, says Gray at Dig360. He and others are increasingly vocal about their fear that if different levels of government don’t address some of the systemic problems—the existing hurdles of rent, taxes and bureaucracy, combined with a new patchwork system of pandemic government aid that has eliminated some from applying, along with a bunch of new rules about how to operate—they won’t be part of any great restart. “They’re being asked to be the front of a recovery, but they feel like no one has their back,” Gray says.

Then again, business operators in Vancouver and throughout the province are an agile bunch. “If there’s a class of retailer nimble enough to deal with this change, it tends to be the independent retailer,” Gray says. “They’re not burdened the way big chains are.” And B.C., with its slightly more entrepreneurial mindset that is a result of not having large corporations and head offices sucking up the talent pool, has more independents proportionally than Ontario or Quebec.

Independents like Blaine McNamee, who have been willing to gamble on success in spite of a lot of challenges—and are still in there fighting. When the pandemic hit and his stores had to close, except by appointment, he knew he had to do something different. “It gave us a kick in the ass to get everything going,” McNamee says in May. His music store already had a side gig of selling instruments through a third-party website, but now he had to crank that up to full speed. “The first couple of weeks, we worked eight hours a day to get everything online.”

The Rufus crew also made videos and boosted its Instagram content, attracting 10,000 followers. McNamee had to lay off staff, though he kept on all the teachers, who moved online. Like Boquist at Walrus, he’s missed out on some government support. For example, Rufus is making enough money that it’s not eligible for the commercial rent relief program.

But McNamee is as confident as anyone can be in his position that the business will survive. In his experience, even when there’s a year-or-more-long recession, music retail typically does well because people decide to make their own fun. COVID-19, which forced everyone to stay home, actually brought in some new customers.

Like everyone else in B.C., though, McNamee can’t predict what will happen in the obstacle course of pandemic mutations and ever-changing government support programs. For now, for him, for many, the most important thing: “We’re alive.”