Photo: Mike Mozart/Flickr
In January 2015, Target announced it would be closing all 133 of its stores in Canada after a flurry of openings that started in the spring of 2013. The mass exit left a number of large retail spaces sitting empty across the country and early reports about the pull out had some real estate watchers speculating about the shaky future of large-scale stores in the country.
David Bell, Senior Consultant at Colliers International, said that since so many different landlords are involved, “it kind of spread the pain out equally.”
According to commercial real estate experts, Target’s failure has been something of a boon to a handful of large-scale retailers and big-name property groups and real estate companies. However, with the further closure of 66 large-scale Future Shops in late March, many malls and power centres in Canada are feeling the strain of finding new, big tenants.
Here’s what we know so far: Retail Insider, an online news source focusing on Canadian retail, indicates Walmart and Lowe’s have taken over 13 Target leases each, and Canadian Tire has taken over 12 locations.
“The failure of Target gave Walmart another crack at looking at some of the locations that they didn’t have a chance to look at before,” said Bell.
Target has also returned 55 of the store locations to the landlords. In British Columbia, Pensionfund Realty Limited owns the Coquitlam Centre, which could stand to benefit from Target’s exit.
“For them, losing Target is actually not a big problem because Target underperformed as an anchor in drawing consumers anyway,” said Bell.
“And [the former Target space] is also below market rent so for Coquitlam Centre, being a strong fashion mall, losing Target gives them an opportunity to do better.”
Retail Insider noted that 11 prime Target locations were sold back to landlords Oxford Properties and Ivanhoé Cambridge for $138 million back in March. And Cadillac Fairview has several top pieces of Target real estate, including spaces at Chinook Centre in Calgary.
The exit means these companies can focus on attracting more upscale retailers to their premium properties.
The Target at Chinook Centre took up some 115,500 square feet of space. The mall has attracted a number of more high-end shops in recent years, including a Tiffany & Co. and the country’s first Nordstrom department store.
“Given the exceptional location of Chinook Centre’s Target, the space will be sought by a variety of retailers. Its size, ample ceiling heights and positioning in the centre of the mall makes a great location for Calgary’s first Saks Fifth Avenue, for example,” said Retail Insider.
But not every mall can attract new high-end businesses to fill up the spaces. Other potential tenants big enough to fill up former Target spaces include grocery store chains such as Metro, Loblaws, and Whole Foods, fitness company GoodLife, and, if the speculation is to be believed, a newly resurrected Zellers, courtesy of HBC.
Retail Insider also indicates that there are number of brands new to Canada that could take over the spaces. British fashion chain Primark has been considering a move into the country and both Nordstrom Rack and Off 5th by Saks Fifth Avenue are looking for Canadian real estate.
Since location is so important when it comes to real estate, it’s not just a matter of Saks setting up shop in a former Target or one of the newly empty Future Shop locations. These new retailers are looking for what Retailer Insider calls the right real estate and “many Future Shop locations, however, were in less-than-ideal locations and as a result, it may be difficult to find replacement tenants.”
So what happens to the shopping centres that can’t attract new, big tenants after losing an anchor like Target or Future Shop?
Retail Insider spoke with a commercial real estate landlord who, on the condition of anonymity, said some shopping plazas could be demolished since subdividing a large space can also cost a lot of money.
Bell says in the next five years there might be more challenges for power malls, those 90s-era retails spaces with a giant parking lots at their centre.
“People don’t like that experience as much anymore and there’s been more of a move toward more walkable environments in shopping centres where there’s an anchor or an enclosed portion, but they’re also a walkable outdoor environments that mimic the main street feel,” he said.
The big-box model may not be dead but the shuttering of Target is forcing a number of retail landlords to re-assess whether relying on large-scale retailers can continue to work in the future.