Week of October 1, 2018
By Garrick Brown
The Formula for Successful Cities
I am in Toronto today attending ICSC Canada. If you haven’t been to Toronto lately, you might be blown away by what is happening here. There are 91 cranes across the skyline with high-rise multifamily, office and hospitality projects sprouting everywhere. Between the U.S. and Canada, Toronto is now the fastest growing city in terms of population, with Vancouver not far behind it. Yet amazingly, outside of a few higher end department store chains and a handful of luxury brands, most U.S. expansion here has been limited to fast food and fast casual players.
No doubt, there has been a spotty track record of American expansion north of the border. On the fast food front, A&W is a dominant player in Canada—far more so than in the states. Meanwhile, Nordstrom’s recently opened stores in Toronto and Vancouver are reportedly killing it. I’ve had the pleasure of visiting both and the places are packed. Yet, for other categories I have heard the same concerns; the taxes are a little higher, the wages are a little higher and, at the moment, the exchange rate has a Canadian dollar translating into roughly $0.75 cents American.
The challenges of American retail expansion, in practice, have been influenced by those challenges… but for some of the more recent attempts gone wrong they have been more about not having a good supply chain in place and, in nearly every case, misunderstanding the Canadian consumer. On this last point, I have seen it in action.
A few years ago a friend of mine who handled site selection for a major U.S. chain that was about to do a big push into Canada told me that it would be “a natural fit” for this brand, which saw a lot of Canadian customers already visiting its border town stores. He also shared his view that the “Canadian consumer is nearly exactly the same as the U.S. consumer, only friendlier and wearing more layers.”
Of course what happened was that this particular retailer didn’t end up doing so well in Canada and, within four years, was gone. Assuming the Canadian consumer is monolithic is a common mistake, and frankly I would argue that assuming the American consumer is monolithic is just as big a mistake. However for any retailer dealing with their own domestic audiences, it is easy to assume what works in your country will work in another simply because all of your previous successes with your own particular demographic came about organically. They are part of your DNA. Now, I do see massive similarities between the American and Canadian consumer, but in Canada you also have the same differences between income levels, suburban vs. urban and regional differences with some really strong cultural influences on top (The urban Montreal market feels European, yet most of the rest of Quebec has its own characteristics that are unique to it both in suburban and rural communities that would not necessarily compare to suburban or rural characteristics in Alberta or British Columbia).
My point isn’t that Canada is so complex as to dissuade American chains to come here. My point is that if you want to come here and succeed, you can’t treat it as a confusing or troublesome 51st state. You need to take the time to do your due diligence, market research and to engage trustworthy local boots on the ground that are connected to the local community and know what works. In other words, the same strategies that typically ensure greater success rates anywhere.
And, you do want to come here. It’s not just that Toronto is the fastest growing city now in North America (outside of Mexico City). It’s that it has now emerged as the second largest tech hub in North America. It has grown thanks to an immigration stance that welcomes newcomers. Roughly one fifth of Toronto’s residents were born in another country. While this hasn’t been without limited levels of backlash in Canada, it’s been nothing like the recent anti-immigration wave sweeping the United States and Europe. But tech talent from the Far East and India has been one of the drivers of this explosion of tech growth here.
That said, there are a whole lot of publicly owned American retail concepts that are actually doing well today, from off-price apparel to fast casual dining chains. Nearly all of them, however, are dealing with a marketplace where the runway for growth is growing shorter as issues of saturation are increasingly rearing their heads. For those that haven’t already head north, the time is coming soon where Canada’s continued ascendancy is going to finally start to get the attention it deserves.
A tolerant city is a creative city. A creative city is an innovative city. An innovative city isn’t just a prosperous city in today’s tech-driven economy. It is a dominant city.
Garrick H. Brown
This post is commentary from the latest edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Garrick Brown serves as Vice President, Retail Intelligence for Cushman & Wakefield throughout the Americas. He is one of the leading retail real estate analysts in the United States; speaking frequently at industry events and regularly quoted on retail matters by the Wall Street Journal, the CBS Evening News, NBC News, CNBC, National Public Radio, Women’s Wear Daily and dozens of Business Journals and other industry publications.