Transportation Industry Trying to Keep Pace with the Rapidly Changing Retail Sector

Last weekend I walked into one of my favourite Men’s stores in a local mall, Yorkdale Shopping Centre in Toronto, to arrange for a pair of pants to be mended.  The retailer, Harry Rosen, asked me to stick around for a few minutes while they did the repair.  After looking at their display of Armani ties, I walked across the hall into the Hudson’s Bay store.  Like many men, I don’t shop for clothes too often and when I do, I go to a select group of stores, in a very focused way, to buy what I need.

After passing the cosmetics counters that have always been across the hall from Harry’s, I had quite a shock.  In fact, I would say that the HBC store was unrecognizable to me.  The previously rather bland retail environment was replaced with a dazzling array of designer fashions.  The men’s department that had always been on the main floor was nowhere to be found.  This caused me to reflect on the many changes taking place in the retail sector.

As I walked through the mall, I saw a number of well-known American retailers that have found their way to Canada.  The list now includes Victoria’s Secret (also just next to Harry’s), American Eagle (a few doors away), J Crew and William Sonoma.  Another one of my preferred men’s shops (Brooks Brothers) has also landed in downtown Toronto.  Canada has been discovered, not by Christopher Columbus, but by Target Stores and Nordstrom, that have announced their intentions to head north. 

Canadian retailers have been preparing for the invasion for some time.  Clearly, the HBC makeover is directed at blunting the attack from Nordstrom, Target and others.  Holt Renfrew, one of Canada’s leading luxury retailers, that is affiliated with Lord and Taylor in the United States, has announced its intention to open a chain of HR2 stores.  The stores will feature unique merchandise sourced from many of the same designers that supply Holt Renfrew, but at a lower price point.  While Holt Renfrew executives have denied the suggestion, the stores will likely resemble Barney’s New York’s less expensive Co-Op chain or Neiman-Marcus’s lower-priced Cusp stores. 

Not to be outdone, one of Canada’s major furniture retailers, Leon’s Furniture, bought The Brick this week to gain efficiencies and economies of scale and to more effectively respond to a slowing housing industry.  They also hope to compete more successfully against Target Stores.

Product mix is another area of rapid change.  Shoppers Drug Mart stores have been selling high end cosmetics and food products in their drug stores for some time. Food sales are a big part of the revenues at Wal-Mart and Target Stores.Retailers of books, music and electronic gear are also transforming their operations.  For people who live in Canada and frequent their local Indigo bookstore, the change in product mix is profound.  A significant percentage of the books and CDs have been replaced by gifts and toys as an increasing number of people download their music, books, magazines and newspapers on their tablets and smart phones.

The major Canadian retailers are also playing the product mix expansion game.  Canadian Tire is now selling electronics, Home Depot is selling appliances, Future Shop is selling bedroom sets and Loblaw companies, one of Canada’s pre-eminent food retailers, is selling “Joe Fresh” clothes and pharmaceuticals.

Of course a large part of the retail battle is not going on in the malls.  Rather it is taking place on peoples’ computers. While online sales represent about 7 percent of U.S. retail sales, they are expected to represent 16 percent of the total ($586 billion) in holiday sales in 2012, according to the National Retail Federation. 

Online sales are transforming certain industries.  These changes are having significant impacts on the logistics and transportation industries.  In the U.S., Target, Macy’s, Nordstrom and others are trying thwart challenges from rivals Amazon and EBay by offering same day shipping.  Retailers such as Macy’s and Nordstrom, that used to operate their stores and websites independently, are integrating them.  Wal-Mart Stores is starting to view its 4,000 plus US stores as mini distribution centres and is testing same-day delivery on its web purchases.   Target and Saks Fifth Avenue understand that consumers with tablet computers are shopping online while in their stores.  As a result, they are supplying visitors with a mobile app and free Wi-Fi access, in their stores, to encourage additional purchases.  Toys “R” Us lets its online shoppers pick up their purchases at a local store within three hours.

Wal-Mart, always at the leading edge of cost efficient logistics, is testing a 60 foot tractor-trailer prototype unit in their network of stores in Ontario, Canada.  They claim that this configuration offers 30 percent more cubic space.  They have also launched an initiative to encourage their vendors to use their transportation network to haul their inbound freight.  Home Depot in Canada outlined, at the recent 2012 Surface Transportation Summit, that they converted from LTL store deliveries to consolidated truckloads of LTL freight. 

Technology, cost pressures, consumer preferences, competition, and in Canada, the US invasion, are transforming retail operations.  They are forcing transportation service providers to adapt to this “brave new world” of retailing.