Tuesday 18 December 2018

'Old school' retailer keeps the faith in age of Amazon

The interior of Simons’ Galeries de la Capitale shopping centre in Quebec City, Canada
The interior of Simons’ Galeries de la Capitale shopping centre in Quebec City, Canada
The interior of Simons’ Galeries de la Capitale shopping centre in Quebec City, Canada

Hollie Shaw

With the departure of Sears Canada, any business resembling a department store with a substantial percentage of apparel, softlines and home décor could hope to enjoy an upside from the retailer's recent demise.

But Peter Simons, CEO of the 178-year-old family-run Simons, at best sounds cautiously optimistic about the retail industry's future.

While the Quebec-based retailer is on an expansion strategy outside of its home province, with 15 large stores and a fast-growing growing online business, worries abound about the future performance of bricks-and-mortar stores as online retailers siphon business away from mall-based retailers.

"We are certainly living in a world where the business challenges are profound - it's a redefinition of a new business model," Simons said last week after the opening of a store at Quebec City's Galeries de la Capitale shopping centre, which replaced the retailer's older location in the same mall.

"Companies have to have the freedom over the longer term to invest in a new, more viable model. I think if you don't, it's incredible how fast you can fall behind, and the customer is very demanding."

Sears' absence might have brought a boost to Simons though the latter caters generally to a younger, more urban customer and the CEO notes the two had some market crossover in linens and home goods.

"It can't hurt us. The disappearance of this destabilising factor is certainly better for everyone in the market. It's a terrible thing for all of the employees that lost their jobs."

In the years since 2015, a period that saw the market exit of Target and ongoing store closures from Reitmans, Simons has opened six stores and kept its reputation intact for incorporating beautiful design elements into its outlets, spending more than the average mid-market retailer would on the finishing touches. In addition to a reduced carbon footprint, the new Quebec store features an 11 foot by 20 foot sculpture by local artist Giorgia Volpe, known for reusing found items to create art, and a variety of works by other local artists.

Efforts to reduce the 80,000 square foot store's energy consumption by 60pc involved drilling 27 geothermal boreholes to 500 feet beneath the mall's parking lot and installing solar panels on the structure's roof to generate 1.3 million KWH of energy per year.

While such a project will generate energy savings in the hundreds of thousands of dollars, the upfront infrastructure costs are substantial, Simons said, and the system requires a detailed computer interface to manage it.

"We really wanted to build something that might provoke a discussion, to see what's possible" in terms of sustainability, he said, noting the energy-saving features and the company's hallmark design touches helps bring customers through its doors.

"I don't regret that... it makes it worth the visit," he said. "If your store is just generic today, you will suffer because people will migrate to the web."

At the same time, Simons' has invested heavily in its web business, which now accounts for an estimated 20pc of its more than $400m in estimated annual sales.

Craig Patterson, director of applied research at the University of Alberta's School of Retailing, believes consumers are warming up to the brand in western Canada, where the company opened its 15th store last August in Edmonton's Londonderry Mall, its third location in Alberta.

"Performance in stores really depends on the retailer right now and some say it is a really great time to be expanding - Brown's Shoes, Aritzia, and Lululemon are doing great everywhere," Patterson said.

"And Simons' stores are beautiful. I'd be embarrassed to be The Bay in [Londonderry] mall, because the Simons in there is so much nicer. They put a lot of effort into their stores."

Additionally, the company has been bolstering the creative team behind its private label merchandise, sold by Simons under brands such as Twik and Icône and accounting for close to a third of its sales.

House-branded goods are viewed as a good hedge against retail competitors due to their exclusive nature and higher profit margins and Simons has a team of 150 people working on its house brands.

"Private label has always played an important role," Simons said. "What we are trying to do now is make it more creatively advanced and unique."

But the retailer, which expanded its selection of home goods and furnishings in 2016 but has a substantial clothing and outerwear selection, is trying to thrive in an inconsistent apparel market.

Sales of Canadian apparel and basics fell 2pc in 2017 to $27bn, according to market research firm NPD Canada, driven by a 10pc decline in coats and an 8pc drop in casual pants.

The bulk of its apparel is in the mid-range, noted Wendy Evans, Toronto-based retail consultant at Evans and Company Consultants Inc, who added it appears that the retailers' average price point might have declined to meet the demands of a competitive marketplace.

"I think the expansion has been good and I hope that they have not stretched it too thin," she said. "Simons has a point of view that is distinctive, and their home goods are outstanding. I think they have a huge benefit being (privately held). The vagaries of the market and the time that one spends dealing with public disclosures can take away from what retailers should be focused on - running stores well."

Simons said the company continues to focus on its longevity and operational strategies amid the market tumult.

"We are going to try to do the right thing and will cross our fingers and hope that customers appreciate it," he said.

"We are going to be patient. We are private and we have the luxury and the DNA to work longer term. We are old-school merchants."

(National Post)

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