Carts Across the World: O Canada!
If you are considering expanding your specialty leasing business, you need to consider Canada. By all accounts the country’s specialty leasing operations are booming and new ideas and concepts are always welcome.
Canada is one of the world’s largest countries—consisting of ten provinces and three territories. The country has a diversified economy and a thriving trade sector, and Canada is a vital arm of the North American Free Trade Agreement.
We share many similarities with our neighbor to the north but many Canadians are quick to point out that “things are different here”—especially when it comes to specialty retail. John C. Williams, of J.C. Williams Group in Toronto, says the Canadian consumer is a little more conservative when it comes to spending. “Retail here is concentrated around the middle market consumer and that is a big difference,” Williams says.
John Edgar, of PSL, a Canadian family-owned leasing firm and partner with Calendar Club USA, agrees with Williams. “It’s not as different as people let on [although] Canadians are a more conservative people who don’t have as much of a spending mindset,” Edgar says. He adds that the relatively lower population numbers in Canada is another factor for consideration when it comes to setting up retail operations in the country.
Quebec exerts a strong influence on the country and many French-speaking Canadians influence the markets for high design, food and fashion.
Specialty retail in Canada
Ivanhoe Cambridge Company, one of Canada’s premier developers and managers of retail real estate, headquartered in Montreal, has a strong and successful specialty leasing program. This well regarded program is the work of Suzanne Cayley, vice president of specialty leasing and partnerships who operates out of a regional office in Toronto. Cayley manages programs coast to coast in Canada. She is also responsible for two programs in Europe—Madrid Xanadu in Spain and St. Enoch Centre in Glasgow, Scotland.
In Canada, three regional managers and specialty leasing and partnership managers have oversight for one to three centers. Cayley operates one of the largest programs in North America with 45 centers and nearly 600 units in the common area.
She says Canadian specialty leasing is different compared to many U.S. operations. For one thing, she says, the Canadian centers are substantially smaller in size than U.S. properties. Also, “Canadian developers don’t increase or decrease the number of units in the common area, like they do in the U.S.,” Cayley points out.
Keeping it fresh
Ivanhoe Cambridge centers have an average of 12-14 units in each property. Year round, each program’s occupancy averages over 92% and produces between $1.5-$2 million Canadian dollars. She wants to mandate a high turnover rate to keep things fresh. “We will ask ourselves: if we had to start our program all over again, what would we do? I think that we have lost sight of the purpose of specialty leasing—which I believe is to introduce and provide new opportunities for new concepts and new retailers to be part of a center. We are so focused on achieving the bottom line that it is really easier to just renew the current tenants to ensure that we are fully leased and thus we are shutting out new concepts. If we mandate a 30-50% turnover rate, then we allow a ‘new’ shopping experience for our customers and that makes the experience of shopping the specialty tenants fun again,” Cayley says.
Keeping it legal
Ivanhoe Cambridge is mindful of all permanent lease restrictions—especially those spelled out by American retailers like Bath & Body Works and Victoria’s Secret, and Cayley’s team works diligently to honor these limitations. “Our permanent tenant mix and the uniqueness of our shopping centers drive the bus,” Cayley says. She adds that the company is looking at merchandising that enhances the shopping center. Cayley expects a greater focus on sponsorship in the future.
In Canada, specialty leasing legal agreements are similar to those in the United States. For merchants who wish to do business in a center for up to one year, Cayley uses a temporary occupancy agreement. For partnership and or sponsorship transactions, Ivanhoe Cambridge centers use a license agreement with a longer term limit. In addition to rent and standard percentage rent, Ivanhoe Cambridge charges each merchant a “promotion fund” fee that covers the marketing costs for merchant listings in websites, directories and in-mall signage. The portfolio currently has partnership deals with Coke (vending), OneStop Media/Paddison (digital posters) and Clear Channel Communications (“larger-than-life” banners). Cayley is currently negotiating a portfolio-wide credit card contract.
At Ivanhoe, the specialty leasing team follows the trend advice of a fellow specialty leasing manager. Zeina Gharzouzi, specialty leasing and partnership manager at multiple centers in the Montreal area, is Ivanhoe Cambridge’s trend aficionada. According to her, retail sales have been stable in Canada and they expect to see a slight 2-3% increase by year’s end. She is noticing a growth in health and wellness products made with organic and toxin-free ingredients. Cell phones, watches, novelties and hair and beauty products are the top sellers across the Ivanhoe Cambridge portfolio.
Morguard Investments, an integrated real estate firm based in Mississauga, Ontario, is experiencing a growth spurt in specialty leasing programs with 16 permanent programs and one new outdoor program arriving in 2012 at Uptown Centre, a lifestyle center located in Victoria, British Columbia. With 158 RMUs across the portfolio, these programs were created when Jennifer Thomas, director of specialty retail leasing, formally began oversight in 2007. Thomas focuses on portfolio-wide national deal making, setting policies and procedures and training specialty leasing managers.
Last year, Morguard launched a partnership with marketing to achieve the objectives at each center. Thomas and the director of marketing work closely to drive deals and train staff. For example, last holiday season, the specialty leasing manager at St. Laurent Centre, in Ottawa, Ontario developed a partnership with the local hydro company. This company sponsored a “Holiday Lounge” in a vacant inline space. The store offered customers a place to relax, watch a movie, use free Wi-Fi; and Ottawa Hydro had a chance to talk with lounge guests about energy conservation.
Doing business in Canada
One of the biggest challenges for U.S. retailers doing business in Canada is the government’s requirement that all retail packaging be bilingual (English and French). This can pose problems for retailers whose products have extensive instructions.
Even English has slight variations here. For example, in the United States, the word center is spelled “c-e-n-t-e-r” but Canadians use the British “c-e-n-t-r-e.” And of note to specialty retail: Retail merchandising units (RMUs) are referred to as merchandising retail units (MRUs).
Canada is the second largest country in the world in terms of land area. Most of its population is clustered around the country’s southern edge and in four major areas: Toronto, Montreal, Vancouver and the province of Ontario. This presents a challenge for retailers. For both Ivanhoe Cambridge and Morguard training and coaching specialty leasing managers who are spread far and wide geographically is a difficulty they have to deal with.
Thomas said she gets to “send all my specialty leasing managers to Specialty Retail Report’s SPREE where we hold an annual corporate training meeting prior to the convention floor opening.” She looks forward to it each year, Thomas adds. Morguard uses Specialty Retail Report’s Visual Victories contest as a visual merchandising training program. Last year, one of their centers came in second place.
Transition to Canadian retail
Calendar Club is an example of a U.S. retailer that has successfully expanded to the Canadian market. Several years ago, PSL joined forces with Indigo, a Canadian bookseller that had a significant market share of the holiday calendar business. In 1993, the three firms—PSL, Indigo and Calendar Club formed the Calendar Club of Canada partnership. Today they run over 200 locations throughout Canada (this year 60% are kiosk operations and 40% are temporary inline stores). John Edgar, with PSL, admits there are some obstacles to overcome. These include banking differences, challenges clearing customs, and the aforementioned bilingual packaging standards.
Hickory Farms, a Toledo, Ohio-based firm also does business in Canada. According to Cayley, Canadians want to support products produced in Canada. As a workaround, Hickory Farms has customized their Canadian kiosks by adding local cheeses from Canadian suppliers and producers. Cayley points out that “it’s more profitable for Hickory Farms to source locally with all the customs and duties on products.”
Some other U.S. retailers with specialty leasing operations in Canada include Toys R Us and NYS. Each uses Canadian operators.
All in all, retailers and leasing managers alike, report that specialty retail in Canada is well worth the effort. It is an industry that looks to be thriving for decades to come.
CrossIron Mills opened on August 19, 2009, just north of Calgary in Rocky View County. This architecturally innovative 1.4 million-square-foot shopping center is the largest single-level shopping center in Alberta, with 17 large format anchors and more than 200 specialty stores and premium brand outlets. Developed as a “Mills-style concept,” CrossIron Mills combines the best attributes of a traditional shopping center and exciting architecture all under one roof.
The CrossIron Mills specialty retail program consists of 30 units in two different styles. Heather Kane-MacLeod, manager, specialty leasing and partnership, says: “We make an effort to keep the 30 carts unique and have the retailers use a visual merchandiser to enhance the presentations of the common area retail offering.”
There are eight kiosks in the program and two seasonal locations for Christmas. Currently, there are around 27 inline stores in the specialty leasing program. One outstanding example is Cork’s, a wine and spirits store, which won the “Best Signage” award in last year’s Visual Victories contest sponsored by Specialty Retail Report.
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Center Eaton de Montreal
This vibrant European style vertical shopping mall attracts millions of visitors annually. The centre is over 300,000 sq. ft. with approximately 175 shops and restaurants on five levels. It has 19 RMUs and five kiosk locations and is the largest specialty leasing program in the downtown area. The underground transit system delivers millions of visitors. According to Charlene Thomas, the specialty leasing and partnership manager, Dead Sea Salts enjoys the most sales.
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Vice President, Specialty Leasing and Partnerships
President, Calendar Club of Canada
Manager, Specialty Leasing and Partnerships
The Montreal Eaton Centre
Director of Specialty Leasing
John C. Williams
Senior Partner, J.C. Williams Group