eResearch | Last week, Amanda Lang of BNN Bloomberg spoke with Heather Reisman, Founder & CEO of Indigo Books & Music Inc. (TSX: IDG), about the current plight of retail businesses in Canada and it does not look good.
Indigo is Canada’s largest book, gift and specialty toy retailer. The Company operates 88 superstores and 111 small format stores as of December 28, 2019 in all 10 provinces and employs approximately 7,000 people on a full-time, part-time and casual basis.
Heather Reisman’s Major Concerns
In mid-March, the Canadian government implemented social distancing and health measures to mitigate the spread of COVID-19 in the country. Non-essential businesses were then forced to close down.
Many used their online presence as an alternative way to continue operations. Retail was among the industries most affected by the coronavirus outbreak.
Indigo closed all its retail locations on March 17. By June 19, at the time of the interview, 70% of its locations had reopened and the CEO believes that all remaining locations would be opened in the following 2-3 weeks.
Retail Industry’s Future – After the Coronavirus
Indigo’s CEO is anxious about retail’s future after the COVID-19 crisis subsides.
The bookstore chain plans to close up to 20 small format stores across Canada as a way to cut costs. These stores are located in remote communities and are mostly non-profitable, as Heather Reisman emphasized.
Big retailers expect to feel the impact of the health crisis during the holiday season. The festive season is the most profitable period for retailers and, with stores not operating at full capacity, Indigo’s CEO anticipates tremendous job and financial losses from which the retail industry may take several years to recover.
Coronavirus Impact on Retail
According to an IPSOS survey, COVID-19 disrupted employment for about 35% of Canadians with 48% of those between the ages of 18 and 34 years old.
According to Stats Canada, retail sales in Canada fell by 26.4% in April, which is worse than the 15.1% decrease anticipated by the economists.
Chart 1 – Canadian Retail Sales Decrease in April ($B)
According to U.S. Census Bureau, retail sales in the U.S. fell by 14.7% in April. Following the record decline in April, as many states started reopening, retail sales in May rose by 17.7%, the largest one-month increase since they started tracking retail sales in 1992.
Although May was a better month for the retail sector, in Canada and the U.S., the pandemic damage remains severe. In the U.S., big retail chains like Neiman Marcus, J Crew and JC Penney declared bankruptcy. Aldo and Reitmans were retail casualties in Canada.
Social distancing and lockdowns changed consumer habits. As they were forced to stay home, consumers spent more online. In Canada, retail e-commerce sales accounted for a record high of 9.5% of total retail trade in April. On a year-over-year basis, retail e-commerce more than doubled, up 120.3%.
More information on retail companies can be found in the article published last month called “Best Buy, Target, and Walmart Report First Quarter Financials with Strong Online Sales.”
Chart 2 – Canadian Retail e-Commerce Sales ($K)
Canada Retailers Need Assistance
Heather Reisman’s message to Canadian authorities was very clear. The Retail sector needs help and they need help now. “If the Canadian government is cavalier about jobs at this moment, it will take half a decade for them to come back”, she said.
She is advocating for the government to offer affordable low-cost loans to retail businesses and is pressuring the federal government to sustain the current employer/employee top-up program in order to bring employees back to work.
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Here is the video:
