On March 28, 2015 Future Shop announced the closure of 66 stores, and the conversion of a further 65 to Best Buy. It was a second major blow to Canadian retail, just over a month after Target’s announced retrench from the Canadian market place.
What on earth is going on?
Most would say that the Canadian economy is healthy, interest rates are low and confidence is high. These moves and the impending loss of 1,500 jobs from Future Shop alone, seem to indicate otherwise.
What’s really happening is a shift in the way Canadian’s are buying, and that must be reflected in the distribution model of retail.
Future Shop was launched in BC in 1982 and by 1990 had become Canada’s leading consumer electronics retailer. In 2001, American retail giant Best Buy purchased Future Shop for $580 million. The early to mid 2000s saw a major expansion of “big box” retail, mega stores with huge retail footprints. Many sectors experienced the trend. Big box retail knocked out smaller local competitors wherever they opened. Witness Chapters and Indigo in Canada and Barnes & Noble and Borders in the US rolling out huge bookstores. Staples and Business Depot took on the stationary and office supplies category. Pet Smart and Pet Cetera brought us everything pet related under one mega roof. Lowes and Home Depot became the big box go to for home improvement, causing other Canadian retailers like Canadian Tire to expand stores and offerings or fail. Walmart was probably the first all round big box discount category killer.
But big box retailing may have had its day.
Many companies that expanded their footprints aggressively in mid 2000s are now downsizing or consolidating significantly.
At the heart of the issue is the acceptance of online shopping. Collectively society has moved to a level of trust in online purchasing, and with the readily available bevy of information and non-bias reviews, many prefer it. Consumers often now shop in person to browse, touch and experience, and then retreat to the couch to buy online at the best price point. This trend is called showrooming. In fact, one bullish Australian specialty food retailer decided to charge a $5 “just looking fee” to enter the store, which would be deducted from anything purchased. That strategy is no doubt misguided, but it speaks to the frustration of retailers paying the overhead on physical stores.
The decision to close Future Shop was good business. The twin companies didn’t make financial sense and the separate branding, for arguably the same consumer electronic commodity, was always a bit of a mystery to consumers. They tried to brand the experience as different, Future Shop appealing to the urban tech savvy customer, and Best Buy to the suburban, less tech knowledgeable who didn’t want to deal with commissioned sales reps. But it became an unnecessary brand differentiation in a shrinking marketplace.
So where might retail be headed?
Best Buy has already signaled that they are moving to embrace online sales more aggressively. Along with closing half of Future Shop stores and converting the balance to Best Buys, I would also expect downsizing of some remaining locations. Ultimately what is needed is a model that accommodates strategically located local warehousing, with retail fronts to service pick up and same day delivery of online purchases across Canada.
We’ve already seen the digitization of content that can be delivered and sold online, such as music and video, knock out previous retail giants like HMV, Rogers and Blockbuster. This downsizing of commodity and price based retail to accommodate a hybrid model of face to face browsing and online buying with quick delivery, is really the next evolution. In the end, the only thing certain is change.
Here is a link to an interview I did with CBC the morning the Future Shop closure story broke.
And here’s an interview I did for an article in the North Shore News, further expanding my views on this subject: