The big news in the (Canadian) retail world this morning is that Target has confirmed that it will be shutting down its entire Canadian operation. That means 133 stores will close and about 17,600 employees will soon be out of work. Here’s what the CEO had to say:

“After a thorough review of our Canadian performance and careful consideration of the implications of all options, we were unable to find a realistic scenario that would get Target Canada to profitability until at least 2021,” said Brian Cornell, who became the new chief executive officer last summer.

I can already hear the keyboards typing as business schools across Canada and the world prepare this case study: Why did Target Canada fail after not even 2 years?

I don’t really want to focus on that in this post, but my initial sense is that they came in too big and too undifferentiated. Maybe they underestimated the particularities of the Canadian market and shopper, but they certainly didn’t come in lean.

They bought up over a hundred Zellers leases and used that platform to obtain a critical mass quickly. But the problem with this approach is that it meant lots of upfront costs and fewer opportunities to adjust as they gained real feedback from the market.

Regardless of what happened, I’m more interested in what the impact will be to the retail real estate industry going forward. Remember, Target is an anchor. And when it entered Canada, it was viewed as an opportunity to refresh some of our tired malls – many of which were already showing signs of dying.

So what happens now? Who comes in to fill their shoes?

Image: Flickr

A lot of shopping malls are dying. You’ve probably heard this before. But how bad is it and what exactly is happening?

Well, a new report by CoStar (heard through the New York Times) found that nearly 20% of the 1,200 malls in the US are presently in trouble. “Trouble” is defined as a mall with a vacancy rate of 10% or more.

But what’s perhaps most disconcerting about this number is that, as recently as 2006, only about 5% of the malls in America would have been pegged as being “in trouble.” Here’s a chart from the New York Times (I’d love to see this same graph with a longer time horizon):

But not all malls are dying. The general sentiment seems to be that the high-end A malls are and will continue to thrive, and that it’s only the B and C malls that are dying:

Tom Simmons, who oversees the mid-Atlantic shopping center division of Kimco, another real estate giant, is more blunt. “There are B and C malls in tertiary markets that are dinosaurs and will likely die,” he said, but “A malls are doing well.” (NY Times)

So why is this happening? Some think it’s because the US is over-retailed. And some think it’s because of rising income inequality – which would explain why the high-end malls continue to thrive. But the experts seem to agree that it’s not the result of more people shopping online:

One factor many shoppers blame for the decline of malls — online shopping — is having only a small effect, experts say. Less than 10 percent of retail sales take place online, and those sales tend to hit big-box stores harder, rather than the fashion chains and other specialty retailers in enclosed malls. (NY Times)

I wrote a post 2 months ago where where I argued that big box stores will be the most impacted by online shopping (which is why so many of them now sell groceries). But I don’t believe that they are the only retailers that will be affected. Quite the opposite: Every retailer is or eventually will be impacted by the internet.

This threat is real.

Millennials have no hesitations about buying things online and, in many cases, they would prefer to do so. It has already been well documented that we (I’m a Millennial) don’t like driving as much as previous generations. So what makes you think we’d enjoy the process of driving to a mall?

But the other factor at play, I think, is that malls are no longer the “public space” of young people. Their position as a kind of cultural institution is waning. At the same time, more and more people are craving uniqueness. They like independent shops, not malls that all look and feel the same. And as these young people become old people, we might find that even the A malls start becoming impacted.

I don’t believe, for a second, that retail nodes within cities will ever disappear. But I think our attention would be better spent figuring out what the mall of the 21st century will be, as opposed to hiring PR firms to try and spin doctor our way out of this dead mall phenomenon.

Image: Flickr