Mushy middle department stores feel the squeeze as luxury and discount expand

TORONTO – The financial woes of Sears Canada and Hudson’s Bay have highlighted a painful trend for the department stores that once dominated Canada’s retail landscape — it’s best to avoid the “mushy middle.”The rise of online shopping and a widening wealth gap are seen as factors squeezing mid-line retailers that try to be all things to all people, with customers now favouring either luxury retailers, such as Nordstrom or Saks Fifth Avenue, or discount shops like profit-machine Dollarama.“Department stores have been suffering challenges for some time now,” said Marty Weintraub, who leads Deloitte’s national retail consulting practice for Canada.Sears Canada (TSX:SCC), for instance, has seen its store count sink over the last few years. In January 2011, it had 181 department, Sears Home and outlet shops. By April of this year, that figure was down to 127.The retailer, along with the Bay (TSX:HBC), are the survivors of a business model with an entrenched history in Canada. Simpsons, Woodward’s and Eaton’s are just a few of the chains on a growing list of companies that have come and gone.Between 2012 and 2017, department store revenue fell by an annualized rate of 0.1 per cent to $28.1 billion, according to a report by market-research firm IBISWorld. Over the next five years, the revenue decline is expected to accelerate by an annualized rate of 0.4 per cent, the report said.Weintraub said the woes facing traditional department stores are due to consumers shopping online more and choosing specialty boutiques over one-stop shops.“The notion of the mushy middle, which is try to be everything to everybody, is what folks are moving away from,” he said.Instead, there’s been a rise in luxury retailers entering and expanding in Canada. Nordstrom now has five locations, with a sixth opening this September, while Saks Fifth Avenue operates two Canadian stores with plans to open at least two more.One of the key shopping mall trends for this year is the addition of large-format stores to top malls, said a study late last year by the Retail Council of Canada. But for the most part, the department stores being added are high-end luxury retailers, said Craig Patterson, a research consultant for the council who authored the report.The other thriving retail segment is deep-discount, said Mandeep Malik, an assistant professor at the DeGroote School of Business at McMaster University, pointing to Dollarama, Walmart and Costco as examples.Shoppers are flocking to those shops for value, he said, whereas mid-line department stores fail to provide that or other unique features.“Customers are, at the end of the day, very discerning,” Malik said. “They measure value either in terms of economics or in terms of emotions.”Follow @AleksSagan on Twitter. by Aleksandra Sagan, The Canadian Press Posted Jun 14, 2017 2:00 am MDT Last Updated Jun 14, 2017 at 7:20 am MDT AddThis Sharing ButtonsShare to TwitterTwitterShare to FacebookFacebookShare to RedditRedditShare to 電子郵件Email ‘Mushy middle’ department stores feel the squeeze as luxury and discount expand