‘Perfect storm’ ahead for some independent stores, but niche retailers will shine, analysts say

Turmoil could lay ahead for some Canadian retailers in the new year, with independent businesses in particular facing possible bankruptcy should the busy holiday shopping season prove to be a bust.

Retailers will be taking stock of how they did during the most important sales period of the year to gauge their chances of survival amid supply chain woes that are unlikely to resolve anytime soon, analysts say. But whether 2022 will be better or worse than 2021 may be up for debate.

“Our view is, a perfect second storm is coming post-holiday…we will see a number of bankruptcies in the new year, disproportionately independents,” said David Ian Gray, retail strategist and founder of retail consultancy firm, DIG360.

The year 2020 was ugly for Canadian retail, as a relentless string of bankruptcies and closures — accelerated by the pandemic — marked the demise of dozens of chains. Traditional fashion and apparel businesses such as Le Chateau, Ann Taylor, Thyme Maternity, and Addition Elle, were especially decimated.

“What the pandemic did was it revealed all the problems all at once,” Gray said in a phone interview with CTVNews.ca. Band-Aid solutions no longer worked.

Many “legacy” multi-brand chains were teetering on the edge even before COVID-19. Some are now gone, while others have managed – under duress – to get a stay of execution, Gray said.

Ultimately, 2021 turned out to be far less grim than some had anticipated; those who were able to weather the unprecedented upheaval during the first year of COVID-19 survived — and in some cases, even thrived — during the second year.

As the pandemic enters its third year, a host of complicated circumstances could spell trouble for some businesses, however.

While a number of companies went into bankruptcy protection and gained some breathing room, not everyone will be able to restructure appropriately.

“We don’t know half of the stories out there — they’re happening quite quietly,” Gray said.

Hiring signs are pictured in this file photo dated Wednesday, May 5, 2021. (AP Photo/Keith Srakocic) 

Ongoing staffing challenges will also make it difficult for stores looking to beef up their customer experience. And uncertainties in the supply chain are expected to last at least until 2023. Businesses that received a lot of government support or were given a reprieve on rent and interest payments on loans will see these supports winding down.

“For any individual company, where’s the money going to come from when the payment is demanded … for all the back due?” Gray asked.

“So that’s going on right now. But I think everyone is trying to hold on through the holiday because if you can make it through the holiday, you can get some good numbers. You might have a fighting chance. But I think this is going to be a very uneven holiday. Some are going to do well. Quite a few may not.”

Historically, recouping sales and revenue from January through June can be very tough, Gray explained, and this will hit independent retailers especially hard.


Lisa Hutcheson, managing partner with global retail consulting firm, J.C. Williams Group, expects to see larger companies shrink the number of stores they operate, rather than entire chains shuttering.

“Those stores that are just in the middle — and by the middle, meaning, there’s nothing special about them…those are the ones that are the most likely to go,” said Hutcheson in a phone interview.

“The really vulnerable ones have gone … the ones that have survived have been stronger.”

Those deemed “essential” and able to stay open during lockdowns, like Walmart, Costco, Best Buy, and supermarkets, moved further ahead of the pack. While some of the gains have eased, the earlier windfall enabled these companies to reinvest and gain further ground, analysts said.

Masked shoppers crowd the aisles at a Costco in Burnaby, B.C, Sunday, December, 13, 2020. THE CANADIAN PRESS/Jonathan Hayward

Many of the winners from the last two years, including athleisure and lounge wear retailers, and those with a focused, niche brand like Lululemon and Aritzia should continue to do well, according to Hutcheson and Gray. Unlike some languishing apparel companies, Aritzia saw its stock roughly double this year, while Lululemon shares have climbed roughly 20 per cent.

Clothing and fashion companies took a devastating hit during the pandemic as office employees working from home swapped suits, ties, and heels for sweat pants and comfortwear. But whether the anticipated gradual return to the office in 2022 will translate into better sales for fashion retailers remains to be seen.

“People are buying apparel again, they’re wanting to get dressed, but at the same time, they’re dressing differently,” said Hutcheson, noting retailers like Harry Rosen are advertising more relaxed, upscale clothing.

Multi-brand retailers, like department stores and generic clothing retailers that carry a variety of labels, are in a tougher position, retail experts warn, unless they are excellent curators of niche brands or product categories.

“With just a few clicks on your phone, you can find another option. But where you’re selling your own brand, like Lulu does, I think those stores have a big role to play,” said Gray.


Independent businesses can also distinguish themselves by stocking products not found elsewhere and providing a lot of extra hands-on service, Gray said. He pointed to a few current winners like independent bike and outdoor stores that secured niche supplies at the right time and outperformed the chains.

Gray cautioned, however, that many independent retailers also sell products from overseas manufacturers, which puts their business at risk given the supply chain challenges, especially as vendors prioritize deliveries to those who can pay a premium. He expects a big shake-up in the first quarter of 2022.

“They’re selling offshore products, but they’re last in the pecking order. So I’m worried about them. But I think there is an interesting opportunity for a small fire to start – in a good way – under Canadian-made brands and products,” Gray said, adding that a lot of innovation happens in independent retail.

“We need them to have variety in our neighborhoods. They are an incredibly important source of our local community and they put a lot of money back into our community.”

Shoppers line up outside Vaughan Mills Shopping Centre in Vaughan, Ontario, Sunday, Nov. 29, 2020. THE CANADIAN PRESS/ Cole Burston 


With consumers tired of being cooped up at home, Hutcheson expects more shoppers to flock back into physical stores, with heightened expectations that retailers provide a shopping “experience” – a trend that started before the pandemic but was put on hold.

“We see it as being very much an opportunity for it to be the year of the store, if you will,” she said, as customers look for some kind of normalcy.

“But they don’t want to be back in a boring store…and when I say ‘experience,’ … it has to be innovative. Adding click and collect and curbside is an expectation now, not an innovation anymore.”

With many millennials turning 40 this year, a new demographic is also emerging and coming into buying power: Gen Z. Hutcheson expects a lot of “pop-up” retailers filling the vacancies left behind by closures, as they try to generate buzz and excitement, particularly on social media.

Whether retailers can pull off a compelling retail experience when staffing and inventories are scarce, however, is unclear.

Meanwhile, online shopping will continue to gain ground, even as it remains second to in-store sales. They are perfect for products like books and toys, Hutcheson says, but shoppers still want the tactile experience of being able to touch and feel before buying.


The retail network in its current state will also have difficulty sustaining significantly higher e-commerce volumes, Gray cautioned.

The compounding ripple effects of labour shortages and supply chain issues – from offshore factories to shipping to logistics all the way to a customer’s doorstep – mean it will be “well into 2023” or even longer before the backlog clears and a more reliable and steady environment emerges, Gray predicted.

Retail is a complex system that is quite destabilized, he said, explaining that small changes in one part of the system are creating larger impacts throughout the rest of the chain. Many of the current issues can be traced all the way back to January and February of 2020, when factories in Asia shut down, said Gray. Now, there is pressure coming from both ends of the supply chain.

He cites the example of a customer returning online items. While returns themselves are nothing new, the increased volume in orders mean a corresponding increase in returns – some products are shipped back to the warehouse, others are being returned to a physical store, still others are returned to the vendor.

“All of that is putting backwards pressure on the supply chain,” Gray said.

Since COVID-19, making predictions about the industry has been challenging and unreliable, he said, with too many variables at play all at once.

“The pandemic was the catalyst to what was already a rickety system.”