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As buyers move online, retailers shift space from stores to storage

Cherie McFadyen plays with her one-year-old daughter Elysia Joseph at the new Toys R Us Wonderlab store in North Vancouver, B.C., on Tuesday May 23, 2013.

DARRYL DYCK/The Globe and Mail

The retail transformation of physical stores into e-commerce enablers is picking up in Canada, forcing chains to rethink how they use their space and even close some outlets completely.

The domestic divisions of retailers ranging from Staples Inc. to Toys "R" Us Inc. and Best Buy Co. Inc. are shrinking their store space, expanding stock rooms for e-commerce distribution or shutting outlets altogether.

Toys "R" Us Canada is shifting more store space to backrooms to fulfill its growing number of cyberorders; by later this year, it will begin allowing customers to pick up their online orders at its stores.

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"We're using different skills in the stores," Kevin Macnab, president of Toys "R" Us Canada, said in an interview.

In the digital age, retailers are starting to invest differently in their bricks-and-mortar stores, raising questions about how malls will use excess space in future years. Traditional retailers need to move quickly to adapt or risk losing business to e-commerce players such as Amazon.com.

Canadian retailers have been rushing to catch up to their counterparts in the United States, where e-commerce is far more prevalent.

David Ian Gray of retail consultancy DIG360 in Vancouver said his clients are quietly contemplating how they will use or shrink their real estate footprint in the coming years. Retailers are anxious about closing stores because the optics may not look good, suggesting their business is sagging, he said. But ultimately, retailers can operate more efficiently with fewer stores, or less space overall, as they ramp up their e-commerce.

"This [store] footprint issue is on everyone's mind," Mr. Gray said.

At a Retail Council of Canada conference on Tuesday, retail executives on a panel said they have already begun to reinvent their physical stores to prepare for the expanding e-commerce era.

At the same time, they insist their bricks-and-mortar stores play a critical role in enticing customers to make purchases. They try to ensure shoppers don't use their stores as showrooms and then head to Amazon.com or another low-cost web seller to order the same items.

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Mr. Macnab said Toys "R" Us sets up play areas and inviting displays to draw children who come with adults. "The experience in the store is important."

Indeed, Sport Chek, whose parent was acquired by Canadian Tire Corp. Ltd. in 2011, is adding more stores and dressing them up with digital screens and interactive displays to keep customers in the stores longer – and spending more.

"The death of bricks and mortar, I'm here to say, is greatly exaggerated," Michael Medline, president of Canadian Tire, told the conference. "But we need to be good at both. We have to put huge resources, time and money behind [e-commerce] and the new world."

Mr. Macnab and Steve Matyas, president of Staples Canada, said they envision that their overall bricks-and-mortar store space will shrink over the next five years, although the number of stores will stay relatively constant.

At Staples, whose U.S. parent is shutting stores, the Canadian chain will probably have 20 per cent less space in the next five years, Mr. Matyas predicted.

Retailers' future need for mall space is "the really hot question," Mr. Macnab added. In an interview, he said Toys "R" Us now devotes about 20 per cent of its stores' space to storage rooms and that may rise to 30 per cent in five years.

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Anna Martini, president of fashion chain Group Dynamite of Montreal, said it is beginning to test reducing inventory levels in its stores and using them more as showrooms, with customers able to order products online instead and have them shipped to their homes. "The experience in the stores will change in the next five years." But she said flagship stores in bigger markets will remain larger.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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