There is no denying that the global COVID pandemic ushered in abrupt seismic shifts in how we live our lives and how we do business. The pandemic forced governments to act to prop up their economies, workers, and business with massive stimulus packages, which contributed to interesting and sometimes unexpected consequences for a range of retail sectors. Three years in, we now have data that allows us to unpack the influence of the pandemic.
To be sure, some of these shifts were already underway in the retail brick-and-mortar space. Labour markets have been tightening for some time as the baby boomer generation ages and leave the workforce. The steady rise of e-commerce has been a make-or-break moment for some retailers who have been slow to adapt to online marketplaces. And a global desire to shift to “green” energy has given rise to new markets. However, there’s no denying that the pandemic accelerated some of these shifts, while also creating growth and decline in some unpredicted spaces.
Some sectors were more affected than others, including retail, hospitality, and sectors that rely on “unit growth (brick and mortar locations)” to drive revenue growth and profitability. At PiinPoint, we have taken a look at the changes - both expansion and contraction - in broad retail categories based solely on the changes in the number of units in their store networks. We’ve uncovered some interesting insights.
To better understand the impacts the pandemic had on retail brick-and-mortar, we extracted data from our PiinPoint platform through our data provider ChainXY. Updated quarterly on the PiinPoint platform, the data from ChainXY allowed us to calculate the number of existing retail locations for each major retail brand in both Canada and the US at the end of 2019 and again at the end of 2022. We concentrated on “mature” businesses in the Mid-Market and Enterprise segments by excluding brands that had less than 50 locations in 2019 since smaller businesses were extremely volatile during the pandemic. Then we aggregated the data into categories to get a broad view of the sectors that grew and shrank over the course of the pandemic.
Sectors that Gained Ground over the course of the Pandemic
Across Canada and the US, the Agriculture and Industrial, EV charging, Home, and Private Education sectors grew from 2019 to 2022. The growth seen in the Agriculture and Industrial sector is likely related to massive infrastructure spending in both countries. The growth seen in EV Charging was already starting prior to the pandemic but gained momentum primarily driven by Tesla. Not surprisingly, with millions of people under stay-at-home orders during the early phases of the pandemic and the rise in remote work from home, the Home category also saw growth in both countries. As people stayed and worked from home, they spent more money on furniture including home office needs and DIY home renovations. School closures and the shift to online learning led to well-documented learning loss, and many parents outsourced or supplemented their child’s education with private education services.
Sectors that Lost Ground over the course of the Pandemic
On the other side of things, the Fitness and Nutrition, Hobbies and Entertainment, and Clothing sectors all experienced brick-and-mortar declines in both Canada and the US over the course of the pandemic. As gyms were forced to close in the early days, many people took their workouts online and invested in at-home exercise equipment – what we call the “Peloton effect”. Nutrition stores switched to online outlets, cutting the need for high-priced leases in malls. Similarly, the Hobbies and Entertainment sector also likely migrated their businesses online, with greater declines in store units seen in Canada than in the US. The Clothing sector experienced modest declines in both Canada and the US – with people staying home for work, exercise, and leisure, the need for fresh wardrobe pieces was greatly diminished.
Differences between Canada and US
Some interesting differences emerged in a few sectors when comparing sector-by-sector between Canada and the US from 2019 to 2022. These differences might be more reflective of governmental policies towards certain sectors that were exacerbated by the pandemic rather than as a direct result of the pandemic. For example, the Communications sector experienced a 30% decline in US retail stores from 2019 to 2022, while they grew by 9% in Canada during the same time period. This may be due to a saturated retail landscape in the US that the pandemic ‘corrected’, while in Canada changes in legislation to allow for more competition to the “big 3” communications companies likely fueled retail growth.
In the Liquor sector, sales rose across the board during the course of the pandemic. However, in Canada, liquor distribution is controlled by government mandate in several provinces and retail locations are already built out to serve the public. This means that despite the rise in sales, new liquor brick-and-mortar was not needed to meet increased demand, and there was a slight 2% decline in Liquor stores during the course of the pandemic. In contrast, the Liquor sector is a private market in the US, so the increase in liquor demand during the pandemic likely spawned retail distribution to previously unprofitable locations.
Perhaps most striking are the differences between Canada and the US in the Financial Assistance sector as compared to the Retail Banking sector. In the US, this Financial Assistance (Short-term Lending) sector grew by 33% from 2019 to 2022, while in Canada there was a 10% decline during the same time period. Retail Banking and Insurance were stable in both countries. This may be because per capita pandemic relief spending was much less in the US than it was in Canada during the peak of the pandemic, which created greater demand for Financial Assistance locations in the US.
The macroeconomic turmoil caused by the pandemic has only been amplified by the Ukraine war that began in 2022. Shocks to the supply chain and inflation have accelerated the impact of already simmering influences – namely demographic shifts in the population that has reduced the labour supply.
The US and Canadian governments' policy responses to the pandemic and the Ukraine War (COVID Lockdowns, Stimulus spending, and Strategic Oil reserve release) artificially propped up demand in some sectors and forced the decline of others. As we have seen, the restructuring of Mid-Market and Enterprise retail store networks is decidedly underway.