On this quiet Boxing Day, as Ontario moves into province-wide lockdown, a model to close the great retail digital divide
History is replete with stirring stories of resistance. From the gritty French freedom fighters who harassed the Nazi hordes in Vichy France, to the millions who called out and then voted against the shock-jock presidency of Donald Trump.
But resistance doesn’t work in business, especially retail, and statistics show those brick-and-mortar stores ignoring the axiom “innovate or die” have now fallen on the battlefield, unable to change tactics and re-arm themselves.
Spending has dropped dangerously since mid-March when the first Covid-19 lockdown was imposed, and a glut of stories about our dystopian future fill media platforms. Earlier this year, The Pointer wrote about what experts call our “retail apocalypse.”
Many failed because they didn’t provide the options buyers wanted during a shut down: easy-to-navigate websites, e-commerce platforms with convenient transaction design, curbside pick-up or at-home delivery.
Books are riddled with tales about bigwigs like Blockbuster, Kodak, Blackberry and Sears resisting change and falling like ten-pins. This year’s crop of bankruptcies now includes Abercrombie & Fitch, Brooks Brothers, J.C. Penney, J. Crew, Lord & Taylor, Macy’s, Nieman Marcus, Zellers and many more.
They failed to recognize the seductive and lucrative lure of online shopping. The need for retailers to have a strong digital presence moved from “convenient” to “necessity” this past year, and that urgency spiked almost overnight. On March 16 thousands of non-essential businesses went into lockdown due to Ontario’s declaration of a State of Emergency.
There’s something capricious and slightly cruel about all this, and this was captured in blunt terms in a BNN Bloomberg story in mid-November on Harley Finkelstein, president of Ottawa-based Shopify. In it, he was portrayed as a business seer. “The strategy going forward for the future of retail is consumer choice,” he said. “What we’re seeing now is not an anomaly. It is the blueprint for the future of retail.”
Small businesses shouldn’t use the pandemic as a crutch to explain away their failures, said Finkelstein. The move to e-commerce will continue long after a vaccine is found, and he then doubled-down with a warning: “The resistant [businesses] need to step up quickly.”
Critics might bristle at Finkelstein’s hectoring because as a darling of the tech set, and a pioneer of e-commerce, his company is now dining out on the miseries and urgent needs of those deemed tech deficient. In early May, Shopify leaped past RBC to sit atop the Toronto Stock Exchange, its share price up seven per cent. Revenues hit US$470 million in the first quarter of this year, up 47 per cent from 2019, which makes it Canada’s most valuable public company.
It’s the third tech firm to head up the TSX, following Nortel and BlackBerry. Those once powerful players showed their melting qualities once the hot rays of success shone upon them. But Shopify’s business model seems foolproof, built for the present and future. Its software creates websites and online shopping-cart solutions to help sell, ship, and manage a company’s platforms and products from A to Z.
Those using its services get access to an easy-to-use administration panel where they can add products, process orders, and enter store data. Dan Ross, head of revenue for Shopify North America, said some merchants had a running start in re-prioritizing their business model. But some didn’t. “We saw examples of companies that really had zero online strategy or online revenue,” he said. Ross said Lindt [chocolatier] is a recent e-convert. They had no online strategy and leaned on Shopify to build one. It was launched in just five days.
The modern-day business model needs to be attuned to change, and this flexibility will be driven by digitization. For those resisters, the pandemic only made problems worse.
Not all business models are created equal. What’s available for companies with tons of assets, a powerful supply chain network, and an in-house tech department, isn’t possible in mom-and-pop independents. Most are one lousy selling cycle from committing the business equivalent of hari-kari. Can the Shopify/Lindt model be replicated by these tech laggards and small operators?
That’s the contention of a new private-public sector partnership named “Digital Main Street (DMS)”. Shopify and others have been recruited to assist those businesses or individuals qualifying for an initial $2,500 grant. This helps them re-make their businesses through digital improvements.
Digital Main Street: A history
Necessity is the mother of invention, but in these tumultuous times, it’s also the father, son and holy ghost. DMS was created in 2016 by the Toronto Association of Business Improvement Areas (TABIA) with direct support of Canada’s largest city. On June 11 of this year, Mélanie Joly, Minister of Economic Development, announced a $42.5 million infusion of cash, as FedDev Ontario (which delivers programs and services to support innovation and economic growth) expanded the DMS mandate across the province. It added a ShopHERE option, and in the process, created jobs for post-secondary youth and graduate students. Since DMS was founded, over 6,900 businesses have received free digital training, consultations, and hands-on help to build an e-commerce and online presence.
DMS brings together the Ontario Business Improvement Association (OBIAA), the Toronto Association of BIAs, Communitech and Invest Ottawa, and provides knowledge transfer, resources, and critical support. This begins by filling out an application for a $2,500 Digital Transformation Grant. This allows partnerships with tech-savvy firms, and a revamped business model. What looks like baby-steps to some, is a leap forward for others suffering digital deficiencies. Its strategic business partners include tech giants like Google, Shopify, Microsoft, Facebook, Square and Intuit QuickBooks, plus Mastercard.
More millions poured in from Queen’s Park and partners including the OBIAA will oversee further expansion of this platform. This broadens the reach to tens of thousands of businesses and offers a wealth of expertise.
FedDev Ontario’s investment in DMS is derived through the national $1.5 billion Regional Relief and Recovery Fund (RRRF), delivered by Canada’s regional development agencies. This provides liquidity to those affected by COVID-19 and unable to access other federal relief measures. FedDev is delivering $436.4 million overall to provide financial relief for business recovery. The money and professional assistance for DMS is funneled downwards to give street cred through the OBIAA, headquartered in an inauspicious office over a RABBA store at 92 Lakeshore Road in the heart of Port Credit. It houses 2.5 full-time employees, plus 14 temporary others handling the DMS file. All staff work virtually.
DMS radiates across Ontario and provides a life-line to small businesses, many in retail, through the local BIAs. The Brampton BIA, and the five others in Mississauga (Port Credit, Clarkson, Streetsville, Malton, and Cooksville) are vital partners in this program. Those already assisted runs the gamut, from local artists to restauranteurs to craft makers and shop owners. DMS has been a saviour for those groaning under the most stringent shut-down rules, especially the second wave recently imposed by the Doug Ford government.
As Ontario moves into a province-wide lockdown today, it means the program is even more crucial.
It might be rudimentary assistance, but anything is welcome as small firms shed in-store customers.
How big is the problem?
There are 1.18 million employer businesses in Canada, and of these, 98 percent are small businesses. The Canadian Federation of Independent Business (CFIB) estimates as many as 225,000 could close permanently due to COVID-19 and their lack of modern technology. They operate on thin margins, driven by a point-of-sale, and a lack of digital-based business platforms. They are proving the soft underbelly of the crucial small business sector.
In 2019, 135,585 were in the retail sector, and 37 percent were considered micro-companies, employing less than five people. Sales amounted to approximately $615 billion in Canada last year, and between 2012 and 2019, there was a growth spurt and retail sales jumped another 1.6 percent in 2019 – in all regions and sub-sectors. Then the pandemic struck, profits and customers vaporized, and thousands were left to deal with the fallout virtually alone, pondering future prospects.
Many downtown retailers, like these in Brampton, are rethinking their entire business model.
Statistics Canada took its pulse in April which showed retail sales plummeted by 26.4 per cent. Meanwhile, online sales surged by 11.4 percent. Now a second pandemic wave promises to do more damage and force the hand of long-standing customers to shift to stores ready for online buyers. This took place in the run-up to holiday buying.
Stats Canada said 20 percent of us planned to spend upward of $200 to $400 on gifts in December and 10 percent would exceed $1000. The survey also noted that 45 percent figured to spend less this year than last. But signs of the apocalypse were apparent even in pre-pandemic times. In 2019, only 24 percent of respondents planned to shop in-store during the Boxing Day week. The National Retail Federation, a U.S.-based organization, said holiday sales in November and December have averaged 19 percent of annual retail sales over the last five years. In Canada, location-based retail sales have declined steadily since the start of 2018. And while early reports in the fall indicate Canadians have responded to the retail decline in the first two quarters of 2020 by pulling out their wallets, the recent unexpected retail gains (up 6 percent year-over-year for the three months that ended in October) will not make up for earlier losses in the year. Retail sales are defined as store-based and online purchases over a broad range of retail categories.
The pandemic’s second wave exposes a patent unfairness in our system. It’s clear big-box retailers like Wal-Mart or Costco have a richer mix of in-store and online customers, and have marketing and technology departments to flaunt their e-commerce options.
A Day in the Life of the OBIAA
It’s day’s end on March 16, and Mississauga’s Kay Matthews, executive director of the OBIAA, is leaving the association’s small office on Lakeshore Road in Port Credit, directed to shut-down by rules imposed by Queen’s Park. For the past three years, the former head of the BIA in Georgetown, had worked at the Port Credit office, just feet from the GO Train stop. It allowed easy access to BIA executives from all across Ontario.
Matthews loved her six years in Georgetown, and was so successful at helping businesses thrive, she was recruited to run the giant provincial association. When the mid-March news came to close the OBIAA office, Matthews was caught flat-footed, she said. The viral spread sent all government levels scrambling, and tossing out shut-down orders would harshly impact all non-essential businesses, which made up the vast majority of the portfolio of the OBIAA’s partners.
Every village, town and city would be impacted. Matthews knew immediately that her business life had changed forever. She remembers leaving her office that afternoon and seeing Lakeshore Road, once abuzz with cars and businesses, empty, all stores shuttered. She understood other BIA offices in the province were seeing the same thing. The fear was palpable, the future unclear. She wondered to herself: “Are all main streets now ghost towns like Port Credit?”
She had seen the ravages of ice storms and floods and bad weather and the vagaries of market forces, but this was different, something otherworldly. “This went beyond just consumerism to that other c-word, community,” she said. “This would affect everyone, from the person who wanted to go downtown to get a coffee, or pick something up at the store, to those who just like to interact with other people in the downtown.”
On her drive home that night she passed Cuchulainn’s Irish pub, a family owned and operated gathering place in the heart of Streetsville. It proudly touted itself as “The Local” for many of the town's residents. It had prepped hard for its once-a-year celebration of St. Patrick’s Day taking place the next day. Matthews wondered how much inventory they had to chuck out, and who would be laid off? What would be the economic and psychological impact?
She was supposed to conduct her once-a-month ‘Best Practice’ Zoom call with BIAs across the province the next day – also cancelled. These chats began in 2019, and once COVID-19 set in, sessions were held twice a week, Tuesday and Thursday afternoons. About 76 BIAs took part. These sessions were rife with emotional, therapeutic sessions, more so than talks about BIA governance issues. Matthews said sharing ideas, antidotes, and future prospects was equal parts tragic and cleansing, filled with laughter and tears. “You know you’re making progress [in these meetings] when participants have their heads bowed and are writing furiously all the ideas being thrown around,” she said.
The OBIAA was supposed to hold its annual conference in Toronto in April, and this cancellation was particularly hurtful. It was to be a celebration of the 50th anniversary of the first BIA in the world, the Toronto branch, the one that proposed DMS. “This was all so draining,” said Matthews.
Offering succor was fine, but words have limitations. How does a small flower shop survive if all weddings and funerals have changed focus, with few needing to use these products? How can a new website or Google 360 mapping or an e-commerce platform designed around digital navigation help? This was the conundrum faced by so many retailers left in the lurch, without hope of surviving.
Matthews has a remarkably sensitive ear to the challenges faced by all. Her major concern is that DMS has been a lifesaver for most, and is slated to be mothballed in mid-February. She wants a redoubling to save it, expand it. The restrictions imposed on it include no franchisees and only a finite number of grants. This runs parallel to the positives. Matthews was buoyed when, before leaving office, Kathleen Wynne’s Liberal government designated $46 million to a Main Street Strategy Fund, and even now, more money ($3.8 million) is coming via Vic Fedeli and the Economic Development ministry.
“The hope is that we find solutions not for six or nine months, but for longer, and this will give us a runway to work on,” said Matthews.
The pandemic is shredding downtowns of talented entrepreneurs, whose expertise will be lost, she said. “Many are saying, enough is enough. We don’t need this, and so many have simply decided to retire.”
Ontario is enormous, and BIAs are scattered across the heartland and far up north. Many are isolated, and so the chance to communicate with them during this pandemic via Zoom has been a “fantastic opportunity.” Yet Matthews believes many are simply “Zoomed out, stunned, and fatigued.”
She doesn’t buy the popular axiom, “we’re all in this together,” pushed like a gospel during this raucous time. “Yes, we’re [businesses] in the same storm, but some of us are on leaky rafts, while others are in yachts. Don’t tell me the sacrifices are the same, or equal, especially when big box retailers get to stay open and the little guys remain closed.”
Areas with "High Streets" like Port Credit might not be able to rely on traditional retail to create foot traffic.
What irks her most is that none of this seems based on science. She said the response from governments has been at best “uneven” and “inequitable,” then added as an aside: “It’s not been holistic, especially if you look at all the physical and public health concerns.”
The emotional and fiscal devastation is a two-headed monster, and the stories of people pouring in and then losing their life savings during the pandemic is each a human tragedy, multiplied by thousands. An uneven response means businesses are turning against businesses, and communities against communities. Matthews believes the Churchill maxim that it is so important never to waste a good crisis is being ignored here.
The 2,000 Digital Transformation Grants, and Digital Service Squad Grants (there will be 300 grants of $10,000 each available to qualifying municipal or business groups to develop and implement local squads of digital vendors and experts to directly help small businesses), plus the ShopHERE element (powered by Google), is built to optimize online enterprise for small and independent businesses and artists in just a matter of days.
Applicants and access to the grant process ran through the Grant Program Portal and were made available on October 15 on the Digital Main Street website at www.digitalmainstreet.ca/ontario.
At the time it was rolled out, Matthews said, “With today’s launch… we are making Digital Main Street very real.”
It has now reached an unreal stage of “nervous stimulation,” where businesses stunned by the blunt force effects of the virus, are slowly stumbling back to their feet. DMS has forced a major re-ordering, and offers some a thin path forward.
History is circular. Moving to an online and at-home delivery model tumbles back to a bygone era when a simple phone call to the local drug store got the customer quick home delivery. Other shops did the same. Even doctors made home visits. The Sears catalogue and those offered by retailers such as Consumers Distributing as late as the ‘70s and even into the ‘80s, were early forms of what e-commerce feels like today. But the rise of the shopping mall as entertainment changed everything. Retail was no longer simply about a purchase, it was wrapped by an entire experience. Downtowns that were once abuzz with people had to redefine themselves in the age of Square One and Eaton Centre. Digital Main Street is now the iteration of an old model, fueled by technology.
The tonal dissonance by the public-sector to the plight of today’s small business sector has been mitigated somewhat by DMS. But it isn’t a game-changer, simply a welcoming hand up. “The new internet follows no rules but many mantras,” explains author Jill Lapore in her new book, If Then: How the Simulmatics Corporation Invented the Future, which talks about how we all must invent the future.
We’ve seen in the past this kind of private-sector business-to-business partnership. Candle and soap makers William Procter and James Gamble put a & between their last names and created an industry powerhouse.
But the artefacts of a pre-pandemic business model are still with us, and retail remains too reliant on walk-in traffic. Tweaking that model with a DMS plan seems timely, if limited in scope.
The creation of a new hybrid model based on a blending of in-store and online, is slowly emerging from the ashes of COVID-19. DMS isn’t a panacea, but if extended out, can help smaller businesses reassert themselves and win over or win back customers.
What’s at stake is profound: saving the lifeblood of our economy, and saving the commercial downtowns of the 444 municipalities in Ontario.
The critical role DMS is playing and can play in the future can’t be overstated.
The devastating drip of COVID-19 continues to burn through small enterprises refusing to adjust to this new economic world order. These resisters to change will collapse out of ignorance, and an unwillingness to adjust. Some have simply run out of time and money, or patience.
Companies once deemed “too big to fail” (like Blockbuster) did so because they didn’t pivot or couldn’t imagine something like Netflix. What business plan written in the last 50 years put in provisions for a pandemic?
As Matthews points out, it often takes a crisis – wars, depressions, and natural disasters to expose society’s weaknesses.
At the macro level, COVID-19 and technology have changed the historic buying habits of shoppers, and retail will never be the same.
Somehow, this all seems inevitable. Fortune magazine reports that even before the pandemic, the number of U.S. adults who tried and liked grocery delivery sat at 12 percent, a 50 percent jump from 2019. E-grocery had planned for a 30 percent annual growth. But pandemics have a way of scrambling all numbers, and spitting out winners and losers.
Derek Thompson of The Atlantic, said in a recent CBC podcast that “the pandemic pauses the present, it forces us to live in the future.”
If retailers exit downtowns, will cities feel more desolate and less singular? We already know the growth of “off premise” dining makes up more than half of restaurant revenue from delivery, drive-through, and takeout. Uber Eats has become an unlikely partner in this symbiosis. It might mean further desiccated downtowns. This urban exodus is too painful or dystopian to consider, said Thompson.
Shopify is the first commerce platform to integrate Google's new ‘Smart Shopping’ campaigns. The tech advancements that gutted small retailers, are now poised to be their saviours.
Retail is Canada’s largest employer. No wonder the Doug Ford government tabled the Main Street Recovery Act, 2020. It supports small business throughout the pandemic by providing critical funding for personal protective equipment (PPE) and for digital solutions. Embedded in all this largess is DMS.
Yet, an August survey by U.S. small business overseer Bluehost, said there’s a resoluteness in small business owners that is percolating near the surface. Yes, the pandemic has underscored the importance of digital marketing, and e-commerce, but despite all obstacles, most owners (a surprising 72 percent) remain optimistic about the future. Bluehost’s senior vice-president Suhaib Zaheer, said, their response “speaks volumes to the resilience of small businesses.”
Thomas Homer-Dixon, research chair at the University of Waterloo and author of a new book, Commanding Hope: The Power We Have to Renew a World in Peril, thinks our new normal isn’t simply a catch-phrase, but a reality. John Kiru, executive director of TABIA (inventors of the DMS model) and Minister Joly who oversees economic development in Canada, agree that DMS ensures small businesses will get the support needed to withstand the impacts of COVID-19, and eventually become competitive again.
“Small businesses are the backbone of our economy, and their recovery is critical to Ontario's recovery,” said Prabmeet Sarkaria, the Brampton South MPP, and associate Minister of Small Business and Red Tape Reduction.
Change is the only constant in the business world, and so is a resistance to it. Schools of the future shouldn’t study the Blockbusters and Lindts, but the mom-and-pop shops that embraced what DMS had to offer, and over time, became the next P&G.
In Part 2 of this series, The Pointer spins a tale of two cities, Mississauga and Brampton, and how they approached the DMS program differently, one through its BIA (Brampton) the other via its Economic Development office. The bottom line: the need to digitize is crucial to the future success of both downtowns.
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