In this episode I moderate a live and interactive retail thought leadership panel live from the Association for Corporate Growth’s virtual stage here in Toronto. ACG, which brings together mid-market private equity players who have a keene interest in the retail sector in Canada. Joining me on this panel “The New Retail Reality” was Diane J. Brisebois, CEO of Retail Council of Canada, Scott Arsenault President of Ren's Pets, Eric Claus CEO from MEC and David Poirier from The Poirier Group.
Welcome to the The Voice of Retail , I’m your host Michael LeBlanc, and this podcast is brought to you in conjunction with Retail Council of Canada.
In this episode I moderate a live and interactive retail thought leadership panel live from the Association for Corporate Growth’s virtual stage here in Toronto. ACG, which brings together mid-market private equity players who have a keene interest in the retail sector in Canada. Joining me on this panel “The New Retail Reality” was Diane J. Brisebois, CEO of Retail Council of Canada, Scott Arsenault President of Ren's Pets and Eric Claus CEO from MEC and David Poirier from The Poirier Group.
Learn more about ACG's Toronto chapter here.
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I’m your host Michael LeBlanc, President of M.E. LeBlanc & Company, and if you’re looking for more content, or want to chat follow me on LinkedIn, or visit my website meleblanc.co!
Until next time, stay safe and have a great week!
Michael LeBlanc
Welcome to The Voice of Retail. I'm your host Michael LeBlanc. This podcast is brought to you in conjunction with Retail Council of Canada. In this episode I moderate a live and interactive retail thought leadership panel live from the Association for Corporate Gowth's virtual stage here in Toronto. ACG brings together mid-market private equity players, many of whom have a keen interest in the retail sector in Canad. Joining me on this panel, The New Retail Reality was Daine J. Brisebois, CEO of Retail Council of Canada, Scott Arsenault, President of Ren's Pets, and Eric Claus, CEO from MEC along with Dave Poirier, from The Poirier Group
Michael LeBlanc
Let's listen in now.
Diane J. Brisebois
So, I'm Diane Brisebois, President and CEO of Retail Council of Canada. It's the Industry Association that represents retailers right across the country. We have a, we represent about 45,000 storefronts. And our membership also represents about 75% of total core retail sales in Canada. The membership is comprised of independent one store operators, chains, and mass merchants, multinationals in all the categories both online and in brick and mortar. And our main focus is advocacy for the retail sector. We do a lot of work in obviously research, thought leadership. So while I'm pleased to be with all of you today,
Eric Claus
My name is Eric Claus. I am Canadian. I've spent most of my career or most of my career in retail, a lot of it in Canada. But the last, I guess, most of the last 15 years or so in the US. I've done work for private equity firms, basically always running retail. I've run from large public companies in the US. I was on the Board of Directors of Rona, which we then sold to Lowe's. I guess my last gig of significance before MEC was managing Save-A-Lot which was about 1400 discount stores operating in 37 states in the US. I was based in St. Louis and we sold that to a large Canadian private equity firm. After Save-A-Llot, did three years of adventure try a travel which, I think unknowingly was prepping me for MEC. I actually wasn't planning to come back to work but, I've worked actually with several projects with Alex Wolf. Some of you may know him who founded Kingswood Capital Partners out of Los Angeles. He contacted me about MEC. Said, "Do you know the company?" I said, "Do I know it, I love it?" I've been I've been a member since 1984. So long story short, you know, they were kind of, if you'd manage it, his firm would buy it. So here I am today. And the pleasure to be with you.
Eric Claus
Backing up to when we took over the business I mean, it was a pretty gutsy move to take over a business which was highly, highly, highly political in Canada. As it was a co-op and really seen as kind of the gold standard in our sector and retailing. You know, to having a private equity firm out of the US taking it over. So we have to deal with a lot of the politics the, the media and then buying a business out of CC double A in the middle of a pandemic is not exactly the you know, the, the the walk in the daisies. It was it was a pretty complex thing.
Michael LeBlanc
And Scott, tell us a little bit about yourself and and Ren's pets.
Scott Arsenault
Yeah, thanks, Michael. So, I've always been in the sales and growth industry and either marketing or driving businesses. And if I went really far back to my days at university, I went to Simon Fraser University on a football scholarship, and was going to be a teacher. So, I got my teaching degree and never taught and my mom was disappointed about that. But kind of always been interested in growing businesses growing sales and marketing. And, you know, now I've been at Ren's for nine years. And when I started here, we had three stories or, three stores. And this is really about a growth story. You know, we're at 32 stores this year. We're opening seven more. We opened five in COVID last year. That was hard. You know, and we're fully omni channel.So, this kind of small pet retailer is now Canada's fastest growing pet retailer. And I know we're doing well in omni channel because we're Alexa's number one ranking Google site for pet. So we've done good there. And we get to do this all under the umbrella of your pets best life. You know, Michael, I know you're a passionate pet owner. And we get to do this trying to make pet parents and pets have their pet's best life. And you get to see puppies once in a while. Like this morning, I encourage you to go to my Facebook page and you know, I didn't expect it but our VP of Retail has a new puppy and she is full of it. And she came in today and we spent 10 minutes and it was a nice eight o'clock. My first meeting was with puppies so we get to do that a lot of friends
Michael LeBlanc
That sounds like a great a great job. Now, I was just on a, on a town hall in Moncton, New Brunswick. You have a location in Dieppe I believe, right. So that, that's your most most of your locations are in Ontario though right. At the, but tell us a little bit about that. So, Ontario one Dieppe.
Scott Arsenault
Yeah, we're in Oakville 45, 6 years now. We're actually just having a 46th anniversary sale. And a few years back, we went out to Ottawa, four years ago and say, can we extend the brand there. And that was a big step for Ren's, it had been around our head office in Guelph I live in Watertown. A lot of people knew here, but we got out to Ottawa. We have four stores really successful. And then we said, can we go to another region or another province? So yeah, we have three in the Maritimes. We're opening up our fourth in Fredericton. So loving Dieppe, you know, Moncton. I have a lot of family in Prince Edward Island and they make the trek over there to the Costco. And the two in Nova Scotia, Halifax are great as well.
Michael LeBlanc
Fantastic, thanks. Thanks for that. Alright, well, let's, let's jump right in. Diane, I'm gonna start with you. Statistics Canada released the 2020 data on Friday, and you know, for the year, retail, you know, shrunk. We see retail numbers on a month to month basis. And at a high level, it's interesting, right? Because at a high level, you know, November is up 13%. year over year, December is up 3%. So, it's kind of funny, because at the very surface, you say, "Hey, what's going on? I thought retail was was a challenging place to be". What's really going on? Take us a level below the the headlines and help people understand what's what's really going on in the retail sector. From that tied to our (inaudible), coast to coast format, the format kind of perspective, I'll give you maybe an overview of 2020. Because it, it may be an indication of things to come, especially in the first quarter. Obviously, we're hoping that things will change going forward. But it's a tale of three worlds, Michael. You and I've talked about that. There are those retailers who outperformed the overall retail market. There are those who stayed afloat, and saw a bit of growth. And then there are those who suffered throughout the year and continue to struggle.
Diane J. Brisebois
So I mean the three categories, the most obvious, is those retailers who were considered essential throughout the pandemic. And we're talking as of you know, March, early March of 2020. And that would include the grocery sector, pharmacy chains, and general social pharmacy chains. And then a few of the other retailers that were fortunate enough during some of the lockdowns to be considered essential. We're not going to discuss the logic around that. But indeed, they, they did much better. And when we're talking about food, we're not just talking about pure play, obviously, that includes some of the big mass merchants like Walmart, but also the Costcos. And oddly enough, the Dollaramas, the dollar stores. There you go, we're talking about logic here. The second group is really the group of retailers who were fortunate enough. And I do say that because in many cases, those who are not fortunate, suffered not because of lack of good performance, but because of the life, the changing lifestyle of consumers as they adapted to the pandemic. So the second group that did fairly well, is the group that falls into electronics. You and I joke about how many TVs can you buy? How many more laptops and the likes, can you buy? That sector, obviously, and with the number of employees working from home, and that trend continues. That sector did well. Anything to do with furnishings for the home. Both the home and the backyard. We all heard the stories about waiting three months to get a hot tub, and not being able to get hotlamps for the backyard. And so those are categories that did extremely well. And there are obviously a few of those.But let me focus very quickly on those that did not. And as I said, in some cases, mostly because of the shift in lifestyle, those sectors that were affected the most. Were number one, apparel. Number two footwear. And then, you know further down the line, we're talking about luxury cosmetics, jewelry, and the list goes on. They, in some cases, they're their losses were in the, you know, they were down 30% year over year. And in some cases even worse. And we're seeing that they're still struggling. Now in that category I'm excluding, and Eric can talk about that a bit more in a moment, but I'm excluding sporting goods because of the outdoor economy. And one of the big shifts has been people exercising, people wearing sporting clothing, more casual clothing. And so that sector has not been as affected as other sectors. And then I'll end by just saying, and the worst of all, are those retailers who really depend on foot traffic in the downtown cores, with the major commercial offices, and also transit. So, that's a double whammy. If you're in the fashion sector, and much of many of your assets rely on that foot traffic, and those are the ones who've been devastated. So unfortunately, it's an uneven story. We're seeing that replay in the first quarter of 2021. Specifically, because we continue to deal with massive restrictions, capacity restrictions, in most regions in the country, in some key sectors such as Toronto, Peel and York, until recently, nearly 100 days of continued lockdowns in those sectors, highly concentrated populations. And so that has an impact on retailers' bottom line. So that gives you an overview of what's happening.
Michael LeBlanc
You know, I think the one thing that stands out and and bears a little bit of exploration in what you're talking about, just for folks less familiar, maybe they're based here in Toronto, is the variability of the rules that retailers have to operate under, right down to the municipal, the municipal level, let alone the provincial level. I mean, you know, provinces like Alberta took a different tact. Left, everyone open, didn't declare essential non essential. Manitoba said you're essential, but you got to cover this stuff up and in plastic or take it off, you know. And then at the municipal level is all kinds of rules. And it's such an intense patchwork on a day to day basis.Can you speak to that for a little bit. I know it keeps you and your your team intensely busy, like like never before at all, three levels of government. And I think that's that's important for those on the call to understand. Is, there's certainly been, you know, a lot of written about the cost. Even though it's essential retailers have been reporting expenses, increase expense, increases of up to 10%. And that is very much not only because of everything retail has had to do to keep their employees and their customers safe. Retrofitting stores, if those stores could be open.
Diane J. Brisebois
But also, just the challenge of trying to manage your assets throughout the country with different rules. And, you know, BC, for example, has been pretty much open with very few restrictions throughout the pandemic. Similarly, in Atlantic Canada, with the Atlantic bubble. And then the rest has been pretty much the Cirque du Soleil. I mean, just take a guess. And Ontario being the worst, because in Ontario, for those who may not know, even though the province sets guidelines, the municipalities have jurisdictional powers. And so, that's the reason why you can have two thirds of the province open with capacity restrictions. And then the Mayor of Toronto deciding that it will be extending the lockdown. We've seen that with the Mayors of Peel and in another region. So extremely challenging for retailers that have several locations in different jurisdiction. So you can just imagine trying to manage your workforce, manage your inventory, and, and the likes. So that, that continues to be a huge concern for us, because it has, as we all know, certainly the retailers on this call can speak to that in more detail. But it has a huge impact on your bottom line, and your productivity. And that continues to be a concern, you know, welcome to confederation. And not that the US is that much different. The states are also not harmonized. But you know, Canada's only 10%, the population is not a huge market. You would hope that they could get their acts together. But that's the challenge that ensures the the powers are in at different levels of government and that has exasperated the confusion and the increased costs and managing your business, especially if you're in different jurisdictions.
Michael LeBlanc
Yeah, thanks for that, Diane. It's a great, it's a great overview. Reminds me of the work we did on plastic bags. You know, you'd had municipal, municipalities all having different rules around bags and operators that literally across the street, having different rules and trying to just, you know, it's a it's a nightmare of patchwork regulation, Scott, and you know, I've described the COVID era as either hitting retailers like a shock wave or a sledgehammer. The shock wave of demand or the sledgehammer of store closures. Here, you've kind of been the recipient of both. You and I've had a few late night phone calls about what's gonna happen to my stores? Can I do curbside? Can I do this? Are we essential? Are we non essential? You know, good luck if you can't feed your pet that's not going to go well in your household. And, you know, you've also got the big tailwind behind you of the pandemic pets. So take us through a little bit of what your experience has been like, over the past year and a bit in the context of your business.
So first, I just want to say thank you to Diane, because we're new members on the, relatively new to Retail Council of Canada. I encourage anybody on the call today to look it up. You know, as a retailer, we jumped right in there and got great communication. And the quick updates were amazing. So, I think that's been really beneficial for us in this last part of the wave and kind of understanding who's working for the retailers.
Scott Arsenault
So when you look at it kind of micro and close, Michael, there was times where it was up or down, and it was really not good. You know, early on in April, pretty scary. And you know, one of the things that kept coming up was cashflow management, be proactive. You know, the government was offering taxes and rebates and ways you could you know, store cash, and we were doing relatively well. But we did that, we manage the cash flow, so that if there was any type of extension, or this went on longer, we want to make sure we were okay. And really, you know, 2020 was about you know, I'd love to be high fiving people today. Everybody knows I've got a lot of partners, retail partners on this call and our team, and I'll give you a virtual high five. So thanks for being on today. But we couldn't do that in 2020. But it was still about the people. You know, and I know a lot of people you say that your company's about your people, but sincerely, you had to deal with it with empathy and you know, emotional intelligence. Because with the retailers we're getting it and wasn't us, we weren't at office, we're working from our homes. But the frontline workers and our staff, it was tough. And everybody went through different ways personally and professionally. And so, we really had to be managing that.And then products, you talked about a little bit of dog food, it's an essential, and it's important. So our mandate at Ren's was don't stop buying. Even though cash flow or we might not be seeing the sales in April that we wanted to. We needed to make sure that we're going to have that product. And we and we have expires on our product. So we were nervous, if we're not going to get back open and are we going to be holding inventory that might not be sellable. But we said we've got to have this food for the pets. So that's how we kind of approached that. And then the last thing I saw, and we've just seen this now in two waves, is that retail is relevant. Because when we've reopened our stores, both times, I think three times now in different markets, the customers come back. Our digital was great, you know, but customers enjoy a safe, you know, retail, and they want a safe experience. My wife last week, ran into The Source to get something and just said "Hi" to them, you know, we're so happy to be in a store. So, I know people want in-store experience still and retail is relevant. And we've seen it twice now where they're coming back in droves.
Michael LeBlanc
Yeah, and and you know, I'm a shopper as well as, as well as knowing you well. So I'm a customer first actually, before you and I got to know each other. And one of the things that always impressed me about your organization, and I think it bears a little bit of discussion is, you know, your ecommerce business and the way you go to market in a fairly competitive line of category, right. I mean, pets, pets has had a nice upswing to it, lots of new pets. But it's not like you don't have a lot of competitors at all kind of different price points. So, you've done well, but you've made some decisions to frame that. And then your e-commerce business, talk about that a little bit. Because there's things you do in your e-commerce business that that I think are helping you be very, very, very successful.
Scott Arsenault
So again, there was no playbook. And back in March, we didn't even know how impactful this would have been on the systems when you're shifting all those purchases that people are manually making in store and replicating them online. Those 1000s of touches was astronomical to. You couldn't load test what happened in March, April. Yeah, but you know, we've been on this kind of omni channel, kind of platform since 2016. So, it wasn't a backup plan for us to get ready. You know, we had click and collect. We were shipping across Canada already. And we had been doing well on a growth trajectory for the last three years. And this year, it just was, you know, the Canadian hockey stick curve.But it really pushed the systems. Whether it's your CSRs. Whether it's your checkout. Whether it's you know, and the one thing I will say was probably the most impactful was inventory accuracy. Because if I walk into a store, and you don't have this treat beef, and you have chicken, I can just pick chicken, I see it, I pick it. But when you have all these people shopping online, you know, these onesies and twosies can be very frustrating for customers. So, I think going forward, you got to make sure the digital systems work. Everybody says they do. They got stress tested now. So, we've learned a lot. And then inventory accuracy for this omni kind of shopping online, because even if I'm, you know picking up in store, a lot of times they would purchase online, we might not have the product. So if the inventory is incorrect, so you really, I think going forward, we're gonna have to make sure that you know if we want to have the "pet's best life", kind of mantra, we got to have the inventory, and it's got to be accurate. And then we got exposed in the digital world. And I think everybody did.
Michael LeBlanc
Thanks Scott. Eric, you've been, and in many ways your organization is is not unlike pandemic puppies. A bit of the recipient of the tailwind of the great outdoors and activewear. I think when Canadians think of activewear, they think of MEC. You've been on a, your organization's been on quite the journey, however. How have you, you know, and you operate coast to coast. So you deal with this patchwork that Diane and I talked about. So give us a sense of your experience, you know, when you took over the business, and, you know, you're also changing the wheels and flying 60,000 feet at the same time, so give us a sense of, of your experience in the pandemic, and in the COVID era so far.
Eric Claus
Yeah, I would probably echo a lot of what what Scott has said, and, also, you know, appreciate the fact that we have RCC, because that's kind of our, our connection to what's going on across the country. But, backing up to when we took over the business, I mean, it was a pretty gutsy move, to take over a business, which was highly, highly, highly political in Canada, as it was a co-op and really seen as kind of the gold standard in our sector and retailing. You know, to having a private equity firm out of the US taking it over. So we had to deal with a lot of the politics, the media, and then buying a business out of CC double A in the middle of a pandemic is not exactly the you know, the walk in the daisies. It was, it was a pretty complex thing. I would say it's a lot about people, and it's a lot about ensuring that you really understand people understand the effects of all of this, the toll that has taken on people. And you know, showing stability and showing that there's a plan.One of the most important things for us was obviously not over leveraging the company. Particularly in a situation like this. So, just like Scott was talking about cash, you're obviously not coming in, in these days and saying, okay, you know, I your, first thing you're not looking at is capital expenditure. So we came into a situation where, you know, the business had no credit. But we came up with a good balance sheet. So that really helped. It was all about communications with, you know, suppliers and lenders and banks and all kinds of things to ensure that people understood that we actually had the balance sheet to move forward. POs had been cancelled. So, you know, all of a sudden, you're in this industry, which is on fire, but you've got two issues. One is you've got no stock in all the things that have been canceled. And then there's an industry wide, complete shortage. So, if you take for example, bicycles, snowshoes, anything that's outdoors. I mean, today, some of our bike parts have a 600 day lead time. So, it you know, it sounds pretty sexy, it sounds pretty good to be in the, in this in this space. And it is, it's not a bad space to be in. But you've got to be really, really nimble, and you got to figure out ways to do things that you would not have done them before. You've got to, you really have to expand your buying base, your supplier base, because certain suppliers just have nothing. You can buy up everything that you can in Canada. So, it's been, you know, a good and bad news story. Mostly good since we've taken it over.The e-comm part of it, obviously on fire. We were fortunate that there was already a pretty robust e-comm platform in the business. And one of the things that we did to help alleviate some of the stresses at the store level, while keeping teams, is that we also have the ability to do a lot of ship from store for our e-comm. It's not necessarily the most profitable, but it keeps people busy in store. So you know, you need to keep a core of personnel and I'm sure that Scott has probably run into some of the same issues that we have is it's very difficult when people are being paid a lot of money to stay at home. When people are afraid to work in retail, you know, to staff up stores and you have to staff up quickly with all these, you know, openings and closures and you know, one week you're open the next week you're closed. You're laying people off you're you're doing a lot of stuff. So you know all told I think we navigated pretty well through it. So we've had you know, from a financial point of view we've actually exceeded all of our expectations both on the top and bottom line since we've only we've only owned it for a short period of time. But so far so good. And you know, the closure opening thing, it was very complicated. For example, Diane was talking about this whole Ontario thing just in the past few weeks. So we bring back people for two of our larger stores in, on Queen Street in Toronto and North York to be told two days later that guess what you're not opening. So now to go lay off people there basically, and you're talking about people that are not making a lot of money, so that, you know, they're going to be out of pocket if you lay them off another week before they can get unemployment insurance. So, we took the stand that no, we will bring them on, we'll keep them on. We'll just find other work that we can get them to do inventory cycle counts, whatever it is. So it's, it's a big toll on people. Yes, we are in the right business. And that bodes well for us. You know, we've got things back on track. But, again, we suffer the same issues that everybody else has. Containers out of Asia, you know, we've got suppliers that are that are booking 747 cargo jets to fly in footwear, you know. So a lot of things drive up the cost. We, you know, there's delays and all of this spring goods. But you know, I mean, at the end of it's all works out, if you look at the mix between the retail and the and the e-comm, it's still, it's a, it's a good business. And, I would say that, you know, we're holding our own quite well, actually. Probably better than better than most right now.
Michael LeBlanc
Well, yeah. And you raised several good points. And we'll go into them a little later. I mean, I as I often have said, talking to executives, like yourself, and Scott, the supply chain is harder to start than it is to stop. And you know, many retailers were concerned about liquidity in the first lockdowns. And then and then, you know, it's a global phenomenon. I don't know if we need to remind everybody, this isn't a Canadian phenomenon. This is happening around the world. And that there's pressure on every node of the supply chain. So thanks for kind of articulating that for us. Dave, let me bring you in the conversation. And, you know, you introduced Poirier and Associates, but you didn't really introduce yourself. And you and I work together at Hudson's Bay, what is it now? 20 years ago, if you can believe that. I was, I was 15 or 14, you were a little bit older. But, you're not only just, you know, not just, but you not only have the lens of the consulting space and looking into retail. You have it from, as a retailer looking outwards, right. You you've been in those rooms. You sign those checks. You've made those decisions. You've built those teams. As you look at the industry in general, you know, at that 10,000 foot, what are your observations about how you've seen retailers react and respond, and through the first wave of the first phase of the COVID era.
Dave Poirier
Well I think Dinae brought up a great point, that there are those three, three categories of people, the ones that were thriving, the ones that that sort of were surviving, and the ones that were diving. And, you know, all of them reacted as best they could in the circumstances. And I think it was a great move by a lot of the retailers, most of the focus was on, you know, keep the doors open, keep the product moving as best as possible. Find alternatives to the, to the broken supply chains that many organizations have. I mean, who would have thought that, you know, yeast and tarpaulins and home, hair grooming kits would have something in common as they did last year. With all the shortages that we were facing is quite bizarre as we work through all of those cycles of people figuring out what to do at home. And, and I think retailers reacted as best they could. Focused on the top line and on on cash management, not necessarily focused on the bottom line. So I think there was a tremendous effort of saying, "Hey, get at the problems that we're facing right now, let's fix them as best we can". And got into a little bit of a game of whack-a-mole of you know, six new problems a day that and fires that people were trying to put out. But I think retailers did an enormous job of responding to that. Now, as we're getting used to it and seeing that life can carry on, at least in the interim for many of the retailers. It's how do we do that more efficiently and effectively, because eventually we're gonna have to look at the bottom line here. And eventually it's coming very soon. And so I see a shift in the thinking right now around how do we manage this business sustainably in a profitable way that enables us to also take care of the shareholders in here. And make sure that when there are further disruptions, and I think everybody knows there will be a one type or another even after COVID. How can we better weather through those certain circumstances?
Michael LeBlanc
You know, one of the things you would, you and I have talked about quite often is decision making processes. And one of the things that several executives have mentioned to me is, is they wish they could capture or have an essence of capturing the speed of decision making that was the characteristic of many retailers in the early part of the pandemic. And you do a lot of work around how organizations make decisions. How processes formed decisions and strategy. What did you observe from that perspective? You were, you know, I saw things stood up in retail, that people have been hemming and hawing about for years. Even sending all their employees home in literally in a week suddenly became possible. And is that a? Is that something that's a reaction? Or do you think you think that some of that's gonna stick?
Dave Poirier
I think some of its gonna stick. I see that we've, you know, we've seen a lot of innovation over the last year in retail, but I don't think it's that retailers are more innovative than they were before. I think there are other factors around that one of them is just the, the need for urgency to respond to the the existing circumstances. So, a level of trust that people had to put into the front lines, to execute on things. And I think the risk profile changed. So the risk of doing nothing was far greater now over the past year, than the risk of taking on new initiatives. And so that was that risk profile changed, people were more willing to say, 'You know what, we'll probably, you probably won't get it right but let's just do it anyway". And so I think that was another big piece of it. And the other big piece is nothing like a good crisis to create alignment within an organization. And so that alignment, the trust up and down the organization, I saw took a dramatic increase during the pandemic. And I think to some extent, remains now it's. It's come off a little bit in the last few months from from what I've seen in organizations. But I think if we can keep that focus on the risk profile, and we've moved to scenario planning. You know, what I've seen organizations spending hundreds of 1000s of dollars preparing annual budgets that are locked down or three year budgets for that matter, that are that are locked down with reasonable certainty, that's gone out the window now. It's far more about scenario planning, and looking to to a reasonable horizon of what we see in the future, what could possibly happen.So that forces us to be more nimble, get rid of some of the bureaucracy that we've had in organizations in the past. And work through those scenario plans and risk management that's far more agile than it has been in the past. While we look for those alternatives in the supply chain area, I think that's a great example where, you know, we've been tightening down things in the supply chain for last 20 years. Finding every dollar of efficiency that we can possibly find. But what we ended up with was a rigid supply chain. And so when there was a disruption, it broke. And so now, instead of having the supply chain being optimal, we're looking at the supply chain being optional. What do we do in the event it's disruptive, and how do we work around it?And so I think there's a lot of creative thinking that has been unleashed as a result of it. It existed before but now it's allowed to actually get out there and be tested in a way. I think, will can see that innovation continuing, maybe not at the, to the same extent. But I think we'll see that innovation continuing within organizations in the risk profile, staying changed. Maybe not quite so much as what we saw over the last year, but certainly increased from from what we've seen in the past.
Michael LeBlanc
Well, and you mentioned that magic word agile. And you know, from a technology group that adopts agile to an organization that can stay more agile, you know, I think maybe that may be one of those things that sticks is this, you know, while this agility work, we we can't predict the future,. We and we won't be able to predict the future. So maybe we build an organization that's more agile in with a capital A, I could say. Scott, I want to get back to you. I want to talk about e-commerce because I think the folks listening. And Eric, I've got a question about e-commerce for you, as well as, as a kind of a veteran operator. And e-commerce in Canada Stats Can reported up 70.5% year over year. Which is probably under reporting it for a variety of reasons. You do things on your website from, you know, it's not just around putting a product online and selling it. There's a lot of moving parts that you do. And you know, for example, you know, subscription services, discounts. And talk about your merchandising strategies or the tactics that that come together to make a very robust site that that is a winning proposition when there's so many other options online. And you know, there's so many other chances of getting to the customer.
Scott Arsenault
Well, I think you have to figure out what the customer wants. And we had this conversation yesterday in a board meeting. Why not ask the customer? So we were coming up with all these ideas. So surveying is really good. I know what they want first, and auto ship Is something they want. But like I said, there's so many levels within auto ship. And I think when the digital world, you can really get pulled down with doing a bunch of things. So you have to figure out what your short track and your kind of long track is. And your UX improvements are going to be meaningful. And, you know, we want to do puppy registries and some really cool things that we're getting. But autoship is the most important, make sure it works, make sure you know the backorder report works on. So a little thing like letting them know when we're back in stock. That's key for somebody in user dogs, right. So these are the things that we're working on, because we're seeing our product as essential. And 66% of pets need some type of specialty diet. So they're coming to us for a reason. For the assortment, if we're out, it might be a function of our supplier, it might be a function of demand, a pantry loading, you know, there's a lot there. But making sure that we kind of keep enhancing what's really important. So I think when you brought up auto ship, just keep making that one better, that's really gonna move the needle. And all the UX of functions, we seen, you know, one 2% increase, which was crazy, giving some really good enhancements. And that's important, so and then there's that laundry list. So making sure your website doesn't get bogged down. And I've been reading what gets measured recently, and kind of your objectives and key results. And it's like, what's everybody working on? Because we had something in December come up, a real situation where that wasn't a priority, and we spent a lot of time on it. So we just want to make sure everybody's aligned, what the customer wants, and that everybody's working on that in alignment.
Michael LeBlanc
Michael, can I just jump in? Because I think Scott better Good point. And for those listening, and especially those investing in retail, one of the things to look at is, is what Scott just talked about is reaching out to customers. Because you and I talked about, the customer behavior has changed so much, that if retailers are relying on a pre COVID customer behavior data, they're making a huge mistakes. And in fact that data is decaying asset on your balance sheet. And so the greatest challenge, the most important thing for retailers to do, and I think Scott, Eric, and others have done very well is pivoting very quickly. And understanding, as I think Eric said, there's no playbook. So like truly looking at customer behavior, reaching out to customers on a weekly basis. Then looking at that behavior, because you cannot base a lot of what's happening today on the past. And that's going to be one of the greatest challenges, but also one of the greatest assets for those retailers who cannot pivot quickly. and refresh what I would call, you know, consumer behavior data. Well, and our friend, Bryan Pearson, at from Airmiles, described this as the biggest jump off moments in retail history for good or ill, right. So consumers are making, I saw some statistics, 45% of consumers said they've shopped from a retailer that they've never shopped from before. They bought a brand they've never tried before. I mean, those are numbers you never see, right. You, this circuit breaker of consumer behavior is really impacted, you know, maybe they, they're shopping because they couldn't find what they're looking for. But maybe they're shopping because they're working from home. And they're not going drive, like I live in Mississauga, I can't, you know, on a hand, I can't count the number of times I've been to Toronto to go shopping. So it's, you know, it's very local plus e-commerce. Now I got a couple of questions from from the audience. I've wanted to just jump in, and then we go, and then we'll launch our first polling question, Mike. So let's say first couple of questions in the audience. And Eric, you and Scott have both mentioned, but I'm going to throw this one, Eric, to you first, the role of vendors and suppliers. So one of the questions from the audience is, is how, they didn't ask it this way. But how do you be a partner not a mercenary? How do you be a great vendor in such a difficult, such a difficult time?
Eric Claus
It's not an easy question, because they're going through the same issues we are. So they've got their supply issues. I you know, I think one thing is candor. Like, you know, don't just be the good news fairy. Let us know what's really gonna happen because you get a lot of, particularly on the selling side of things. I don't know if it's a natural trait of salespeople, but they don't like to give you bad news. You know, let us know what's really, really going to happen. Work with us to be able to get product to stores in ways that may be a little more expensive to you, but you know, they get them there on time. And I think most of it is just really working as as partners. And many of them have supply, in our industry anyways, have supply issues. So you know, you know be fair with, be fair with your with your client group because you can't just favorite one because a stronger, or a bigger player than the other and ensure that you have equitable around the around the table. But I think for the most part, they're, you know, they're they're really good. I mean, they're doing their They're bending over backwards. And I think if you've got a good relationship with your supplier base, and it's not just a one way relationship, for the most part, they're doing what they can do. And again, it's not easy for them, it's not easy for anybody.
Michael LeBlanc
Scott, you're just throw you in here because you're, you're a relative niche player, though you're, you're, you punch above your weight, for sure, in terms of market presence. But when you talk to vendors, you know, how are you finding the experience? And what's your advice? If I was a vendor, what would you say? Would be similar to Eric just telling me the truth and, and don't sugarcoat it. Or, you know, how do you manage the channel relationships now that are so, so complex?
Scott Arsenault
Well, I think the relationships are built on your past history, right. So, the lesson to be learned here is how you treat your partners. Do you pay on time? do you give them a heads up? You know, are you in communication with them? And we've worked really hard with our partners, because we've been a growth story. So they've been excited to work with us. But it's got to be good for both right? They've got to make money, and they've got to see those POs coming, they got to be excited. And you got to deliver on your promises. So, you know, if they're going to give you buy-ins and different deals and stuff like that, did you deliver and have sell through.?So I think really the message going forward, what's the learnings? Because if this happens again, can you leverage your partners? Some retailers probably couldn't, they weren't good payors. They're always banging their fist. And we're always, you know, not being a good partner that way, and they probably lived through some of the pain, which maybe they wish they would have developed those relationships better. I don't want to say we were perfect, but we really do have a good partnership, and believe in the brands and the assortment that we have. So, I think that helped us through this. And to have those first calls. And there was a lot that were fulfillment rates were you know, 97 and 99 usually, getting in the 60s. And but they were struggling with their staff and COVID. So it wasn't an easy call to have. But you really had to be sympathetic and say, you know, we use the line, "this too shall pass". So with us, we just kept trying to change the conversation. We hear you, we hear your staff, but what's going to happen next and kind of move forward. But
Michael LeBlanc
Another question from the audience. And Scott, I'll start it back to you, because I've been in your wonderful stores. They're not small, they're very big, wonderful stores. The question asked is you know, is online, this 70% growth is this, you know, whatever it is 14, 16% of retail sales today, is it the end of the trend of bigger box stores? And what do you think about, how does stores fit in your strategy? And or are we even asking the wrong question? Or even, should we even be looking at how consumers look at things rather than a format discussion? How do you how do you look at them?
Scott Arsenault
So like, we're relevant right now we're in a good vertical. But if we weren't a good retailer, our stores would not be relevant. And I think, you know, your store footprint, you have to look at it, what's the relevance? We've added 75% of our stores now all have walked in freezers. Up to 16 - 20 doors. That was an emerging category that we got behind four or five years ago. So, you have, you can't just say, oh, raw is really important right now frozen food, and be there. So creating (inaudible) we've added scales to all of our stores. We've done a lot of things, you can come in and weigh your pet. You know, going to the vet, you got to make an appointment, and its cumbersome.Then you can walk into us anytime we're open from ten to nine at night, on weekends, and weigh your pet. So that's a great experience you can't have online. So, really the way we're looking at it, is they're enhancing them. And our crossover customers still low. And like I said, as soon as we updated, updated, or got back open, those customers came back. And I think the reason why is you know, caring staff and knowledge, we'll you can get that online, but not that personal touch. And then we have some categories that much like MEC, you got to go in and touch and feel them. The collars, the leashes, the harnesses, so those are relevant, make sure those assignments are good. They're robust, and they're, you know, moving forward. So I think looking at your assortment, and making sure you have something that's relevant in a store versus online.
Michael LeBlanc
Another question for the audience along the same theme. So I think there's some some curiosity in the audience around online versus physical stores, Eric, as a, do you see stores as a strategic advantage or something to be phased out? And that's not the audience's question, but I'm going to put it kind of black and white. How do you how do you see the intersection integration of online? And how do you operationalize that? How do you make that real?
Eric Claus
Yeah, so this one I'm really opinionated on. And I don't really know, Scott, but I'm totally aligned with him. When we bought this business, I know that from a high level, there were a lot of people looking at this, they wanted to shut, you know, half of the stores. I think if you're in a commodity business where it really doesn't matter, you could go to ABC or D retailer or vendor, you're buying something that's a commodity It doesn't matter. If you're in any way shape, or form a specialty type of retailer like Scott's business or like our business, there's a huge, huge advantage of having both the online and the store. We intentionally when we bought the business only shut down one store and going through CC double A, we had the opportunity with no cost to, to not accept any of these if we wanted to. And we specifically took 20 out of 21, which is great from a people point of view. But, you know, from from a purely business point of view, some really interesting things that have happened that I've that I've realized. So for example, Quebec just opened up two weeks ago. Purchases made before Christmas that people did not want to return to the e-comm never neverland. They've been waiting since Christmas and brought the return. Not that we're happy to open up and get a lot of returns. But it showed the confidence that our customers of ours had in the business, and they have confidence in coming back to a store because they feel that they can actually, they're not sending it into this vacuum somewhere, it's going to disappear.
Michael LeBlanc
There's a physicality to it, right? There's a presence, I returns are a great example. Right. And it's a great strategic advantage, I think.
Eric Claus
Yes, they have that connection, right. And we see often in our stores where people come in for advice, and then buy online. And or vice versa, they come into the store, for example, you want to buy a kayak. This actually happened to me, a couple years ago, before I was even involved with MEC. I went and spent a few hours of knowledgeable people in the store, they didn't have the kayak there, but they had it in the online shop. So I could order it online and get it in because online is like an extended aisle. So you can have a much broader assortment. There's just there's so many interactions between our e-comm business and our stores. It's it's, it's almost mind boggling. And to me, you know, outside of commodities, and this, I think is a big point. You know, when I I've seen a lot of private equity firms, many of them are, you know, driven and run by a very young generation. That is very, very in tune to online. And they believe that e-commerce is the end all for retail. It's not, again, it depends on the on the retail. So I think you really have to be careful if you're looking at a business and give value to that bricks and mortar. Because the connection between the bricks and mortar and the online is a big deal. And often online, we get a lot of hits, where people are doing shopping, they're getting product knowledge, then they come to the store to confirm it. The anyways in our business, I can tell you for sure 100%, that there's a huge interaction between the two. And one would not work nearly as well without the other. And so for us, it's it's a great duo.
Michael LeBlanc
It's like a distinction without a difference basically is the modern case of retail. Don't think about the store, the online store the channel store. Think about the customer, they just move back and forth and back and forth. And as you described, just from your behavior, right? Shop online, shop in store, return online, (imaudible), you know, let's throw some acronyms that are because we've been a little acronym light. Thank you again, to all the panelists for sticking with us. It's really wonderful. It's been a great conversation. And thank you for your generous, generous time and Dave for generously being able to present us. Diane, I want to throw it to you. And this is we're kind of in the last phase there. We've got a group of people trying to understand, you know, we've given them a thorough understanding of the trends in business, what makes retailers tick,. Dave, you talked about, you know, starting to unsurfaced, you know, things beyond just the numbers on the spreadsheet,. And 25 years in this business, the and and advocating for retailers, you know, non essential, essential, give me a sense of how the industry is viewing the recovery. So the retailers, you know, in the NRF, yesterday announced that they think it's going to come bolting out, you know, just the biggest recovery in 20 years, once the vaccine. How are we thinking about, and how are you thinking about the industry ahead, post COVID and from now until then? Well, I reflect some of the optimism that was reported by National Retail Federation, I find sometimes, you know, it can be a south of the border effect of a bit too much Hollywood not enough reality. But saying that, there is definitely going to be, if you want to call it a boom, Michael, I think we all know, as well as the people on the call, there's an enormous amount, there's pent up demand.
Diane J. Brisebois
And we've never seen consumers save so much, pay off credit card debt at the level that we've seen in 2020. You know, the majority of the debt that most of consumers are carrying now relate to mortgages. So it's what we would call cheap debt to a certain extent. So not only is there pent up demand because people have been isolated, but there's a lot of discretionary spending. So we are expecting, assuming, assuming that we don't go into third wave and we don't see additional lock downs or tighter restrictions. We are expecting second and third quarter to be very strong.Well, we will we will be looking at though, which I think the NRF report lacks, is the as people get vaccinated, we think there may be a shift and that will be key for retailers to gauge, there will be a shift of discretionary spending from product to service. Let's face it, all of us want to be able to travel. We may not be able to travel internationally. But there will be, we believe an increase in intra Canada travel. So that means that that money will go there. Think of when restaurants begin to open, especially as the weather gets better with patios. So some of that money will shift eventually, back to the service sector. Maybe not to the same extent, as it was pre COVID, because we don't suspect cruise ships will dock in Vancouver anytime soon. But saying that, that's what we're seeing for the around the fourth quarter. And then the other underlying measure that we're watching carefully, is that while everyone is optimistic for the rest of the year, we're looking at unemployment numbers. Because let's face it, we rely all of us on consumers in different brackets of income. And so we're watching all of the Canadians who have lost their jobs, specifically in the service sector, but in sectors that have been hit, and will take a couple of years to recover. Talk hospitality. So hotel, accommodation, cruise ships, and the like. So our, but you know, what we're hearing from from retailers is they're expecting renewed activity, lots of traffic, lots of growth, but they're also being cautiously optimistic, because they believe that some of the dollars that would have gone towards retail may moved into what I call service sector spends. So that's quickly the outlook.
Michael LeBlanc
You know, it's it's, and you and I talked about this, Diane and I do a live stream every Wednesday night for Retail Council Canada members, and one of the things I've been tracking is the vaccine because you know, the vaccine and the variant have a, and its timing, has a very important impact on retail. Like when do our life starts to return to normal. Is it September? Or is it you know, is it later? Or is it earlier? I mean, and it will trigger both maybe shifts in how people spend, more vacations, more travel, more services. And also chip, probably what they spent.Eric, I wanted to throw a question to you. And then Dave, I'm gonna ask you the same question. For the audience, you know, the private equity world, you touched on something that I wanted to pull the thread on a little bit. You know, you said, you know, generally in this world, you've got folks who are steeped in online. They, they may look, the experts and looking at numbers, is it all just about looking at numbers when you when you evaluate retail opportunities? When you when you look at the numbers on a page and make your decision is it that binary? Or do you think there's other things that that you would advise they look at?
Eric Claus
No, I mean, you know, I've looked at a lot of businesses with private equity people and, you know, obviously, just about everyone, when they're looking at a business, they always bring in an industry expert. But that aside, I think, especially if you're looking at buying businesses, today, it's there's a, there's a huge amount of people chasing very few businesses. And, you know, in many cases, if you're looking at retailers, there's a strategic that can pick up a business and has synergies that can outbid, the private equity from the numbers are just not going to work. I think private equity has got to look at, you know, businesses that have more, either a very unique or, or have specific problems that make them too complex for some of the larger strategics to get involved. Ours is a really good example. A business that, you know, it was a co-op that that has this, you know, a kind of a public image that that's, that's very fragile, that's very, very public. So I think you really, really need to, you know, look at the secret sauce, and you can't go in with that idea that, you know, I'm a finance person, you know, as a salary should be, you know, 8% or 10% or 12 or 13% of sales and, you know, I'm just going to cut this and do this and I get a cut my way to profitability doesn't work that way. And then I've seen people go in with pre determined ideas. I've seen it with my past retailer and down south, where private private equity comes in with a with a preconceived idea of which should be without understanding what the business is and what the secret sauce is. And if you don't take the time to understand the business and understand the people. And also give value to the people. And don't underestimate the, you know, the the value of that depth of knowledge of people that have been around for a while, sure, you need a mix of young and old and, you know, diverse and everything else. But I've seen so often in my career where people go in with these preconceived ideas. You know, they're the smartest people on the planet, and many are extremely intelligent, but you can be booksmart, you could be street smart. And if you want to buy a good retailer, you better be street smart and book smart. And then you can make it work.
Michael LeBlanc
Well speaking of street smart and book smart Dave, let me bring you in on this. I think you said 50% give or take of your business is connected in some way shape or form to private equity. You're often on the phone with clients, prospective clients who call you in. When you go into these, you know, retailers, what are you looking for? Beyond the numbers, which you know, you can get in a data room or whatever, pull with your your teams together. But, you know, you're you're, in my work with you culture is so important to you, and how do you look at that, and what's your advice around looking at a business from that perspective?
Dave Poirier
Yeah, I think, you know, we know pretty well or I know pretty well, if I walk into a retailer from end to end, you know, what opportunities there are in supply chain and warehousing and in store operations, and in merchandising, administration. And being in as many retailers as we have, we've got a pretty good sense of what the upside opportunities are on that. But, Eric really touched on it, I think, the two things that are most difficult for an investor to read, unless they've had experience in it, are the character, the sort of the culture and the ethos of an organization. So that, which can really create a uniqueness for the customer experience. So MEC is a great example of that. It had a very different culture and ethos to other organizations that sell the same products, or very similar products. So, as a result of that, it made sense, as long as that was captured and and embraced, to take it into private equity, much less to bring it into an organization, that's a strategic buyer because that, that culture mixes are very difficult to, to maintain in organizations. I've seen that through a number of, of acquisitions that we've seen where, there by the acquirer, there's just, they just can't resist getting in there and playing with it a little bit and changing the management in a way that thing they think optimizes the skill set, but doesn't necessarily optimize the that ethos or culture of the organization. And it doesn't take much for that to unravel. And we've got a lot of that that has come been built through the pandemic as well, you know. There was a very positive spirit in the beginning. It's had a few bumps along the way. But I think those organizations that really focused on it have actually come out stronger as a result.And yeah, as is often the case, right? Strategy, or culture, trumps strategy is, as it is, as it is often said.
Michael LeBlanc
Question from the audience. We got a few minutes left, Scott, I'm gonna throw this one to you. Because I think it's pretty, it's very relevant to your category. And it's a question about as e-commerce grows, how do you manage the profitability? So, you know, unit economics, in my experience still matters. You've got, you know, you've got pure play retailers around the world to report that they don't make any money. It is not the easiest thing to make money in online sometimes. But how do you manage profitability in your channels? And particularly when you got commodities, like, like I order from you, which is, you know, 50 pound bags of dog food, but at the same time ordering, you know, probably high value treats. Walk me through how you manage that and how you think about ROI and profitability in the online channel.
Scott Arsenault
Yeah, I will. I want to comment, just one thing on the private equity before I get into that. I think that where you have the strategics and listen to Eric, they're gonna come in and look for economies and supply chain and all the regular stuff, and how can they buy better. For the private equities, I was thinking about that question, and the message for them is, a lot of these companies have a good culture, and they have really good people, much like Ren's does. And I've heard the term like professionalize them and not in a bad way. It's like, we don't know what we don't know. Because we haven't had those experiences. Eric's ran a lot of companies have been around, but I haven't. So I looked for those experiences. And that's where I think private equities can come in and not look for the safe, necessarily, the strategic kind of alignment, they can look where, where can we position these people better on their balance sheet cash flows, and that doesn't have to be tight radical, it just has to be, hey, we can help you here. You got a good company. But here's some of the things we've learned with other companies. And private equity is have the lens into many retailers. And in this era of pandemic, they got to see which verticals were doing well and saying, Hey, we're getting this over here. You guys should try this. You should try this. This is not working well. Rents are coming down. We saw this success so. And that kind of went into omni channel as well. And we, conversations are, how can we leverage out or learn? So, with Omni channels, specifically, it goes back to partners. It's expensive. Canada is a big landscape. Eric's stuff would be the most expensive to ship around as kayaks. Dog food isn't very good either. But we went to our partners originally and said, "Hey, this is gonna be good for all of us. So how can you help us?" So, the omni channel, can you help us there with these discriminatory skews that are selling online and help us with the margins there? Because it doesn't make sense. You go back to your careers, and you say, here's our run rate, we're going to be a good partner with you. How do you help us? But we're gonna need some help to get going. And they have helped us. And then that's the supplies and everything in efficiencies and write down, and it goes back to technology, and simple things. As we're growing up, we have products in our warehouse, and this is just operational. that we're in every different aisle from the same distributor. So you take it over here, and it's nine skids and you're moving all around. And we're like, why don't we put this distributor in this aisle, it's like goods, make sense. And we can put this away in an hour as opposed to four hours. Other little things to make omni channel labor is we started ordering specifically to fit in the slots. And this is nothing new to a bunch of retailers. But we had to get better at putting stuff up. That's not making us any money, it's got to go in the slot, we got to have the right amount of inventory, maybe get it more often, and turn it instead of buying a lot of it. So I think you really have to look at a different.
Michael LeBlanc
No, it's a great answer. And, you know, listen, it's been a great discussion. It's 12:44. So, you've all been so generous with your time and I want to thank you. Such great insights, I learned something every time I talked to all of you. So, I feel like I get more out of this than anyone else. But thank you so much for your generosity, your time and sharing and and your insights. And thank you everyone, for joining us today.
Mike Fenton
So I just want to say thanks personally to Diane, Eric, Scott and David for their insights I learned a lot today, you know, great to hear the the news behind what we're hearing in the in the news and the media right now. And of course, Michael, for your insightful questions and the polling questions as well, which is interesting to see that, that information. Be interesting to have everyone back and six to eight months to see how we have rebounded and come out of the current market conditions to see where we're at.
So I just want to say thanks to our series sponsors, Grant Thornton, Castles and Hub and of course, to David and The Poirier Group for presenting today and being part of the content development. It's been great. We would really love to hear from what you know, in terms of what's going on in the retail sector. And I'm sure that for our audience online, particularly those on the investment side and the private equity side, they probably picked up some good insights today.
Michael LeBlanc
Thanks for tuning into today's episode of The Voice of Retail. Be sure to subscribe to the podcast so you don't miss out on the latest episodes, industry news and insights. If you enjoyed this episode, please consider leaving a rating and review as it really helps us grow so that we continue to get amazing guests onto the show. I'm your host Michael LeBlanc, President of M.E. LeBlanc Company Inc. And if you're looking for more content or want to chat, follow me on LinkedIn. Visit my website at meleblanc.co until next time, stay safe and have a great week.