Front Burner - ‘Big companies getting bigger’: The post-pandemic future of retail

Episode Date: May 15, 2020

We're still a long way away from getting back to the pre-pandemic normal. As shutdowns drag on in some cities across North America, some business owners are starting to close up shop for good. Today, the owner of the Storm Crow Tavern in Vancouver on why he gave up one bar to save his two others. And, writer Derek Thompson with the Atlantic on how the pandemic now could change retail - and by extension, urban streetscapes - going forward.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hey, it's me, Pia Chattopadhyay. And right now, I'm actually walking down the main street in my neighbourhood in the west end of Toronto. Roncesvalles Avenue is normally bustling.

Now, today, there are people out, to be sure. But just not as many. And so many shops are closed. Some of them forever because of COVID-19. The ones that are open, like some restaurants, well, they can only do takeout. Or in the case of some stores, curbside pickup. Frankly, there just aren't that many people who want a pair of stilettos during a pandemic. Look, we know this isn't going to go on forever. Eventually, we're going to open back up.

In some provinces, that process, it's already beginning. But will all of these businesses have survived the shutdown? Will this street even look like it once did? Or has just too much changed? Today, I'm talking to Derek Thompson. He's a staff writer with The Atlantic who's been researching how retail could change in the aftermath of this pandemic. But first, we're going to Vancouver to hear from a business owner who will not be reopening. To give you a sense of what's happening behind those papered over windows on once busybusy streets,

no matter where you live. This is FrontBurner. I'm Jason Kapalka. I'm the owner of the Storm Crow, I guess we call them nerd bars, restaurants in Vancouver and Toronto. The Stormcrow Tavern was started in Vancouver on Commercial Drive in 2012. The idea being that it was kind of like a sports bar except for people who didn't like sports. being that it was kind of like a sports bar, except for people who didn't like sports. Well, it got pretty busy. It was a fairly cozy little space, and there'd often be a lineup out the door. A lot of people would be playing board games and card games and whatnot. It served a lot of pub food type things. We had some particularly nerdy items like dungeon burgers, which were

kind of build-your-own-burgers that you'd roll a 20-sided dice to generate. I think it was March 17th there. We were having a really tough decision whether we should close or not. And I remember deciding, okay, well, yeah, we need to do it. I don't want to be responsible if we stayed open for another week just to try and make a bit more money and then ended up being a vector for transmission. So, yeah, we pulled the plug, I think, then. And honestly, it was only a matter of days after that before they did, you know, make official announcements to shut down everything. So, you know, we did it willingly, but it would have been taken out of our hands pretty quickly. That sounds naive now, but a lot of people are thinking it's

like, Oh, a couple of weeks, we'll be shut down for a couple of weeks. And then, then probably we'll go back. And the problem of course, was that almost every restaurant or bar runs on pretty narrow margins. And so, you know, even like a day without sales, you know, is a big impact. Once you start going weeks of that, you're just bleeding money. And then at that location, the Stonecrow Tavern, picturing the future of reopening, it's really hard to imagine how we could fit, you know, a reasonable number of people into this place when you have to have two meters of distance between every table. You're trying to figure out what possible financial scenario you could break even in with 20 people

in a bar that used to have nearly four times that. So at a certain point, it was kind of a triage because we had that restaurant, then we had the Storm Co. Ale House on Broadway and the Manor in Toronto. Do we try and save the ones that have a chance and cut our losses? And ultimately, yeah, we just, you know, at some point we had to decide that no, there's not going to be a miracle cure and we're not going to suddenly reopen at full capacity. None of that stuff was going to happen. Yeah, it was definitely a sad, a sad thing to, to do that. And, and, you know, and as with a lot of people in this scenario, you didn't even,

it wasn't really even possible to have any sort of send off or, or whatever. It was just pretty much, you know, just going in and, you know, cleaning out everything and salvaging what you could and covering up the windows. And so it's not a very dignified way to go out or anything. You know, I think some restaurants are okay. I mean, some ones are set up, you know, things like drive-thru McDonald's are doing great. Probably pizza delivery, I assume, is doing really well. But sit-down kind of pubs and bars-type places, it's going to be pretty rough. I mean, I assume that includes everything from weird theme bars like ours

all the way up to high-end Michelin star-type restaurants. Well, I mean, your nightmare scenario, I suppose, for many people would be that all the little mom- pop kind of funky ethnic restaurants and things are dead. And they get bought up by Starbucks and Tim Hortons and McDonald's and whatever else. And that those are the chains that have the wherewithal to kind of weather and thrive in this. And for a while, potentially years, that's kind of the new landscape of dining. Now, here's Derek Thompson, who wrote How the Pandemic Will Change American Retail Forever for the Atlantic.

can retail forever for the Atlantic. So Derek Thompson, I know from walking down streets in my own neighborhood and other neighborhoods in Toronto, and you know from walking down streets in your city that right now, no matter where you live, our cities feel very, very different. The stores are closed, some are boarded up or papered over. Lots of restaurants, takeout only in those cases. And that's what I can see. But what more do we know about how the small businesses that make up our urban streetscapes are faring? Well, we know they're not faring well. This is especially true for small businesses in the leisure and hospitality industry. I can say that in the United States, leisure and hospitality, which includes, for our purposes, you know, restaurants and hotels and theaters,

account for about half of all job losses. So they're really hurting. And that's why in this article, I predicted that one of the many accelerations that we're going to see potentially from this pandemic crisis is the acceleration of big businesses getting bigger. If you have a lot of independent restaurants failing and independent hotels failing,

people at the end of this are still going to want to eat at restaurants. They're still going to need to stay at hotels. So where are they going to stay? Probably not the mom and pop place that had to shut down because of the pandemic. More likely they're going to stay at the Hilton's and eat at the Panera's and Chipotle's that will have spread. At Chipotle, our mission is to cultivate a better world. That means doing right by our people, our guests, and our communities. And now, more than ever, we're putting safety first and setting a new standard. They had cash. They could rely on it. They could get the emergency loans from banks. They had legal departments that could, in an orderly way, organize furloughs and bring back workers and survive the pandemic.

unique characters to our city streets. But I also think that we're going to see, and this, I think, has some negative qualities to it, the phenomenon of big companies getting bigger, which is going to mean that when you're walking around in cities, rather than each city sort of looking as, you know, distinct and having its own distinct character, everywhere you go is going to kind of feel like everywhere you've been. Yeah, the monolith, the same kind of strip mall or streetscape no matter where you live. You know, I don't think, well, that the United States is different from Canada in terms of what the small guys are going through or small gals. And you heard the guy in Vancouver who owns several pubs. He's already decided, look, I'm not going to reopen. He gave up on one to try and save the other two. You might not have hard numbers, but how many others do you think are in the same

boat who've already decided by now that they're just not going to reopen? Maybe their lease is up and they've decided not to renew or they just think with all this physical distancing that we're going to have to do in our business, it just ain't worth it. Right. It really depends on how long the crisis lasts. And when I say crisis, I mean two things. One, you have the state government shutdowns, which says that non-essential businesses cannot open. But then you also have the fact that even if restaurants open and hair salons open, it's not guaranteed that people come back at the same percentage. So with that said, I think the reasonable answer is that the longer this lasts, the harder it's not guaranteed that people come back at the same percentage. So with that said, I think it's the reasonable answer is that the longer this lasts, the harder it's going to be. There was a survey that was recently done with small businesses in America that asked, you know, small businesses

like restaurants, what percent of you think you're going to be around if this crisis lasts three months? Well, you know, about 60% said, 70% said we think we can surely hang on. But once you get to a crisis lasting nine months, a year, that's where you're looking at something closer to a total wipeout of small businesses across the country, unless they can secure an emergency loan that essentially, you know, bridges them for the next year. A few weeks ago, we launched the Canada Emergency Business Account to help small businesses struggling with cash flow. Under this program, banks are offering $40,000 loans, which are guaranteed by the government. So the answer is highly dependent on time. And what I've kept saying across this crisis, and I think economists are saying the same,

is that, you know, the first rule of pandemic economics is that economics doesn't matter if you don't solve the public health crisis. If you don't make people confident that they're safe in public, walking outside, sitting in chairs, even walking inside and sitting among small but dispersed crowds, it doesn't matter how much money you give them. It doesn't matter how much money you give to these small companies. You're still going to have economic ruin. You mentioned the survey in the United States.

The industry group Restaurants Canada, so that group here, reported that last month that 10% of the restaurants they surveyed, it surveyed, wouldn't reopen. Now they're estimating that that number could rise to 20%. That's one in five. And we're only a couple months into this pandemic. Yeah.

If this thing lasts for six months, nine months, then people are going to look back at early mid-May and think that was the beginning. That was the opening chapter, you know, act one of the three-act play. So I think it's really important to think about this being a long-term crisis, about this being the sort of thing that we need to plan for over the course of at least half a year, probably just over a year and maybe multiple years. In terms of the second wave, we don't know.

You know, part of me, the optimist or the one who hopes, maybe there won't be a second wave. But every other pandemic in recorded history has had at least two waves, some more. And so I want to spend some time with you talking about what is it that the big players have? What do they have? What are they equipped with that the smaller, you know, independents aren't to weather through the worst of this crisis, whether it be the chains like McDonald's, or here in Canada, Tim Hortons, so on and so forth. Right? Yeah, exactly. What makes

big companies stronger, other than just the bigness of their revenue? They have savings. You know, Chipotle is sitting on tens of millions of dollars in cash reserves. The wonderful Laotian place down the street is not sitting on tens of millions of dollars in cash reserves. They're probably sitting on two to three weeks of cash reserves. And in a nine-month crisis, two to three weeks of savings gets you nowhere. Larger companies have legal departments and finance departments. It's not just one person

who is the CEO and the server and the legal department and the HR director. No, they have departments to handle all of this, which means that in a crisis, they can have the legal department sort of do an orderly furlough of some people, lay off of some people, while keeping the wheel spinning for the rest of the company. Small businesses don't have that either. So, you know, I think that a lot of the inequalities that we saw pre-existing the pandemic, you know, both in terms of demographic groups and in terms of companies are being accentuated by the pandemic itself. And I guess also, if you know, I think of the McDonald's or whatever fast food kind of

thing there is, they were kind of well set up even before this, because they had drive through and many of them already did take out. So that's probably helped out as well, right? Yeah, that's true. You know, I've been doing a lot of research on the delivery, food economy, because I think that so much of the food economy in the next year is going to be dependent on delivery. But there's some stuff that just doesn't deliver that well. So you know, I, I really love Mexican food. But I think that cold Mexican food just isn't as good as cold pizza. I love French food, but I definitely don't want to order some complex French dish, you know, some foie gras and have it sit in the backseat of a car for 45 minutes before it arrives at my doorsteps that I have to put the, you know, the expensive foie gras in the microwave.

So I think that we're going to see that the acceleration of the delivery economy is just a fact of nature right now, but it's also going to subtly change what we eat. Episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. You know, if we go back to Jason Kapelka, who decided to permanently close the location he did, because one of the main reasons was he couldn't figure out, look, even if I can open up, I can't figure out how to make physical distancing work. if I can open up. I can't figure out how to make physical distancing work. The realities of dining out are going to change as we continue this pandemic. And as you say, post pandemic, are the bigger chains better able to adjust to that, whatever the sort of physical changes are

going to have to make? It's a great question. My answer is it depends, but overall, yes. And that's because of two reasons. One, because they have more savings, they have more money that they can use to revamp their locations, you know, add temperature checks at the front, redo their menus so that they're all laminated or even better that the entire menu goes online so people don't even touch a menu when they come in. And then two, they can experiment across different locations because they have different franchises. So, you know, there were something like 10 total new cases of COVID in Montana over the last week. If you have locations in Montana, that's fantastic. You can start to experiment with reopening Montana before you

reopen New Jersey or New York. But if you're one Laotian or Vietnamese restaurant that only exists in the Bronx, then you can't reopen right now. You can't do that experimentation. And so that's why I think these larger companies are going to be more successful when it comes to revamping their interior spaces. Yeah, and you probably have a department head office right now, if you're a big player, trying to figure out how you can redesign your restaurants across the board, where, again, if you're just one owner of four employees, you can't tell one employee to just suddenly become an expert in interior design. You don't have that same luxury. So, you know, that's the kind of street side restaurant, these big retailers filing for bankruptcy protection, like in Canada, the mall fixture Aldo Shoes and the upscale department store Neiman Marcus in the US. Footwear company Aldo could be closing an undisclosed number of stores and laying off

employees, according to court filings. Neiman Marcus filed for bankruptcy today amid the collapse in sales during the pandemic. So on the one hand, you say the big guys in the restaurant world can survive. But does these things going on with the Aldos and Neiman Marcus suggest that this isn't true across all sectors? In other words, that not all big players are going to fare well through this? Yeah, it's a great question, and it's a subtle point. So I would summarize it this way. There are some industries that are simply going online. The department store industry is a 200-year-old industry that is effectively being digitized because Amazon

found a way, you could argue, to just build a bigger department store than Macy's because its department store is not bound by walls and ceilings and floors. It is bound by, you know, servers. It almost sounds grotesque in some ways that to talk about, hey, who's doing well during a pandemic? But it is true. I mean, there is opportunity. There are winners. Yeah. Yeah. So you mentioned Amazon or people who work in e-commerce. Change at the top. Canada has a new most valuable company. It is no longer RBC, Scott Peterson. It is not. And this is Shopify. This is the e-commerce site. A lot of people say if you look at Amazon and we can look at other ones, Amazon was a Goliath before this, right? Jeff Bezos, the CEO, one of the richest men in the world. But the fact that they're doing even

better than usual right now, that they're on this hiring spree, millions of others humans are being laid off. That makes sense to me, since right now we're in the midst of a pandemic and people, including myself, get things delivered to our doors because we're told to stay inside and we're being encouraged to buy things online. But how might Amazon continue, you know, doubling down on people getting things delivered to the door when we're on the other side of this pandemic? Well, I think that this pandemic is mostly accelerating trends like the growth of e-commerce, but it's also inventing some new behavior. So for example, I have heard of and read about a lot of senior citizens using Instacart and Amazon Fresh and other grocery delivery services much more now

than they were before the pandemic struck. And in some ways, they're just learning about the existence of these options right now. The invention of that new behavior is going to carry over after the pandemic. So that's just one small example, I think, of how you could see this new seduction of the conveniences of virtual retailing extend to a post-pandemic world. You know, the Wall Street Financial Services from UBS predicts the pandemic could accelerate online sales such that they could see their share of total retail sales go from about 15% to 25%. And you make the case like, look, some people are going to stick with this for very valid reasons in their life. But then that makes me think, Derek, about a point you kind of started with, which is going to be our changing streetscapes. In other words, if people don't leave their houses, they tend to stay inside more, do their shopping online.

You know, the bar owner, Jason Kapalka, that we talked to, joked that the future could look like the 1993 Sylvester Stallone movie Demolition Man, where, yes, there's restaurants, but they're all Taco Bell. Your tone is quasi facetious, but you do not realize that Taco Bell was the only restaurant to survive the franchise wars. So? So, now all restaurants are Taco Bell. No way. So I think what dystopian imaginations of the future typically get wrong is that they assume that human nature changes when, in fact, human nature is all about backlash, right? It's sinusoidal. It's a sine curve. It's an accordion. It goes in and out. The metaphor that I employ in the article is that of

a forest fire. There's nothing good about a forest fire while it's happening. It's flames and it's fire and it's destruction and ruin. But after a forest fire, in the ash, sunlight reaches the ground floor of the forest and it stimulates the growth of a new set of species that are often more diverse and more resilient than the forest that was destroyed. And I do think that this could be an appropriate metaphor for the economy of urban America and urban Canada as well, that you could see in the next year a lot of devastation and a lot of destruction. But that's going to bring down rental prices and commercial real estate prices. And that will allow new kinds of businesses and new kinds of families and new ideas to come in and get started. And I

think that could be really exciting. Okay, so I keep saying we all need things to lean on during this difficult time, no matter who you are, that are positive and give us something to look forward to. So thank you. I appreciate it a lot, Derek. You're welcome. Thank you. I have a bit of news before we say goodbye. It was one of Ontario's first coronavirus outbreaks, but yesterday a spokesperson for the Pinecrest Nursing Home in Bobcajan declared that outbreak over. All residents and staff have tested negative for the virus that killed 29 people at the long-term care home in the early days of the pandemic. That's all for this week.

Front Burner comes to you from CBC News and CBC Podcasts. The show this week was produced by Imogen Burchard, Elaine Chow, Shannon Higgins, Ali Janes, and Nahayat Tizoush. Derek Vanderwyk does our sound design with help this week from Matt Cameron. Our music is by Joseph Shabison of Boombox Sound. The executive producer of Frontburner is Nick McCabe-Locos. I'm Pia Chattopadhyay. Thanks for listening.

Be well, and we'll be back on Monday. For more CBC Podcasts, go to cbc.ca slash podcasts.