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Luxury retailer Saks entering Canada amid cooling economy

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[Photo: Saks Fifth Avenue in downtown Toronto. Canadian Press Videos]

American high-end retailers Saks Fifth Avenue and Nordstrom are aiming at making their presence felt in Canada, even as a tumultuous economy and a falling loonie could hurt demand for luxury goods.

Saks Fifth Avenue is opening its flagship Canadian store in downtown Toronto on Thursday, the first of a wave of openings in the Greater Toronto Area this year, including a new Holt Renfrew in Mississauga this summer and two Nordstrom stores opening this fall in the Eaton Centre and the Yorkdale shopping centre.

Retail analyst Wendy Evans said there is room for new competitors to snatch market share from established Canadian luxury brands, such as Holt Renfrew and Harry Rosen.

“Canadian consumers have not had much choice at the upper end,” she said. “We don’t have that many players in our market, and it’ll up everybody’s game significantly.”

Hudson’s Bay Co. bought Saks Fifth Avenue in 2013 for US$2.9 billion.

While this week’s opening will mark the debut for Saks Fifth Avenue here in Canada, Nordstrom has already opened locations in Calgary, Ottawa and Vancouver.

Yet while these luxury retailers hope to pull in Canadians with the money for exclusive brands such as Gucci and Prada, the country’s economic outlook has been faltering.

The Toronto stock market has lost roughly a fifth of its value from its previous peak in 2014 as oil slid from above $105 in June 2014 to below $30. As crude tumbled, so has the loonie — Canada’s currency has fallen from above par in 2013 to around 72 cents US in recent weeks.

Growth in the broader economy has also been tepid, with some economists and market watchers suggesting the country could slip back into recession in the first quarter of 2016.

“A lot of the Saks and Nordstrom customers are that aspirational group,” Evans said. “It certainly has a significant impact. It’s definitely going to be more challenging for the next year or 18 months.”

The low dollar is actually in some ways a boon for both Saks and Nordstrom, she said, because it deters people from cross-border shopping. While it will make imported goods more expensive, she said, retailers could turn to Canadian producers to help lower prices.

“You’re having trouble in the market, which affects both the high end and low end,” she said. “But they’ve been great operators in the United States, and I don’t see why it wouldn’t be the same here.”

And both retailers, she noted, are planning Toronto locations for their own off-price outlets, Saks Off 5th and Nordstrom Rack.

NPD retail and fashion analyst Sandy Silva said demand at those off-brand outlets, which sell excess inventory and discounted items from the big brands, may actually help boost sales at the flagship stores.

She said the luxury market in Canada is looking at much slower growth in the coming years, yet there is room for Saks and Nordstrom to grab a significant piece.

“I think they’re deliberately moving slowly in terms of their footprint, to test the waters,” she said. “Slow and steady is going to win the race in the luxury game.”

The big differentiator between the luxury stores, which carry many of the same brands, will be the customer experience, she said.

Silva said research shows that, while Canadians are still spending, they’re opting to do their shopping in fewer stores — meaning building brand loyalty is all the more important.

“If you can’t get your consumers to engage with you outside the store, you’re going to have a much harder time convincing them to come into the store,” she said.

“Now that’s something that everyone’s trying to do, whether you’re luxury or not.”

While online shopping has eaten away at the revenues of traditional retailers, Silva said, the same isn’t true of luxury shoppers looking for a high-end experience.

Instead, she said, the big threat for luxury retailers is the rise of own-brand stores such as the Prada and Gucci locations in downtown Toronto.

“There are so many more participants now than there were even five years ago, and they’re all in that same fight for the consumer’s wallet,” she said.