The past five years have been a truly unprecedented period of growth for luxury apparel retailing in Canada resulting in Canada becoming a major worldwide market for luxury brands.
During the period, both the size of the Canadian luxury apparel market and the competitive intensity within the market has increased significantly, according to a new report by Trendex North America, a marketing research and consulting firm.
But the market has felt the negative impact of the COVID-19 crisis just like the rest of the retail industry this year.
First the good news. Trendex estimates that the sales of Canadian luxury apparel/leather goods in 2019 totaled $2.74 billion, an increase of 5.5 percent year-over-year. Luxury apparel/accessories accounted for 8.8 percent of total 2019 Canadian apparel sales.
And in 2019 luxury apparel e-commerce sales increased by 16 percent to $170 million. While e-commerce luxury store sales only accounted in 2019 for seven percent of Canadian luxury apparel sales, the channel has been growing at almost three times faster than the entire luxury apparel market.
But here’s the bad news because of COVID.
TRENDEX ESTIMATES A 16.8% DECREASE IN THE CANADIAN LUXURY APPAREL MARKET IN 2020
Trendex estimates that the Canadian luxury apparel market will decrease by 16.8 percent in 2020 and increase by only 1.6 percent from 2019 to 2023 to $2.8 billion. The decrease of the Canadian luxury apparel market will be driven in 2020 by a 17 percent decrease in luxury women’s apparel sales while men’s luxury apparel will decrease by 16.2 percent. Purse sales will decrease by 16.7 percent.
Randy Harris, president and owner of Trendex North America, said much of the luxury apparel market decline this year is due to the absolute shut down of retail for about three months.
“But it’s also due to the lack of tourists that are coming into the country. The borders have basically been sealed for over six months now. So those high-end tourists from Asia for example are just not shopping in luxury retail stores,” said Harris. “You also have a reticence on the part of consumers right now to just go out and shop because they’re not sure if there is a second wave coming around the corner or not. So there’s a reluctance among a log to people I think to make a purchase.
“The thing that helps the luxury retailers in Canada right now and why they’re surviving is they’re backed up by ‘daddy deep pockets’. In other words, there’s nobody behind a Reitmans, there’s nobody behind a Le Chateau. But when you’re talking about Gucci in Canada if business is bad, rents have to be paid, their parent will take care of that. I think that’s what you’re seeing. Yes they will get through it but their sales will reflect what’s going on in Europe and around the world with the luxury market but it might even be affected more in Canada because of the tremendous decrease in tourists coming in.
“It’s really a shame that the industry has grown, matured, expanded over the last three or four years and in a sense ready to bloom this year and then all of a sudden it got the rug pulled out from under it through no fault of its own.”
The Trendex report said the competitive intensity in the Canadian luxury apparel retail market over the next five years will continue to increase and will be driven by a number of developments including:
- An increase in the number of luxury apparel retailer doors, both in A malls and on “High Streets”;
- An increase in luxury apparel brand flagship stores on High Streets and in A malls;
- An expansion of the traditional boundary for High Street areas in both Toronto and Montreal;
- Increased presence of luxury apparel retailers in Canada’s better off-price malls (e.g. Toronto Premium Outlets);
- Additional luxury mono apparel brand specialty retailers entering Canada for the first time;
- Growth of luxury apparel e-commerce sales;
- Luxury apparel mono brand apparel/accessories retailers upgrading/expanding the size of their existing Canadian stores;
- Holt Renfrew expanding its “World of” concessions model, will in turn serve to reinforce its position as the premier Canadian luxury apparel retailer. Of all multi-brand luxury apparel retailers Holt Renfrew should gain the most share in 2020;
- Multi-brand luxury apparel retailers will increase their collective market share at a rate faster than mono brand luxury retailers. This development will be driven by two factors. The first relates to consumers increasing preference to shop in multi-brand luxury apparel retailers that offer true omni-channel capabilities. The second factor is the increasing tendency of wholesale brands to take greater control of the distribution of their own brands. By cutting back or restructuring their distribution, luxury apparel brands become better positioned in Canada to control their pricing, marketing, etc.; and
- Increasing use, at the expense of traditional print advertising, of social media, influencers and other forms of non-traditional marketing, including crowdsourcing and “pop-up” stores.
“Historically the Canadian luxury apparel/accessories market was underdeveloped. The degree of underdevelopment, lessened during 2017-2019 for numerous reasons including new foreign luxury retailers/brands entering Canada, Holt Renfrew stepping up its game, luxury e-commerce growing at double digit rates and luxury retailer construction exploding in Vancouver and Toronto. A concern however is that the “supply” of luxury retailers will increasingly exceed the demand (i.e. sales) for luxury apparel. A shake-out in the Canadian luxury apparel segment is inevitable, the question is when and where it will begin,” explained the report.
“The unknowns in the forecast of Canadian luxury apparel sales are whether there will be a major decrease in the number of Chinese tourists visiting Canada, whether Canada’s economy will slow, whether millennials will shun luxury apparel, and finally how long luxury apparel retailing will be directly affected by COVID-19. The greater the increase in foreign tourists, the more the demand line (i.e. sales) will be moved upward, in effect delaying when the shake-out in the Canadian luxury apparel segment will begin.”