The past three years have been a truly unprecedented period for luxury apparel retailing in Canada resulting in Canada being recognized as a major world wide market for luxury brands.
During the period, while the size of the Canadian luxury apparel market decreased because of COVID, the competitive intensity within the market increased significantly along with an unprecedented luxury retailing construction related boom, says a new report by Trendex North America, a marketing research and consulting firm.
“There is no doubt that the increase in the number of luxury apparel retailers, regardless of what country they came from, have served to offer Canadian consumers more luxury apparel choices. During both 2019 and 2020 two new luxury apparel retailers entered Canada. In 2021 the number increased to five and in 2022 nine luxury apparel retailers entered Canada,” says the 2023 Canadian Luxury Apparel Market report.
“In 2022 luxury apparel e-commerce sales increased by 9.8 per cent to C$236 million. The increase was driven by a number of factors: Holt Renfrew selling apparel on its website; Growth of omni-channel retailing and BOPIS; Increased millennial and Gen Z purchasing; and Growth in the number and importance of online luxury retailers including Essence.
“While e-commerce luxury store sales accounted for an estimated 9.4 per cent of 2022 Canadian luxury apparel sales, the channel had been, pre-COVID, growing at a significantly faster rate than the entire luxury apparel market.”
Randy Harris, president and owner of Trendex North America, said the luxury apparel market last year grew by 7.4 per cent to C$2.5 billion.
“The problem was that the market grew by 21.1 per cent, that is all apparel,” said Harris. “Luxury underperformed the total market last year and part of that reason was tourism was down, although it was up from the previous year. It was still way, way down. I think people were spending money on housing and that was taking money away. I think people were worried about inflation so they were holding back their cards.
“I would have thought the market would have grown more because of pent-up demand and stores being open but it just didn’t seem like that happened. I think the other thing is everybody knows there’s been this tremendous growth in luxury apparel retailing in the sense of companies have upgraded their stores and other companies have opened new stores like what’s going on in the mall at Yorkdale.
“So if you look at the big picture out in the street you think luxury is booming. It didn’t boom last year but we predict it will boom this year. We think there’s this delay in what’s happening.”
Harris said there is no doubt from a market development standpoint there is increased competitive activity. Whether that expands the pie or all it does is it chops up everybody’s share in a smaller piece nobody knows at this point.
“I’m worried about that because I think competitive activity in a sense is growing at a much faster rate than is demand,” he said. “These companies that are doing all of this development or new stores have a planning cycle that is two or three years in advance.
“I think a lot of these people got ahead of themselves maybe because of COVID where they thought that things were really going to take off and then COVID hits and things slow down. Well, they’re committed. So they go and open all these new doors and I’m not sure if that was a mistake in retrospect but I understand exactly why it happened.
“So the question is really in the long term with more competitive activity can we tolerate it in Canada so that retailers can money. Because right now, except for a very few, I cannot see how they’re making any money.”
The Trendex report said several factors to varying degrees contributed to the growth in 2022 of luxury apparel sales in Canada:
- The upgrading of luxury retailer stores. The expansion of luxury zones coupled with relatively low “High Street” rents has resulted in some luxury retailers either upgrading their existing stores or opening new flagship stores;
- The expansion of the luxury zones specifically in both Toronto and Vancouver. In both Vancouver and Toronto the apparel luxury zones have continued to expand outward from their traditional boundaries in order to accommodate both the ever growing number of new luxury foreign retailers and facilitate those retailers wanting to open flagships stores. Additionally in Toronto Yorkdale Mall has become a luxury zone;
- The upgrading/expansion of key A malls resulting in increased space for luxury apparel retailers. In an attempt to attract more luxury customers, some of Canada’s A malls have, or are in the process of, adding luxury wings (e.g. Yorkdale, West Edmonton Mall). Additionally, they have replaced, when possible, traditional tenants with luxury retailers and have encouraged luxury retailers to add flagship stores (e.g. Balenciaga);
- The increase of luxury retailers in Premium Outlet Malls. Over the past three years, there has been an increase in both the number of premium outlet malls (e.g. McArthur Glen Vancouver, Toronto Premium Outlets mall) and the luxury apparel retailers who have been drawn to the malls (e.g. Ted Baker, Armani, Hugo Boss, Gucci, etc.);
- The increase in Simons luxury apparel/accessories sales. While historically not known as a luxury apparel retailer, Simons has continued to add a number of lesser known luxury apparel brands in its Edito departments and tailor the offering of the luxury apparel brands to each store’s trade area;
- The increasing importance of Millennials. While millennials account proportionally for a small part of the total population, their interest in luxury apparel has made them the fastest growing segment for luxury apparel purchasing. Bain reported that in 2021 Generation Z and Millennials accounted for the majority of Global luxury apparel sales;
- Less cross-border luxury apparel shopping by Canadians. The ever expanding number of luxury apparel retailers in Canada has resulted in Canadians buying less luxury apparel from retailers outside of Canada.
Harris said both Holt Renfrew and Harry Rosen gained market share in the luxury market. He added that Holt Renfrew has picked up market share with the departure of Nordstrom.
“I find that Holt Renfrew today is the most outstanding luxury retailer probably had one of the best years last year,” he said, adding that Harry Rosen benefited with people going back to the office.
“I think those two are pulling away from the rest of the market if you will because of what they’re doing and everybody is fighting among the rest. If you look at the big four as we call it – Saks, Nordstrom, Harry Rosen and Holt Renfrew – they control 47 per cent of the market. So all of these other boutiques and everything else are fighting over the other 53 per cent. And that’s the competitive framework that I don’t think people understand.”
Harris said he expects the market this year to grow by 11.1 per cent which is almost triple what the total market will grow which is 4.1 per cent.
“Long term if you at from 2022 to 2026 the growth of luxury apparel should be about 42 per cent over that period. That is one year compared to the other. Whereas the total market will only grow 15.4 per cent over that same five-year period,” he said.
“So the bottom line is last year the luxury market underperformed but long term its future is very bright.”
The Trendex report said tourism has historically been an important contributor to the growth of Canadian luxury apparel retailing. However in 2021 the number of non-U.S. tourists visiting Canada declined by eight per cent following an 86 per cent decline the previous year.
“As COVID travel restrictions began to be lifted during 2022, non-U.S. tourism increased from around the world. In 2022, 3,957,570 non-U.S. tourists visited Canada, a 301.3 per cent increase from the previous year. During last year, tourism from Europe, which accounted for 53.4 per cent of non-U.S. tourism, increased by 354.2 per cent, while tourism from Asia increased 184.5 per cent. Tourism from a number of Asian countries including China (+77.6 per cent), Hong Kong (+269.3 per cent), and Japan (+363.6 per cent) increased significantly. The United Kingdom (16.0 per cent), France (12.0 per cent) and Mexico (9.4 per cent) accounted for almost 40 per cent of all non U.S. tourists in 2022.
Harris said there are a couple of things that could affect the Trendex forecast both short and long term. One is the growth of resale luxury apparel. To the degree that people buy used clothes, it’s going to have a detrimental effect on the total luxury market. Also in Canada there is more of a concern about inflation than there is in the U.S.