Could Canada Become Oversaturated With Off-Price Retailers?

Competition among Canada's off-price retailers is growing increasingly fierce, with Saks OFF 5TH, Nordstrom Rack, Winners and Marshalls continually opening new stores. With all of this new activity, there's a potential for market oversaturation -- though according to one retail expert, this could be a trend reflecting the polarization of the Canadian retail industry. 

Saks Fifth Avenue's off-price concept Saks OFF 5TH has already announced 14 Canadian locations, with a goal to operate about 25 stores by the end of the decade. Nordstrom Rack, which recently announced that its first Canadian store will open in 2018 in downtown Toronto, plans to open as many as 20 Canadian stores in the coming years. Homegrown Winners, now under the American TJX ownership umbrella, continues to aggressively open stores with some in close proximity -- another downtown Toronto Winners store will open on August 11 at 10 Dundas Street East, within blocks of other Winners locations. TJX's Marshalls stores are also expanding, with plans to eventually operate about 100 Canadian Marshalls stores coast-to-coast. 

Retail expert Antony Karabus, CEO of leading retail consultancy HRC Advisory, said that despite the significant growth in the off-price space, Canada’s off-price sector is not likely to become oversaturated. He described how the sector has grown significantly in the US and shows no signs of slowing down, and that he expects the same trend to take place in Canada. He said that, in fact, there is a significant opportunity in Canada as Canadians are accustomed to cross-border shopping and the availability in the US of discounted premium brands and would expect the same availability in Canada as the new entrants enter the market.

Vaughan Mills. Photo: Ivanhoé Cambridge

Vaughan Mills. Photo: Ivanhoé Cambridge

Mr. Karabus described how a significant percent of Canadian families continue to search for value in a combination of three ways: 

1.    Extreme value-priced retailer, where the dominant player is Dollarama, and where they continue to raise prices, now as high as $ 3 dollars and potentially increasing to as much as $4 dollars,
2.    Treasure hunts where they are looking for bargain-priced product, whether branded or otherwise. Giant Tiger and the TJX banners (Winners, HomeSense and Marshalls) are all continuing to grow significantly, despite the continued growth of Walmart Canada, and
3.    Retailers who offer premium branded product at compelling prices, who include Nordstrom Rack and Saks OFF 5TH in a more upscale environment and a more structured layout, whether the merchandise is last season’s fashions at deep discounts or discounted current season’s offerings.

The market for brands at a discounted price has historically been dominated in Canada by TJX's Winners and HomeSense and more recently, Marshalls banners. With the arrival of Saks OFF 5TH and imminently, Nordstrom Rack, Mr Karabus expects that “the TJX banners will face significant added competition when negotiating with premium/luxury brand vendors to acquire their best surplus product for the Canadian market”. 

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Mr. Karabus discussed the continued polarization in the Canadian retail industry with market share increasing at both the value and the luxury ends of the market, and how lower-priced retail concepts are seeing increasing success (as are luxury retailers), at the expense of retailers being squeezed in 'the middle'. It's more difficult for mid-priced retailers to create a distinctive position in the market, he explained, which is partly why several have recently gone bankrupt or restructured. He expected continued growth in both the Value Sector and the Luxury Sector as those sectors continue to attract a greater percent of Canadian shoppers. He sees mid-tier retailers sharing a declining percent of the overall retail pie, but that the best retail chains in the mid-tier will increasingly dominate that sector while weaker players continue to exit or become less relevant over time. 

Mr. Karabus concluded his comments by saying that: “ With the decline of the Canadian dollar relative to the US dollar, cross-border shopping by Canadians has already and will continue to decline significantly, resulting in those Canadians that are accustomed to buying premium brands at discount prices in the US, now wanting to buy them in Canada. This augurs well for the growth of this sector in Canada", he said.

Canadian Retail News From Around The Web: June 27, 2016