It’s been more than two months since many shoppers in Ontario, Canada were last able to set foot in a clothing boutique or department store. In neighboring Quebec, these, and other nonessential retailers, began reopening on Feb. 8 — they had likewise been closed to the public since before Christmas. The two provinces are Canada’s largest by population and account for more than half of the country’s total retail sales.
But despite the pain of recent lockdowns, leaving Toronto and Montreal’s usually bustling shopping corridors cold and quiet, the past year has given Canada’s retail sector reason to be optimistic. Homegrown success stories such as Lululemon and Aritzia quickly shifted their focus to e-commerce to meet the surge in demand for work-from-home athleisure and loungewear. Buoyed by wealthy local buyers, luxury brands like Louis Vuitton and Thom Browne opened new standalone stores in Toronto’s Yorkdale Mall. And retail tech companies Shopify and Lightspeed became industry lifelines as merchants around the globe rushed to get their businesses online.
The cumulative effects of store closures, economic uncertainty, and consumers’ empty social calendars mean the immediate future of Canada’s apparel market remains uncertain. But pandemic-induced shifts and new investments have not only set Canadian retail on a faster track to recovery, but up for a brighter long term future, too.
That positive momentum, however, could be threatened if lockdowns drag on and travel restrictions are extended. A particular concern is the vaccine rollout, which is off to a slow start in Canada, with just three Canadians vaccinated for every 100 people, compared to the US’s 12.9 per 100 people, according to data from Oxford University.
Faster Recovery Fuel
Despite facing stricter containment measures and more widespread store closures than the US, Canada’s apparel market has fared slightly better than that of its southern neighbor.
Between February and April 2020, sales at clothing and accessories stores plummeted on both sides of the border, with drops of 84.2 percent in Canada and 86 percent in the US, according to data from Statistics Canada and the US Census Bureau. Since then, the category has rebounded faster up north: November 2020, sales were down 13.9 percent year-over-year in Canada and 15.7 percent in the US.
Charles de Brabant, executive director of the Bensadoun School of Retail Management at McGill University, attributes this differential in part to a certain sense of civic duty among Canadian consumers.
“Buying local, I think, is a much stronger trend in Canada than it is in the US,” he said, pointing to Quebec’s Le Panier Bleu (French for “blue basket”) campaign, a retail directory of local merchants launched in April 2020 and backed by the provincial government. This year, the nonprofit plans to turn the directory — which now lists thousands of merchants and more than one million products — into an e-commerce marketplace.
“There is this real community pride that’s taken hold and it’s being translated into a real offensive by the government,” said De Brabant.
However, community pride alone won’t be enough to prevent many stores around the country from shutting their doors for good. Already, at least 15 major retailers and apparel companies have filed for creditor protection — a process similar to the U.S.’s Chapter 11 bankruptcy — and announced plans for permanent store closures. Reitmans Canada, a century-old fashion chain, is closing 131 stores under its Addition Elle and Thyme Maternity brands. Montreal-based Aldo Group is reportedly shedding 40 percent of its owned fleet, or about 300 stores. Occasion wear banner Le Château is liquidating all 123 of its locations, one of the few that is calling it quits rather than restructuring.
“Unfortunately brands like Le Château, they were so entrenched in party and dresses that they just didn’t have anything to pivot people to,” said Lisa Hutcheson, a managing partner at J.C. Williams Group.
Many of the Canadian retailers currently under creditor protection are expected to emerge from the process in better shape, with leaner teams and more favorable lease agreements. Still, experts caution that these companies have significant work to do in terms of building omnichannel infrastructure and more resilient business models.
“Canadian retail tends to be about three years behind the US,” said Farla Efros, president of HRC Retail Advisory. “We’re always playing a version of catch-up.”
That gulf is evident when it comes to the adoption of e-commerce: while Canadian e-commerce sales were up 75.9 percent year-over-year in November, they still only accounted for 7.4 percent of the country’s total retail sales, according to Statistics Canada, which only tracks sales from domestic merchants. In comparison, that share reached 14.3 percent in the third quarter in the US.
The pandemic hasn’t eliminated many of the factors contributing to this lag — shipping is slower and more expensive in Canada than in the US and inventory is far more limited — but it has catalysed innovations in delivery and fulfillment, particularly in the country’s major cities.
Over the holidays, luxury menswear chain Harry Rosen partnered with DoorDash for same-day delivery of popular products in Toronto, Vancouver, and Calgary. Groupe Dynamite, parent company of the Garage and Dynamite brands, rolled out a similar partnership with Uber in Montreal, which it said it plans to expand to other parts of the country in 2021.
There’s also been a renewed focus on Canada’s luxury sector, with the emergence of new players and investments in the market from already-existing ones. Canada’s two luxury hubs — Toronto and Vancouver — have proven to be resilient markets because they’re less reliant on tourist dollars than their US counterparts, said Hafiz Mangalji, a director at Robert Burke Associates, a luxury retail consulting firm.
For retailers in Toronto’s tony Yorkville neighborhood, Mangalji estimates that 50 percent of their business was local.
“Now that customer is there one hundred percent of the time and they’re spending all of their time in just a three- or four-kilometer radius,” he said. “That spending really hasn’t gone away.”
That customer is also growing in number. While the country’s biggest spenders have long been concentrated in Toronto and Vancouver, the influx of Chinese wealth in recent years has led to unprecedented interest from top-tier brands and retailers. Because of that, more recently, Mangalji said, brands have seen Canada “as the gateway to China, especially Vancouver.”
Legacy Canadian retailers are retooling for this evolving shopper’s demands, too. Holt Renfrew, which for decades held a near monopoly on Canada’s luxury department store market, had little e-commerce presence to speak of until just a few years ago. The realities of the pandemic, though, have put pressure on the company to leverage all of its digital capabilities, according to industry analysts.
Its biggest lifeline, though, may be its personal shopping business, which accounts for an estimated 15 percent of the retailer’s total sales. Again, locals play a role: those high net-worth clients who use the service have, for the most part, maintained their incomes and seen their stock portfolios soar throughout the pandemic while finding fewer outlets to spend their money. This phenomenon has helped the luxury industry rebound even as other parts of the fashion industry seem poised for a long downturn.
Holt Renfrew has been joined by Nordstrom, which operates six full-price locations and seven off-price Nordstrom Rack stores in Canada, and Saks Fifth Avenue, which has three full-price locations and 16 off-price Saks Off 5th stores. Toronto’s Yorkdale Mall — said to be one of the best-performing shopping centers in North America — has welcomed dozens of new luxury tenants like Louis Vuitton and Thom Browne.
This summer, The Webster is set to open its first international location in Yorkville, counting on the strength of the local market and its own private selling business, which includes sourcing designer vintage and archival pieces for private clients.
All this represents a mindset shift on the part of luxury brands and retailers, who, in the past, “didn’t really take the Canadian market seriously,” said Mangalji. After all, with a population of 38 million people — slightly smaller than that of California — the country could only contribute so much in terms of sales.
Now, the challenge will be to keep these positive trends going, even in the face of lockdowns without an end date and a vaccine rollout where, once again, Canada finds itself outpaced by the US.