How are luxury markets faring in Alberta’s downturn?
During times of economic uncertainty, luxury items are often the first to go
by Jenn Mentanko
After seven years climbing the retail ranks from salesperson to manager to merchandiser, Helen Nguyen was ready for a change. In 2008, she took a risk and dove headfirst into her small business venture, Coco and Violet. The women’s high-end clothing store is on 4th Street, a prominent Calgary shopping district, nestled between Modern Menswear, an equally trendy boutique catering to the urban gentleman, and Savour, a bustling French-inspired café. Starting a new business from the ground up is a feat on its own, but try opening during the midst of a recession, with luxury merchandise to boot. “The first few years are tough for any business,” says Nguyen. “We told ourselves if we can get through this, we should be A-okay.”
And then the flood hit. Less than five years after opening, as business and a stable client base was being established, the worst flooding in Alberta’s history rocked Coco and Violet. Fourth Street, the epicenter for much of the destruction, was plunged underwater devastating restaurants and retailers. “That felt like a mini-recession because everyone had to put money into rebuilding. People weren’t spending money on clothes.” But, determined to pick up the (sopping wet) pieces, Nguyen recovered from Calgary’s concentrated slump and sales quickly picked up – until 2015, that is.
Was it lightning? A plague? Locusts? No, it was, and still is, the Great Oil and Gas Downturn. Coco and Violet had been boasting terrific sales until November 2015. The usual hustle and bustle of women shopping for that perfect holiday party dress was noticeably absent, and talks of corporate celebrations seemed mute. “I remember it feeling tense in our city,” she says.
With a steady drop in oil prices, Nguyen’s intuition rang true. In June, Alberta’s unemployment rate hit 7.9 per cent, the highest number in 30 years. Calgary bore the brunt of the downturn as the city’s unemployment rate nearly doubled and 19 per cent of office space sat vacant. High unemployment, fewer work hours and lower wages are all the right ingredients for a consumer-spending slump.
During times of economic uncertainty, even grocery stores can take a hit as consumers become increasingly price conscious. But it is the discretionary items – the wants vs. the needs – that are often first to go. “Some recessions hit the high end market more than others,” says Kyle Murray, director of the University of Alberta’s School of Retailing. “Executives in Calgary are getting hit a lot harder, so that’s going to hurt the luxury market there.”
Murray’s prognosis doesn’t bode well for a boutique like Coco and Violet, where a designer dress from lusted-after brand, Mason by Michelle Mason, will run you upwards of $700. According to Nguyen’s most recent number crunching, she estimates sales are down 20 per cent from last year – a significant decrease for an independent business. “Being a small business owner, not a lot of people know this, but it’s really tough, especially during these times,” Murray says. Without looking at a retailer’s balance sheet, it’s difficult for experts to predict which stores will fly and which will fall during an economic crisis. But Murray says it’s typically small businesses operating on a “shoe-string budget,” with less access to borrowing than established retail chains, that fall victim to price sensitivity.
It’s not just oil and gas marring Nguyen’s stellar sales streak; the low Canadian dollar doesn’t help. With an abysmal conversion rate and high tariffs, she is forced to jack up prices for merchandise purchased in the U.S. “Really, who is spending $700 on a sweater? That’s crazy! You shouldn’t have to spend $700 on a sweater,” she says. Customers are taking notice, avoiding those U.S.-made brands and diverting to the sale rack instead. But if there’s a way to make her merchandise cheaper for her clients, Nguyen is on it. “If I’m not making my full markup, that’s fine,” she says. “I just want to make it through this year.”
It’s not all doom and gloom for luxury retailers – there is a light at the end of Alberta’s oil well. Our province has hit economic bottom, and the price of oil has been rising. Several luxury retailers are scheduled to open their doors in Alberta within the next year, including Saks Off Fifth Avenue. Two locations, one in Edmonton and one in Calgary, are slated to open this September and another, in Edmonton’s Skyview Power Centre, will open spring 2017. “I am very confident that this type of offering will bring more people, more often, spending more time at the centre,” says Alan Mackenzie, president of retail at Triovest, the property management group for Skyview.
The arrival of Saks Off Fifth marks a resurgence of large-scale retailers in Alberta, as stores of similar scale, like Target and Future
Shop, recently shut their doors. According to an online survey conducted by Red Flag Deals, despite high-end stores like Saks entering Canada, 73 per cent of Canadians prefer discount outlets over local independents or high-end retail. But Mackenzie offers two reason why Saks Off Fifth
Avenue is assured success in Alberta’s marketplace: the merchandise and the location.
While the Saks Off Fifth chain is considered luxury, the merchandise is offered at a discounted price and features end-of-season wares or sale items, similar to Nordstrom’s outlet counterpart, Nordstrom Rack. Second, the Saks locations were chosen specifically based on market research in light of the economic downturn, showing areas of relatively high employment, high incomes and stability. “Just because the total economy is hurting because of the price of oil doesn’t necessarily mean specific trade areas are experiencing the same downturn,” Mackenzie says. So, rest-assured, he says, Canada won’t have another Target fiasco on its hands. For established retailers
like Saks, it’s not always detrimental to open during a recession. “I kind of like the idea of opening when the economy is weaker,” says Murray. “You get a better sense of exactly what your business is about, whereas when the economy is really booming, almost anyone can make money.”
Nguyen’s confidence may not be as in-your-face as Mackenzie’s, but she is still optimistic that business will pick up, despite Alberta’s growing retail graveyard. “Anyone who has been in the business long enough knows sometimes you just have to ride it out. It’s survival of the fittest,” she says. “I sure hope anyone who opens a boutique loves what they do for that reason.”
With technological upheavals, hyper-competition and international brands flooding the market, retailers are dropping like flies
Albertans tighten wallets as Canadians increase spending overall
- Albertans are typically known for being big spenders compared to the rest of Canada, but as of this year’s second quarter, Alberta was the only province to show a decrease in overall spending, down 2.9 per cent, while the rest of the country averaged a 5.5 per cent increase, according to Moneris Metrics.
- Canadians are compassionate. In the wake of the Fort McMurray fires, charitable donations increased by 21.1 per cent – the biggest spending increase this year. The largest increase was in May with a whopping 60 per cent increase as Canadians responded to those Fort McMurray residents in need.
- Albertans own pampered pooches. Pet shops saw the second-biggest spending increase at 18.5 per cent followed by furniture and home furnishings at 13.1 per cent.
- The same time last year, Alberta saw a spending increase of two per cent while Canadians upped their spending by 6.1 per cent. The largest increases that year were fast food, paint and wallpaper, and women’s accessories at 12.5 per cent, 11.9 per cent and 10.1 per cent respectively.