Canadian apparel falls out of fashion
International competitors loom, while U.S. retailers remain wary after Target’s failed expansion
Le Château has become a penny stock, Reitmans is trading at less than $4 and Danier Leather at $1.35, signalling a lack of confidence in Canada’s few remaining publicly traded apparel retailers.
“It isn’t a big club in Canada, that’s for sure, and it’s a shrinking club,” said Phil Lichtsztal, partner and lead of the Retail Consulting Services Group at Richter LLP.
“If we look back over the past 20 to 30 years, there is no question that these domestic retailers are very heavily challenged with the entry of international competitors like Zara, H&M and Forever 21, which have taken up huge market space and share in very little time.”
On the horizon loom new competitors: Nordstrom, Simons and Japanese retailer Uniqlo. Simons is about to open a 113,000-square-foot store at Square One in March. Nordstrom is opening stores at Yorkdale and at CF Toronto Eaton Centre in the fall.
Uniqlo announced a year ago that it would open locations at Yorkdale and CF Toronto Eaton Centre this year.
Retailers will soon release earnings for the fourth quarter, covering the all-important holiday season.
Recent Statistics Canada figures pointed to an increase in retail spending in November — sales at clothing and accessories stores rose by 2.2 per cent. The increase was attributed in part to Black Friday sales.
But December numbers won’t arrive for another month and third-quarter results at Canadian apparel retailers were mixed.
Sales at Danier were down 11.5 per cent in the third quarter of 2015, while total sales at Le Château dropped 0.8 per cent. Reitmans reported an uptick of 0.8 per cent in third-quarter sales after a decline of 2.2 per cent in the first half of 2015, according to Trendex, a monthly Canadian apparel industry report. H&M Canada, meanwhile, grew total sales by 19 per cent in the first half of 2015 and 14 per cent in the third quarter.
“It’s been very challenging to get more growth and usually it’s at the cost of gross margins,” Lichtsztal said. “Now we have the additional currency issue. That is another big bullet for these retailers to deal with.”
Executives at Danier, Le Château and Reitmans declined to comment.
High household-debt levels, a wrenching drop in the price of oil and the value of the Canadian dollar and the increasing — and unpredictable — growth of online shopping are taking a toll. Online shopping in November and December increased 20 per cent this year over last, according to data from MasterCard. But it still represented only 9.84 per cent of total retail sales during the period.
“With every device quickly becoming a commerce device, we predict the growth of online shopping to continue at this pace,” said Sarah Quinlan, senior vice- president of market insights for MasterCard Advisors.
Canadian retailers need to be more innovative, said Mark Lee, a professor at the Ted Rogers School of Retail Management. “Internationally, Canadian brands aren’t as strong as others in the world. No one is jumping on a plane to buy at Le Château, or Holt Renfrew,” he said.
Canadian retailers have been late to the game with online shopping, Lichtsztal said.
Other Canadian retailers with a sharper focus, including upscale fashion retailer Aritzia, athletics-wear company Lululemon, and value-fashion retailer Dynamite are performing well. Outlet malls are also doing brisk business, Lichtsztal said.
“Internationally, Canadian brands aren’t as strong as others in the world.” MARK LEE PROFESSOR, TED ROGERS SCHOOL OF RETAIL MANAGEMENT
Lululemon recently advised investors that it expects to report an increase in net revenue of19 per cent for the fourth quarter of fiscal 2015, ending Jan. 31.
A big problem with some retailers is sameness of product, Lichtsztal said.
“If you’re selling the same-old, same-old in terms of experience and same-old, same-old in terms of product, that is not a good mix.”
The good news for troubled Canadian retailers is that the lineup of U.S. retailers trying to get into the market has vanished in the wake of Target’s failure.
Retail consultant Wendy Evans pointed to Roots as a Canadian retailer that has found success at home and abroad by building a niche for themselves.
“You have to have something different,” Evans said. “You have to have a point of view.”