Canada's luxury retail market takes off as brands flock to cities

Whether you're in the market for a new$2 million Swiss watch or just window shopping, it's pretty hard to miss a new global luxury retailer setting up shop in one of Canada's high-end shopping streets these days.

There'shasbeen an influx of luxury brands opening flagship stores inmajor urban centres like Toronto and Vancouverover the last couple of years, withsome of notables being French fashion housesChanel,Herms andSwiss watchmaker Richard Mille.

In fact, nearly 40 per cent of the about 50 new international retailers that entered Canada last year are considered to be in the luxury segment of the market, according toRetail Insider.

The industry publicationhas been tracking nationalstore openings for the last five years.

"In my neighbourhood of Bloor Street and Yorkville,we're seeing this absolute explosion right now of luxury brands," said Craig Patterson, president of Retail Insider, referring to two high-end shopping areas in Toronto.

A combination of increasing wealth, tourism and more affordable prime retail propertyhave made Canada one of the top destinations for luxury retailers, according to analysts.

Torontoranked 10thin the world last year for the number of luxury store openings, a report byLondon-based real estate firm Savillsshowed.

The city was one of only three North American cities to make the top 10 list, along with New York and Los Angeles.

'Affordable' city

As the sale of luxury goods globally continues to decline, retailers are becomingmore strategic about where to open shop next.

For example, the cost of prime luxury retail rent in Toronto the third quarter of 2017was $318 US per square feet per annum, according to the study.

That compares to $3,200 in New York, $700 in Los Angeles and $2,918 in London, which tops the list.

"It's just so much more affordable to come to Toronto thenopenasecondary location in Manhattan or Beverly Hills," said Jordan Karp, executive vice president ofSavillsCanada.

"We have the advantage of the Canadian dollar so that's a driving force."

Tourist bump

A growing number of tourists and the perception of a more stable political landscapein comparison to the neighbouring U.S. are also big reasons why luxury retailers are choosing Canada.

"It's not just a Canadian story, it's also a who's visiting Canada story," said Retail Insider'sPatterson.

This week statistics showed that a record 43 million people visited Canada's biggest city, Toronto, last year, spending $8.8 billion.

Notably, China was the second highest source of tourists after the U.S.

This comes at a time whenluxury retailers are still betting big on the purchasing power of the Chinese consumer.

On Thursday, the world's biggest maker of luxury goods, LVMH, reported record revenues in 2017, spurred by a revival in Chinese demand.

The French company has 70 labels that range from DomPrignon champagne to fashion labels like Louis Vuitton.

Supply vs. demand

But even as more luxury retailers eye Canada for expansion,not all market watchers are convincedthe segmenthas what it takes to thrive in achallenging retail space.

"Luxury retailers and brands are beginning to open up to the prospect of selling online.This is making for a far more competitive Canadian luxury market," he said.

Alex Arifuzzaman,analyst atInterStratics Consultants, backed that sentiment, adding thatthere's a biggersupply of luxury retailers in the market versus the demand for them.

"The luxury market in Canadais only limited to a few cities and the population for it has not grown at the same pace," he said.

"Canadians are very price conscious, and I wonderwhat percentage of Canadians will spend $2,000 on a pair of shoes."

Arifuzzamanexpectssome consolidation in the luxury market as it grows, saying there will be a re-balancingof who the major players will be.

Changing demographics

Meanwhile, some analysts arguethat wealthier Canadians deciding to shop at home versus spendingabroad, along with wealthier immigrants could maintain the luxury market here.

"For most Canadians, their primary source of wealth and investment is their home," he said "The last decade has seen unprecedented growth in values, which creates a 'wealth effect'psychologically."

"Millennials are the first generation in history to document experiences in their lives online," he said.

"Experiences are now the primary social currency, whereas for their parents social status was more tied to material goods."

However, Patterson said he thinks luxury retailers that create an "interesting experience" for shoppers in their stores will stay aheadof the competition.

"If you're going to have a store, you're going to have to make it interesting for people to get off their devices and decide to go shop there," he said.