We’ve all likely heard that the middle class is disappearing — but what about the middle class of the retail economy?
Low-end retailers, like dollar and discount stores, have been increasing in revenue and popularity. So have high-end retailers, like designer and luxury stores. But mid-priced retailers have been slowly fading.
This week, we’re looking at the factors that have led to this polarization and what the future might be for the Canadian retail industry.
As Canadian interest rates and housing costs rise, more consumers are turning to less expensive retailers — or “extreme value” retailers.
Stores like Miniso, Dollarama, Dollar Tree, Giant Tiger, Forever 21, Costco, Walmart, Winners, and the like are seeing a surge in shoppers. And for a reason.
Prices are going up, but incomes aren’t appreciating at the same level. People who might have bought more expensive items before are now turning to less expensive brands to save money.
At the same time, quality has improved, too. Doug Stephens of Retail Prophet told Canadian Business that it used to be that a “Made in China” label was a sign that the product was not well made. But that has changed. For example, Dollarama offers art, decorations, school supplies, cooking equipment, and even grocery items.
Even if a family can afford to shop at a more expensive store, the logic goes — why would they spend more on an item that they can get for less, even if it’s a different brand?
Brands are recognizing this trend.
Dollarama and Dollar Tree have expanded in recent years. Dollarama has also added some items at a higher slightly higher price point.
Miniso, a discount store from Japan, came to Canada in 2017 with one store in Vancouver. Now they are planning a 500-store expansion.
Wal-Mart is also expanding in Canada. And discount and off-price retailers, like Winners and Costco, continue to grow as well.
On the other end of the spectrum, people are also gravitating towards more expensive retailers.
Over the past few years, there has been an ongoing entry of luxury brands into Canada. Nordstrom, Prada, Dior, Saks Fifth Avenue, Versace, De Beers, Tory Burch, Harry Rosen, Holt Renfrew, and more have all expanded, particularly in the Toronto and Vancouver regions.
This appears to be for several reasons.
First, Canada hasn’t been known as a luxury shopping hub for long. People buying luxury brands in Canada may have been going to the U.S. or travelling internationally to find similar items before. But now that stores are here in Canada, they are staying local.
Second, Canadian tourism and immigration have also been growing. More wealthy people from overseas are moving to Toronto and Vancouver, according to The Tyee.
And third is the “keeping up with the Joneses” mentality. Middle class earners who want to be seen as high-income earners are living on credit to afford luxury items, according to CBC News.
Amongst this, we have seen the “middle class” of retailers begin to fade.
Sears Canada closed all of its locations in 2017. The U.S. Toys ‘R’ Us declared bankruptcy in 2018.
Some, like HMV, have fallen to steep online competition and failed to adapt to changing times.
Other stores that have folded, or hit financial trouble, include The Gap, Town Shoes, Mexx, and Esprit.
But not all mid-priced retailers are faring so poorly. Stores like Canadian Tire, LuluLemon, Indigo, Aritzia, MEC, and Sport Chek have all continued to grow and win market share. They also all offer products and services that are higher quality, or not easily found, at discount stores.
Some middle-end retailers, like Saje Natural Wellness, have also focused on creating an outstanding customer experience in-store. Others, like Melanie Lyne, take notice of little details, like packing online shipping orders on hangers so purchases arrive wrinkle-free.
Brands who operate in the middle-market need to differentiate themselves. They need to define what makes their products different from cheaper — or more expensive — counterparts.
Whether your manufacturer or retailer operates on the lower-end, higher-end, or middle range of the Canadian retail economy, Storesupport Canada can help optimize your customer experience.
Contact us today to learn more about our services. Call 1-877-421-5081 or visit www.storesupport.ca.