The retail economy is a tricky place right now. The retail high-end — luxury brands — are performing well, as is the retail low-end — discount retailers. But those who fall somewhere in the middle are struggling.
We’ve seen this play out for many middle-of-the-road retailers. Brands such as Sears Canada, Payless ShoeSource, Bentley’s, The Gap, and more have all declared bankruptcy or shuttered their doors.
Consumers — particularly younger generations — appear to be gravitating towards either low prices or high quality. Or preferably both! They aren’t as interested in “fast fashion” and are looking for brands that offer affordable prices and sustainable practices.
Where does your brand fall on the retail economy spectrum? If you don’t know, it’s time to find out. And if you fall somewhere in the middle, it might be time to choose a side.
Read on to find your niche…
Luxury retail has been a major trend across Canada for the past several years with international high-end brands coming into the country. Places such as Yorkdale Shopping Centre, the West Edmonton Mall, Bloor Street in Toronto, and more are reporting strong sales — and it doesn’t look like it’s slowing down anytime soon.
In 2018, Holt Renfrew invested $400 million to renovate and expand stores across Canada. Designer brands are also opening their own stores, such as Chanel, Prada, Versace, and more.
“The most difficult piece for anyone from what I’m hearing is trying to find the location right now,” said Lanita Layton, a retail expert and consultant, in a recent Retail Insider article.
The luxury market appeals particularly to immigrants to Canada and tourists.It can be easier to focus on areas where customers are condensed – large city centres, for example.
Quality matters, particularly for luxury retailers.
According to PwC Canada, “A third of Canadian respondents said they’re willing to pay a premium for non-food items that are either sustainably or ethically produced. This was followed in popularity by items with sustainable packaging (32%) or eco-friendly offerings (32%).”
For brands embracing luxury, a high price point isn’t a barrier to customers — in fact, it can be what draws them in, if the location is right.
At the same time as luxury retail is taking off, affordable retail is appealing to a different audience – or, in some cases, the same audience. Some members of Generation Z, for example, prioritize low prices when making purchases.
However, they also care about product quality and purchases that will last for the long-term. Cheap and low-quality product design isn’t necessarily the right approach for this market. Trends like fast fashion are falling out of style.
But there are other ways to appeal to the retail low-end that don’t necessarily sacrifice quality.
There are currently more than 1,700 dollar stores in Canada, and that number is on the rise. Dollarama, with products all priced between $1 and $4, reported better-than-expected comparable store sales in 2019. They rose by 4.7% in 2019 Q3.
Even grocery shopping in dollar stores is popular, according to Dr. Sylvain Charlebois, “the food professor.” He has seen Canadians gravitating to buying snacks at dollar stores, such as chips and candy bars. He thinks it’s feasible that in the next few years we will see even more food offerings, like produce and frozen foods.
Costco is another good example of discount success. By buying in bulk, customers find savings — and it’s paying off. Revenues from membership fees rose in 2019, as did online sales and same-store sales.
Other discount retailers are sprucing up their offerings, creating more attractive packaging and product design even at a lower price point.
At the discount end, shoppers like low prices, but not necessarily lower quality. Marrying value with affordability is a formula for success that’s doing well for many brands.
The “middle market” still exists in retail, but it’s changing. We’ve seen many middle-value-range stores go out of business in the past several years (dubbed by some “the retail apocalypse”). Yet, the middle isn’t disappearing entirely. For those who are remaining successful in this zone, it’s more about adaptation.
Take these examples of companies navigating the middle with ease:
- Retailers can live in the middle when they bring traditionally luxury-market items down to a lower price point — designer meets affordability, like DSW Shoes, Winners, and Nordstrom Rack. These retailers aren’t dollar-store-level cheap, but they still see success through continuous improvement, treasure-hunt-type customer experiences, and lower prices than their competition.
- Retailers such as Saje Natural Wellness and Lululemon aren’t necessarily affordable, but they don’t quite fit the luxury price point either. Yet they’ve distinguished themselves by becoming experts in their fields and creating quality products that keep customers coming back. Brands can stay in the middle if that middle is distinct enough.
- Sustainable brands can often charge more. As the PwC Canada research shows, consumers are willing to pay higher prices for products that are eco-friendly. Brands that use sustainable practices (and promote it) can generally have middle-of-the-road prices and maintain a strong customer base. One example of this is Toms, which gives away $1 for every $3 they make.
- Focusing on supply chain optimization to keep costs — and prices — low. In the hardware industry, for example, Sherwin-Williams has seen success with its product lines. Part of the way they have been able to keep prices lower while maintaining quality is through optimizing their supply chain and embracing digital transformation. Brands that do the same can often find ways to add great discounts and sales without compromising their profits.
Where Does Your Brand Fit In?
Where do you fit in the retail economy — the low-end, the high-end, or somewhere in between? Or do you cover both?
Knowing where you fit as a brand or retailer is essential. It can guide everything from location decisions to product design, to manufacturing processes, and beyond.
Once you determine where you want your brand to be, it’s critical to take action. Conduct product demonstrations where your target markets will see you. Create more prominent displays. Make sure your products are kept well-stocked and are actually making it to the shelves.
When you know where you fit into the retail economy, the possibilities are endless!
Storesupport Canada can help your brand find its place in the market and reach your targets. Our national team builds awareness and increases sales at retail and online. Learn more about our solutions for the retail high-end, low-end, and everywhere in between. Call 1-877-421-5081 or visit www.storesupport.ca.