March 12, 2014 3:00 pm
Updated: March 12, 2014 3:38 pm

Luxury retailers, Walmart winners of widening income gap this year

Luxury retailers are expanding their Canadian footprint this year, enticed by bigger income gains among high income earners.

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For embattled retailers like Sears Canada, Best Buy and others situated in the middle of the country’s consumer marketplace, there may not be much relief this year.

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That’s the outlook from CIBC economists, who on Wednesday said they expect discount giants like WalMart and Target as well dollar stores like Dollarama to win more battles for consumers’ spending budgets.

High-end retailers will also see a lift as incomes continue to rise faster for higher earners than for mid- to low-incomes, the bank said.

“The big winners in the retail space have been at the bargain end,” Avery Shenfeld and Benjamin Tal, CIBC’s top economic forecasters said Wednesday.

And with employment and wage growth moving at a snail’s pace (for most), discounters look like they’ll continue to be.

READ MORE: Job growth has flat-lined across country – except Alberta

Disposable income grew a meagre 3.6 per cent in dollar terms last year, the bank said – “the weakest non-recessionary showing since 1996” – while more meaningful gains on that front aren’t expected until the economy gathers some more steam in 2015.

Meanwhile, income gains for the country’s top earners are expected to trend along the same lines seen in 2013. That is, climbing at a faster rate than the rest of the labour force.

Wage growth for higher income earners was nearly double that of workers at the low end of the compensation scale last year, CIBC said.

“That extends a pattern going back more than a decade,” Shenfeld and Tal said: “Increasingly, whatever wage gains there have been tilt to a select group of high-paid sectors, leaving the median worker with leaner improvements.”

Luxury retail expansion

That means more outlets for those with bigger disposable incomes to shop at.

While last year was characterized by Target and WalMart’s push to collectively put the squeeze on domestic retailers like Loblaw and Canadian Tire, 2014 will see the same dynamics unfold among high-end stores.

U.S. brands like Saks and Nordstrom are introducing new stores across the country this year, while Canadian luxury retailer Holt Renfrew is expanding its footprint by 40 per cent.

Will it pay off for them? Recall Target miscalculated its prospects with everyday shoppers in Canada last year and lost $1 billion as a result.

The CIBC economists suggest the luxury brands heading here from abroad may experience the same challenges, noting that incomes even at the high-end aren’t as high as those seen in the U.S.

“Despite a rising trend in inequality over prior decades, both pre- and after-tax income in Canada is not nearly as unevenly distributed as it is stateside,” they said.

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