Hudson’s Bay, Dollarama thrive as Canada’s retail landscape shifts

Dollarama and other discount chains are thriving at the low end, while HBC has successfully pivoted into a higher-end retailer. "They're out of the middle," one expert says. Global Toronto

TORONTO — The country’s largest bargain store reported Wednesday morning sales results that again trumped all expectations held by experts, as more customers walked through Dollarama’s doors, and the amount of money they spent jumped. The story was similar for Hudson’s Bay Co., which also reported a jump in department store sales.

The pair’s performance contrasts sharply with others, like Sears Canada and clothing store operator Reitmans, both of whom already reported their latest quarterly numbers. They weren’t pretty.

Sears continues to lose huge sums of money as it closes down locations. Reitmans isn’t selling apparel to middle-income working women like it once did, either. The disparate fortunes highlight a “transition” happening in Canadians’ shopping habits, according to Maureen Atkinson, a senior partner at retail consultancy J.C. Williams Group.

“Retailers that provide middle-priced products seem to be losing ground. Probably one of the most obvious is Sears,” Atkinson said in a recent interview. “We’ve seen this phenomenon evolving for years, but now we are seeing the impact on our retail base.”

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The variety of stores Canadians shop at is beginning to visibly reflect the widening inequality that’s been playing out in this country and other advanced economies for more than a decade, some experts say; the high- and low-ends of the retail market place are flourishing while the middle chips away. It’s just now becoming clearer to casual observers.

“You’ve noticed it,” Nelson, a sales associate at HBC in north east Toronto, said. “We’re trying to go more upscale.” The middle-age Hudson’s Bay employee said he left Sears two years ago when his appliance department was downsized.

Hudson’s Bay has spent heavily over the last few years pivoting away from its classic department store roots toward appealing to Canadians with deeper pockets (or enticing those who don’t to spend anyway). That shift was cemented by HBC’s mid-2013 purchase of U.S. high-end fashion retailer Saks Fifth Avenue, which is opening its first Canadian stores this fall.

“They are out of the middle,” Atkinson said.

Dollarama meanwhile is leading the charge among “value” chains. The Montreal-based retailer – which now sells everything from granola bars to health products to gardening supplies for under $3 – opened 17 stores across Canada in the latest quarter to surpass 972. Company management said in late March it plans to open another 450 in the coming years.

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Dollarama’s impressive growth rivals Walmart’s, which continues to expand its all-encompassing Supercentres across the country, announcing last month it would grow its network of about 400 mega big-box stores by another 13 locations formerly owned by Target.

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Trade up, trade down

Is all of this a reflection of a shrinking middle class? Recently published data suggests perhaps not as much as some assume.

According to research from Ryerson University’s Centre for the Study of Commercial Activity, the three middle income quintiles still account for the majority of retail purchases at 57 per cent – a figure that didn’t budge between 2010 and 2012, when the research was conducted. A longer-range study from Statistics Canada released last week showed little change in the middle income quintile (middle fifth of earners) between 1999 and 2012.

“Wealth inequality in Canada has increased,” Adam Goldin, an economist at Moody’s Analytics said. “But compared with other nations, the widening was minor.”

Atkinson said there’s plenty of middle-income shoppers who are “trading up” and “trading down” simultaneously – that is, taking advantage of great deals at Walmart or Costco, and transferring those savings into helping fund a more expensive purchase or indulgence elsewhere.

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Many mid-range retailers aren’t failing because their historic pool of shoppers is drying up so much as an inability to keep pace with rivals undercutting them on price or providing a superior product.

“The fact that the same consumers are shopping at Dollarama and getting their coffee at Starbucks is a pretty good illustration of this trend,” the consultant said. “I don’t think it’s about inequality, though there is probably a segment of Dollarama shoppers who can’t afford to shop elsewhere.”

Fortunes shift

While the middle may appear stable, what’s more clear is that a greater share of wealth has tilted into the hands of higher income households over the past decade, while less-advantaged ones have seen their share diminished.

Between 1999 and 2012, as the rich saw their share of wealth rise markedly, the bottom 60 per cent of households lost ground, according to Statistics Canada data.

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Ryerson researchers suggest $8.5 billion in retail purchases shifted from the bottom 80 per cent of Canadians into the hands of the top fifth between 2010 and 2012, a sum that didn’t go unnoticed by higher-end retail chains such as Nordstrom, Holt Renfrew, Simons and HBC’s Saks, which are vying with one another to capture the spoils.

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And while high-end shoppers are spending more, many others feel like they’ve dropped out of the middle class, and are adjusting their spending accordingly. Recent polling suggests the share of Canadians who identify as middle-class declined to 47 per cent in 2012 from 68 per cent ten years ago.

Even grocers are responding, rolling out more discount banners like Loblaw-owned No Frills or Metro’s Food Basics while upgrading a smaller number of “conventional” supermarkets in more well-to-do urban and surburban areas to offer fresher and more artisanal fare to customers willing to spend more for the experience.

The trend is being closely followed by investment experts who advise clients on which of Canada’s consumer stocks will make the most money.

“Market share is moving away from the middle market towards off-price and luxury,” CIBC analyst Mark Petrie said in a June 3 note.

“This general trend can be observed across numerous categories – food, beverage, apparel, other consumer goods and brands,” Petrie said. “And we expect it to continue.”

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