Influx, expansion of U.S. chains in Canada shows no signs of slowing

When Nelia Belkova moved from the U.S. to Canada, she was initially disappointed that many of her favourite brands were nowhere to be found north of the border.

When Nelia Belkova moved from the U.S. to Canada, she was initially disappointed that many of her favourite brands were nowhere to be found north of the border.

Less than a decade since the style blogger’s arrival, the retail landscape has changed dramatically, and most of the chains Belkova missed — such as Bath and Body Works and Victoria’s Secret — have established storefronts in Canada.

Those U.S.-based retailers have plenty of company thanks to a flurry of new arrivals in 2011 vying for the Canadian consumer dollar.

J. Crew, Express, Marshalls and Intermix all flocked north to set up their first bricks-and-mortar locations in Canada. The Hudson’s Bay Co. acquired Canadian franchise rights for Topshop and Topman, opening the first location for the British fast-fashion chains in Toronto in October.

Another U.S. company appears poised to launch.

Catherine Fisher, vice-president of corporate communications for Ann Inc., the parent company of Ann Taylor and Loft, wrote in an email to The Canadian Press that while a formal announcement hasn’t been made about their intentions, they are “actively pursuing entry into the Canadian market,” expected for late in 2012.

“This is a natural step for us given the strong awareness of both brands in Canada,” Fisher wrote.

The Toronto-based Belkova, who blogs at www.styleblog.ca, counts Canadian labels Greta Constantine, Ashley Rowe and Line Knitwear among her favourites, and said Montreal-based retailer Jacob is among her go-to’s for officewear. But she has welcomed the chance to check out the recent retail imports.

Belkova said she was very excited when J. Crew opened its doors, bringing its twist on classic styles to the Canadian market. She has also visited Topshop.

While it’s still early days for the newest additions to the Canadian retail scene, outside players with a foothold in the market have already made an imprint.

After just over a year in Canada, lingerie retailer Victoria’s Secret ranks sixth in the intimates subsector — ahead of places likes La Vie En Rose and Winners which have been in existence longer, said Kathy Perrotta, director of sales for NPD Group, a global market research company.

The data was gathered from the Consumer Tracking Service for apparel launched by NPD Group. The service tracks the shopping behaviour of around 33,000 individuals each month and is calibrated and weighted to be representative of the total population, said Perrotta.

In the 12 months ending in September 2011, Perrotta said there was $19.5 billion in annual apparel sales. Walmart (NYSE:WMT) ranked first, followed by Mark’s (TSX:CTC.A), Winners and The Bay.

With the looming arrival of U.S. discount giant Target in 2013, Perrotta said retailers need to be poised and work toward keeping — and growing — their existing share of the pie.

“If we look at the total apparel and basics market of roughly around $23.3 billion, new entrants to Canada are going to take share from somebody,” she said.

“There certainly needs to be attention paid as the pie doesn’t necessarily grow — but your share within that pie can shrink.

With the exception of June, year-to-date apparel sales in Canada decreased every month in 2011, according to Trendex North America, a Toledo, Ohio-based marketing research and consulting firm specializing in the Canadian and Mexican markets.

Given the challenges in the global economy, it may appear at first glance to be a less than ideal time for retailers to expand operations. But many of the recently launched chains had plans in the pipeline months — and even years — before opening in Canada.

The U.S. experienced a deeper economic recession than Canada, and as a result, faced a much more difficult domestic market, said Daniel Baer, partner and national retail industry leader with Ernst & Young.

Store productivity in Canada has been much stronger than in the U.S., and retailers see an opportunity for growth within a market sharing cultural and linguistic similarities, he noted.

Trendex North America president Randy Harris said U.S. retailers also have had the benefit of seeing other chains succeed in Canada, giving them a confidence they may not have had two or three years ago to enter the market.

“Canadians have been in the United States and they’re aware of these companies such as J. Crew and Ann Taylor, so it’s not like they have to build, if you will, store awareness. They’re already known quantities with the target Canadian audience.”

Harris said the story of 2012 won’t be the influx of more chains, but rather the expansion of existing outfits.

And companies won’t just be battling for dollars. Baer foresees more competition for retail talent like personnel to fill management and head office positions.

John Kiru, executive director of Toronto Association of Business Improvement Areas, said there’s always a concern related to competition — especially when it’s not domestic.

“That said and done, as long as businesses locate along the retail strip and have to deal with the same issues and concerns that we do, as our retailers, we’ll be happy to take them on from that perspective,” said Kiru, whose association represents 72 BIAs in the city and more than 30,000 businesses.

Canadian retailers are signalling they’re ready to compete — on both sides of the border.

For Black Friday and Cyber Monday, several retailers offered in-store or online sales to help entice Canadian bargain-hunters to spend their money at home rather than heading to the U.S. for deals.

Affordable apparel label Joe Fresh (TSX:L) and yoga apparel company Lululemon Athletica (TSX:LLL) are among the homegrown brands that have set up storefronts in the U.S. — a trend Baer sees continuing.

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