Canada's Condominium Magazine

Good holiday season forecast as retailers adapt to the “experience economy”

Do you go shopping so you can get out of the house and go somewhere that reflects your personal values? Then you are probably between twenty-five and thirty-four years old, and you are part of the “experience economy.” Shoppers in that age bracket, otherwise known as the Millennials, and indeed most Canadians, rate buying things as one of life’s greatest pleasures. Nowadays, however, they also want it to be a beautiful and memorable experience.

Which is why the new Nordstrom department store at Yorkdale Mall looks the way it does, with a soaring atrium, high ceilings, plenty of windows and natural light (no more “fortress” mentality at Nordstrom, says the retailer), and beautifully designed space. Nordstrom says “psychological research” has shown that spaces with high ceilings and openness allow shoppers to be more “explorative” and creative. A space like this will be a destination in its own right, with its beautiful things for sale, its café, bar and art collection. The company even has an art curator to select what gets displayed in the stores.

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Not your typical department store. The new Nordstrom at Yorkdale Mall in Toronto has plenty of windows and art on display to help create a beautiful experience for shoppers. Image: Andrew Francis Wallace

Expanding its number of stores—the Yorkdale store brings to five Nordstrom’s total in Canada—may seem counter-intuitive, given that market research firm IbisWorld Canada is forecasting that the department store sector will shrink over the next five years. High-end retailers like Nordstrom, however, are considered likely to thrive, as average disposable income increases and those experiential shoppers seek beautiful stores in which to splurge on expensive goods.

If Ernst and Young (EY) is correct with its latest retail sales forecast, Nordstrom and many other retailers will have a very good year end for 2016. EY says Canadian retail sales are expected to grow 3.5 per cent this holiday season, though the forecast comes with a warning that reflects the experiential shoppers’ demands. “Consumers are seeking convenience, customized offerings and convergence,” EY consumer products specialist Daniel Baer said in a statement. These are the new “three Cs of retail,” he said. Retailers must make it easy for shoppers with multiple ways of buying, all offering a consistent experience—from email promotions to mobile apps to store visits to online shopping. “Cross-channel retail is not a trend: it is a retail imperative, and the very survival of retailers depends on the seamless execution of this strategy,” Baer said.

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Many Canadians want the government to raise the threshold for tax- and duty-free foreign goods bought online from $20. Canadian retailers are opposed, saying it would cost them business.

Some of the factors at play in the expected retail bonanza are lower gas prices, less cross-border shopping, the federal middle class tax cut, and “moderately” resilient consumer confidence, according to EY. Top gift choices are predicted to be clothing, toys, electronics, jewellery, and gift cards, the latter for “services and experiences” like restaurants, shows and spas.

This means retailers must make shopping easy by offering multiple ways to buy and return products. At the same time, retailers can’t forget about compelling offers to encourage consumers to visit their physical locations, not just online stores. Finally, mobile phones need to be part of retailers’ holiday strategy, as they’re increasingly becoming the number one way shoppers search for and purchase gifts.

While that is good news for retailers, there is a bit of a cloud hanging over the industry. The federal government is considering raising the $20 threshold on foreign goods that Canadians purchase online and import without taxes and duties. Public support for raising the threshold, which is the lowest in the industrialized world, is strong. Given that Canadians who travel to another country are allowed to bring in up to $800 in duty-free purchases, why are online shoppers limited to a paltry $20, especially when online shopping is becoming more and more common?

The Retail Council of Canada (RCC) has an answer. Increasing the threshold even a little would “devastate” its members, making them uncompetitive with online retailers, mostly American, and forcing them to lay off workers. Retailers in Canada would have to collect sales taxes and duties on the same items as those sold in Canada. This would give the US merchants a tax advantage of from 5 to 15 per cent, RCC says. The group wonders why the government would want to give a tax and duty advantage to a US retailer at the cost of a Canadian employer who creates jobs and economic activity in this country.

Despite the RCC opposition, however, other industry players, including Shopify, the Canadian Chamber of Commerce and the Canadian Manufacturers and Exporters are in favour.

So far, the government has said only that it is considering the possible impact that waiving duties and taxes could have on Canadian businesses as well as on the various governments’ administrative costs.

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