Growth in Canadian Mall Sales Performance: Real, or just Currency Fluctuation

Written by  //  August 7, 2012  //  Posts  //  1 Comment

This article subject has been updated: Declining Canadian Dollar Slowing “US Retailer Invasion”

In 2011, the per square foot sales performance of the average Canadian mall was 40% higher than the typical US mall. This gap is pretty impressive considering that just a decade ago Canadians malls performed 12% lower than US malls.

So why are we so special in Canada? According to what I hear smugly pronounced at recent conferences, our good fortunes are a result of a) a higher amount of shopping centre space per capita in the US than Canada, and b) a stronger economic recovery in Canada. This performance gap has not gone unnoticed and Target, Nordstrom, Bloomingdales, Tangers, and Simon’s Premium Outlets are all on the verge of flooding into Canada. I couldn’t help but think while sitting in a recent seminar titled the American Retail Invasion that our southern friends seem to have found a very fitting way to celebrate the 200th anniversary of the War of 1812.

Has our amazing foresight, strong banking practices, and tight development regulations lead to the creation of a retail disneyland for US companies?

I have a hard time buying the “US is oversupplied in retail space” argument as an explanation for Canada’s higher sales performance. The US has always had much more retail space per capita than Canada, and if anything, this imbalance has decreased over the past decade. Retail construction in the US has effectively been stalled for several years while new development has continued in many Canadian markets.

U.S. Shopping Centre GLA Year-over-Year Growth (SCT, COSTAR)

The most likely explanation is that retail spending per capita, measured in USD, has increased significantly in Canada compared to the US.

Source: Colliers International, Spring 2012, The Retail Report Canada

But why are Canadians spending so much more per capita all of a sudden? Except for a few provinces, most of us aren’t actually getting wealthier. Part of this spending increase is fuelled by households taking on higher debt levels, but I believe a lot simply comes down to currency fluctuations. Consider the following chart that compares the value of the Canadian Dollar in US Dollars with average Canadian mall sales performance figures (measured in USD).

Another way of looking at the data is by comparing the variance between US and Canada mall sales performance with the variance between the US and Canadian dollar.

As both charts show, Canadian malls have really only been outperforming the variance between the US and Canadian dollar since the beginning of the recession. That outperformance is nothing to snub, but its just not a ‘Canada is 60% better than we were a decade ago’ pat on the back as some might have been hoping. The following chart shows that if you add up currency fluctuation and US sales performance growth since 1997, it seems more like Canada can give itself a 18% better than we were a decade ago’ pat on the back.

I should probably clarify; its really those in the retail industry who should be proud of this accomplishment rather than the average Canadian. For most people, I think this chart just shows that you are getting ripped off a lot more than you were a decade ago when you buy retail merchandise in Canada. That $150 CDN dress you bought is worth $150 USD today, but would have been worth only $95 USD in 2002. And most likely, you are taking on increasingly depressing levels of consumer debt to make that purchase. Retailers in Canada keep trying to demonstrate that the price gap is declining (slowly), but we all know it still exists and is making a lot of retailers a lot of money (right J.Crew?).

As for US retailers coming to Canada who have been quietly grumbling about the cost of real estate and lack of available space, were you really expecting a big hug from a Mountie carrying a bag of tenant improvement allowances? Unlike the US, our retail industry is closely controlled by a small number of very well organized institutions. Obvious first-store locations in regional malls are already in high demand – so unless you are the Apple store, don’t expect a huge degree of preferential treatment.

That said, with the exception of a few retail analysts, Canadians are friendly enough people – so please come on up. Just don’t forget to pack your wallet!

Update: I have received a fair amount of feedback since posting this article. One of the most interesting comments was that Canadian malls have “a much heavier weighting of new to market US and European retailers”. US retailers in Canada tend to perform 30% to 300% better in Canada than the US. This differential is being caused by a fewer number of stores per capita (1/3 of the US), causing the scarcity of the better brands to drive up productivity.

Cover Photo Credit: Steve Rosset Photography

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