* U.S.-Canada partners eye 10-15 premium outlet malls in
* Aim to capture shoppers who head to U.S. for outlet deals
* Skeptics say slowing economy, strong C$ may limit success
By Claire Sibonney and Andrea Hopkins
TORONTO, July 25 With hungry Canadian shoppers
flocking to U.S. outlet malls every weekend in search of deals,
it is perhaps no surprise that U.S. developers have plans to
bring a dozen or more premium outlets to Canada in the next few
The strategy is simple: coveted brands at below-retail
prices - and no long lines to cross the border.
"What Canadians are looking for is the kind of outlet
experience they get in the United States," said Edward Sonshine,
chief executive of RioCan REIT (REI_u.TO), which has partnered
with Tanger Factory Outlet Centers Inc (SKT.N) to bring one of
the first premium outlet malls north of the border by 2013.
Between RioCan and its competitors, Sonshine expects 10 to
15 such malls over the next few years.
But with Canada's once exceptional economy showing signs of
U.S.-like fatigue and a strong Canadian dollar still fueling
cross-border shopping, some experts think the splashy premium
mall premise may not live up to the hype.
"The steam is coming out of our economy a little bit, and I
have maintained for a while that I think a lot of U.S.
manufacturers and retailers and developers frankly may be
miscalculating to some extent the voracity of our economy," said
Doug Stephens, president of consultancy firm Retail Prophet.
The RioCan/Tanger plan to open one mall near Toronto next
year, and then more near places like Ottawa, Montreal, Edmonton,
Calgary and Vancouver, is just half of a retailing juggernaut
headed for the relatively untapped Canadian market.
The rival partnership of Calloway REIT CWT_u.TO and Simon
Property Group Inc is eyeing the Canadian market in part because
the sluggish U.S. economy has slashed sales at U.S. premium
outlets, where high-fashion names like Ralph Lauren, Burberry
and Saks Fifth Avenue don't draw the spending they once did.
A comparison of income growth also shows why Canadian
shoppers may hold more promise than their U.S. cousins. Per
capita disposable income has risen 14 percent in the last 10
years in Canada, adjusted for inflation, while U.S. disposable
incomes are up just 9 percent, says BMO Capital Markets deputy
chief economist Doug Porter.
Sales at shopping centers in Canada average about $580 per
square foot, compared to $309 in the United States according to
a recent report by Colliers International.
Sonshine said there are about 135 premium outlet malls in
the United States - with a population of some 311 million - but
none in Canada, home to 34 million. Canada also lacks the large
luxury malls which are common in the United States and thus
seems ripe for expansion.
"Using the usual metric of 1-to-10, I figure there’s maybe
room for a dozen of them here, maybe as many as 15, Sonshine
said. "I will say between Simon and ourselves/Tanger there will
be a half a dozen (premium malls) operating by 2014."
Canadians have proved willing to travel for deals,
destination shopping that Sonshine said sets an outlet excursion
apart from a regular trip to a regional mall.
"The average visit to an outlet lasts for three and a half
hours by a consumer whereas the average visit to a typical
shopping center is less than an hour. So it’s more of an
outing," Sonshine explained in an interview.
Even so, not everyone agrees that if developers build the
malls, Canadians will necessarily show up.
Retail Prophet's Stephens has crunched a lot of the same
numbers the developers have, with some different conclusions.
While Canada has just half as much retail space per person as
the United States, he thinks the lesson may be that Canada is
not as under-retailed as the U.S. is over-retailed.
"I don’t view the opportunity in Canada to be as vast and as
unbounded as I think a lot of Americans do," said Stephens. "I
personally don’t think we’ll see 10 to 14 of them. I think we
might see half a dozen get built and I think a lot of it is
going to depend on how our economy performs."
While he admits the premium discount mall format will likely
appeal to the healthy segment of the market that treks south of
the border for deals - the destination shoppers - Stephens said
consumers have also become more savvy, realizing that the goods
sold in outlet malls are not the same as sold in regular stores.
"If you’re going to a premium outlet mall really
anticipating that you’re going to be able to buy high-end
designer fashions that you would normally get in a full-line
store and you’re going to be able to get them at 50 to 70
percent off, then you’re really deceiving yourself."
But not everyone is as skeptical.
"The factory outlet model has been specifically built around
the search for the great deal," said Tony Hernandez, director of
the Centre for the Study of Commercial Activity at Ryerson
University in Toronto.
"As we see more U.S.-styled factory outlets open on our
doorstep, there will be less incentive to make the trip across
the border. But it will all come down to the trade-off between
convenience and price," Hernandez said in an email.
Retail prices for identical goods are typically 10 to 50
percent higher in Canada than in the United States, a
much-resented differential that experts blame on import duties,
transportation costs, government regulations and simple retail
mark-ups. If the new outlet malls have the same price
differentials, cross-border shopping may still win out.
Porter said the success of the venture may ultimately come
down to the Canadian dollar and new, more generous limits for
what Canadians can bring home duty-free after a U.S. trip.
The Canadian government in June doubled duty-free limits for
Canadians to C$800 ($780) for a trip lasting two to seven days.
It boosted the limit for some shorter stays to C$200 from C$50.
With the Canadian currency near parity with its U.S.
counterpart and Canadian sales taxes relatively high, consumers
may still find a better deal in the United States than in a
shiny new mall at home.
"At the dollar's current levels I think there’s still that
magnet for Canadian shoppers to go to the States," Porter said.
($1 = $1.0195 Canadian)
(Editing by Frank McGurty and Janet Guttsman)
((Andrea.Hopkins@thomsonreuters.com)(416 941 8159))
Keywords: CANADA RETAIL/OUTLETS
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