BUSINESS

SLOWDOWN IN LUXURY LAND

AFFLUENT CONSUMERS ARE TIGHTENING THEIR BELTS AS THEY DEAL WITH A SLOWING ECONOMY

BARBARA WICKENS August 27 1990
BUSINESS

SLOWDOWN IN LUXURY LAND

AFFLUENT CONSUMERS ARE TIGHTENING THEIR BELTS AS THEY DEAL WITH A SLOWING ECONOMY

BARBARA WICKENS August 27 1990

SLOWDOWN IN LUXURY LAND

AFFLUENT CONSUMERS ARE TIGHTENING THEIR BELTS AS THEY DEAL WITH A SLOWING ECONOMY

BUSINESS

Judy Scotsman, 35, is a successful Toronto executive who says that, a short time ago, she could easily have been called a power shopper. As co-owner of a thriving Toronto-based public relations firm, Strategic Objectives Inc., she rewarded herself with some of life’s expensive luxuries, ranging from imported designer clothes to a $35,000 BMW 325. But Cosman now says that, because of the rapidly changing economy, she has changed her shopping habits, even to the point of recycling last year’s costly fashions. She adds: “It’s true I’ve spent a lot of money on clothes. But I’m still wearing some of the expensive suits I bought three years ago. Now, I’m more likely to spend money on fashions for the home.”

She is not alone. Thousands of upper-income Canadians who enjoyed the high life and conspicuous consumption of the 1980s are tighten-

ing their belts as they enter the 1990s. In the process, they have plunged the high end of the market into recession. And the rest of the retail sector appears likely to follow, except for the elite millionaire class—the richest of the rich.

Retailers selling such bigticket items as $60,000-andup luxury cars and homes in the million-dollar range say that sales this year have collapsed. Statistics Canada reports that retail sales of all kinds fell three per cent— before accounting for retail price inflation of about four per cent—over the first five months of 1990. And while there are no specific statistics on the sale of luxury items, the anecdotal evidence that a recession is washing over the upscale end of the market is overwhelming. James Hedrich, for one, vice-president and general manager of Hazelton Lanes, a Toronto retailing complex that bills itself as the largest collection of exclusive merchandise under one roof in Canada, says that times are now tougher for many retailers than they were even during the 19811982 recession. He added: “I cannot recall another time when the high end was hit first. It’s usually the middle that feels it first.”

But middle-class consumers will probably follow the more affluent consumers to the sidelines. According to analyst Anthony Stokan, a retail marketing expert with Toronto-based Anthony Russell and Associates Infopreneurs, the overall retail sector has weakened over the past

three months and appears set to fall even further. In May alone, Statistics Canada, which put the value of the trade at $17.47 billion for the month, reported that the sector had grown by just 0.1 per cent. When inflation is factored into the equation, retailers suffered an actual four-per-cent drop in business. And according to Alasdair McKichan, president of the Retail Council of Canada, total retail sales figures for June, which will be released later this month, will be just as bad.

Indeed, retail sales in department stores have fallen dramatically. According to Statistics Canada, department-store sales figures totalled $1.17 billion in June, up only two per cent from the same month the year before. But once retail price inflation is taken into account, the big stores experienced a real decline in earnings. It was the third dismal month in a row for department stores, which had sales increases of only 1.9 per cent in April and a decline of 1.4 per cent in May, even before adjusting for inflation.

One of the most glittering symbols of financial success, the luxury automobile, in the $40,000 to $100,000 range, is no longer in strong demand by the aspiring and near rich.

And according to Statistics Canada, the national sales of imported luxury cars fell to 73,246 units in 1989, compared with 87,742 units for the same period a year earlier. And sales for the first six months of this year continued the declining trend.

But in Toronto, Brent Bertrand, chief executive officer of the central Jaguar & Rolls-Royce dealership on Bay Street, said that there is increased interest in leasing imported luxury cars—an arrangement that he said people often make when they are unsure if they can afford to buy one. Bertrand added that sales of the British-made Jaguars, which sell for -$60,000 to $88,000, are down, although he declined to give exact figures.

During the 1980s, retailers of luxury powerboats and yachts worth more than $100,000 also enjoyed an unprecedented boom. But like the midrange luxury car market, that sector is also in trouble. Paul MacPhee, of MacPhee Yachts in Halifax, says that although he has sold more boats in total than during the same period last year, the average selling price of

powerboats and sailboats he has sold this year is down. Added Ernest Hamilton, president of Saint John, N.B.-based Maritime Ship and Yacht Brokerage Ltd.: “This is the worst year in 10 years.”

At the same time, expensive homes are no longer the sure investment that they once were. In the elite Mount Royal district on the edge of downtown Calgary, there are 42 large homes for sale. “They want to get out,” says real estate agent Sigrid Ricketts, of the city’s Ram Realty Ltd. “But they are putting unrealistic prices on their homes. High interest rates are not helping. Many of them do not like what they see ahead in the economy.” A number of those selling believe that housing prices are going to fall. And others are looking to move into less costly condominiums, real estate experts say.

In Toronto, the most re^ cent statistics from the Toronto Real Estate Board 9 show that seven houses in the I$1-million to $ 1.5-million I range sold in July, compared z with 16 in the same month 1 the year before and 115 in “ July, 1988. In the $1.5-mil| lion-plus range, two Toronto g houses sold last month, como pared with five in July, 1989. The slumping housing market is also causing a decline in the big-ticket furniture and appliance industry. In the first four months of the year, shipments of household furniture fell to $583 million—a drop of 14.6 per cent compared with the same period in 1989. The dollar value of major appliance shipments has already fallen by 11.7 per cent to $386 million in the first three months of this year, compared with that period in 1989, and the Canadian Appliance Manufacturers Association expects the decline to continue through 1990. Indeed, sales of microwave ovens alone are down 20 per cent, said Chuck Miller, a vice-president of Mississauga, Ont.-based Cameo Inc., which makes General Electric and Hotpoint appliances, among others.

The clearest sign, however, of a slowdown among six-figure-income households is in the retail sector, especially retail clothing. Hedrich said that Hazelton Lanes expanded its building last August, but so far it has leased only 95 of a possible 123 store locations. Store owner Arthur Pelliccione, who carries the men’s and women’s lines of exclusive Milan designer Nicola Trussardi, says that business is bad be-

cause even wealthy shoppers have decided to get more wear out of their existing clothing. “For them,” he adds, “it’s a challenge to see if they can accent last year’s clothes with a new belt or jewelry.”

Analyst Stokan said that many of the upscale retail problems are the result of too many stores chasing the business of the top one per cent of the population. He added, “The rich will shop in low-end stores, but other shops are too intimidating to attract the mid-price shoppers who remain the backbone of the market.”

As well, Brian King, owner of the Torontobased catering firm Catering à la Carte Inc., said that some well-off clients now consider it inappropriate to entertain lavishly when friends are going through tougher times. “People are not being as extravagant,” said King. “The lobster people are ordering chicken, the chicken people are ordering sandwiches, and the sandwich people are not ordering anything at all.”

Richard Hayter, owner of the exclusive Toronto florist Sissinghurst Ltd., where a single stem of rare Dutch Casablanca lilies costs up to $30, also says that his usually free-spending clients have grown very conservative. In fact, some clients have asked him to prepare flower arrangements that look as though the host and hostess had designed their own displays. “It’s becoming distasteful to be showy,” said Hayter. “One woman recently told me, ‘Don’t make it look like you were here.’ ”

Still, the country’s thin crust of elite millionaires continues to spend heavily. “There is no sign that these wealthy people are spending less,” says Michael Robichaud, owner of Vancouver-based Cruise Ship Centre, which organizes cruise tours that cost up to $100,000 per person. In Toronto, Catherine Hill, owner of the well-established upscale fashion boutique Chez Catherine, which carries seven exclusive fashion lines that are not available elsewhere in Canada, said that she has seen no sign of a recession among her customers, who often spend up to $15,000 on a shopping spree. Indeed, her rich clients often fly in from Vancouver and the United States to purchase such exclusive European designers as Valentino, Versace, Gianfranco Ferre and Karl Lagerfeld. “The average customer is not on a budget,” says Hill. “If they have four parties, they wül buy four dresses.”

Bertrand says that sales of RoUs-Royces, which cost from $188,000 to $296,000, have remained relatively constant, whüe the sale of lesser-priced cars, such as Swedish-made Saabs, which cost $20,000 to $52,000, have faUen off dramaticaUy. In fact, Bertrand has so much faith in the flamboyant spending habits of Canada’s mülionaires that he said that, in several months, his dealership wül import three of the only 350 Aston Martins that wül be made in England this year. The hand-buüt cars wül sell for about $300,000 each. Clearly, whüe middle-class consumers may be about to foUow more affluent Canadians out of the retaü market, Canada’s efite wiU continue to spend.

BARBARA WICKENS with JOHN HOWSE in Calgary and GLEN ALLEN in Halifax

JOHN HOWSE

GLEN ALLEN