What’s behind Canada’s newfound lust for luxury?

From cars to clothing to condos, the masses in Canada have developed a taste for the sumptuous—but not everything is quite as it seems

Galit Rodan/Bloomberg/Getty Images

Galit Rodan/Bloomberg/Getty Images

At first glance, it’s difficult to determine what, exactly, is so luxurious about the “luxury designer outlet centre” being built on Vancouver’s airport lands. Perhaps it’s the twee, château-style copper roofs that adorn the buildings and the faux cobblestone piazzas. Or maybe it’s the collection of supposedly higher-end brands, such as Giorgio Armani, Calvin Klein and Mulberry that will be selling their goods for up to 70 per cent off regular prices. It certainly couldn’t have anything to do with its location: directly across the river from a sprawling maintenance and storage facility for Vancouver’s trolley-bus fleet.

The joint project between the Vancouver Airport Authority and a European developer is merely the latest example of how retailers and marketers are rushing to meet Canadians’ insatiable lust for luxury goods and services. It wasn’t long ago that suburban shopping malls were populated by the likes of Sears, Jacob and Smart Set. These days, it’s more likely to be Nordstrom, Holt Renfrew and, soon enough, in some cities, Saks Fifth Avenue. The same goes for the food court, where the Orange Juliuses and Pretzelmakers of the world have long since given way to swanky espresso bars and Neapolitan pizzerias.

SOCIAL SELLS_MAC222 05It’s not only retail purchases where Canadians are getting their gild on. Toronto was recently named the world’s fastest-growing market for luxury home sales—defined as any house worth more than $3 million—ahead of considerably wealthier cities, such as New York, Paris and London, according to the real estate arm of Christie’s auction house. That’s not as surprising as it first sounds, however, considering that the average detached house in Toronto, as well as in Vancouver, now sells for more than $1 million, thanks to five-year mortgage rates of 2.6 per cent and a willingness on the part of homebuyers to heap on piles of debt. The same goes for the growth in sales of luxury vehicles. Back in the early 1990s, the luxury car market counted for a barely-there three per cent of all auto sales in Canada. Now, one out of every 10 new vehicles purchased is from a luxury dealer, making the segment among the fastest-growing in the industry.

Related: Canadians can’t stop lying to themselves about their debt

When did the masses develop such a taste for the sumptuous—or, for that matter, come into the cash to pay for it? Experts say global interest in luxury goods and services was first piqued two decades ago, and has since been driven by our fascination with celebrities, the growing wealth in emerging economies and rising consumer expectations—thanks in no small part to companies such as Apple, which spends almost as much time obsessing about the look and feel of its devices as it does about the machines themselves. As for Canadians, in particular, our appreciation for the finer things in life has risen alongside the country’s booming housing market, which has made homeowners feel a whole lot richer than our biweekly paycheques would suggest.

Yet, like the soon-to-be opened outlet mall in Vancouver, it’s also clear that “luxury” has also become a marketing tactic. Many retailers package the same old mass-market goods and services in a way that gives the illusion of luxury—often under the questionable moniker “premium,” as in “premium economy” airline seats. At the same time, many true luxury brands have gone down-market to scoop up more customers, which is why you can now buy a Mercedes B-Class for less than a well-equipped Toyota Camry. “People are very impressionable,” says Thomai Serdari, an adjunct associate professor at New York University’s Stern School of Business. “Everyone is adding the adjective of luxury. You see this all the time with condos. They’re advertised as luxury, but you walk in and the walls are so cheap.” And yet, in cities like Toronto, Vancouver and Ottawa, buyers are lining up to own them all the same.

Some have called it the democratization of luxury. But the “luxury lie” is probably a more apt term for the booming business of selling pricey, mass-produced products to consumers who probably can’t afford them.

Mario Beauregard/CPI/CP

Mario Beauregard/CPI/CP

The overall global market for luxury products and services—including genuine one-percenter favourites such as yachts, supercars and private jets—hit $1.1 trillion in 2014, up about seven per cent from a year earlier, according to research by consulting firm Bain & Co. Meanwhile, demand for personal luxury goods, which is more narrowly focused on designer clothing, handbags and jewellery, grew by five per cent, to more than $300 billion globally, led by the United States, Canada and Mexico. In contrast, the Chinese market—until relatively recently, a lodestone for luxury brands because of a rapidly growing middle class with a materialistic bent—posted its first-ever year of declining growth in the segment, although the numbers don’t reflect the whole story, since many Chinese consumers buy their high-end goods outside the country to avoid stiff consumption taxes. That’s among the reasons that Vancouver’s new “luxury” outlet mall is being contemplated near the city’s airport. “We’re already seeing that in our duty-free stores: the desire among Asian [visitors] for luxury brands,” says Tony Gugliotta, the senior vice-president of business development for the Vancouver Airport Authority. “We knew it would be very popular.”

Elsewhere in Canada, the growing number of high-end retail outlets is a response to the country’s comparatively strong performance during the global recession. Having run out of Icelandic investment bankers to sell Hermès handbags and A.Testoni dress shoes to, high-end retailers flocked to Canada’s shores and were welcomed with open arms by mall operators, who saw the addition of luxury brands as a way to reinvigorate their tired facilities and lure back shoppers. Toronto’s suburban Yorkdale mall, for example, recently completed a $331-million expansion project that saw the addition of several pricey brands, including David Yurman, Mulberry and John Varvatos—all anchored by a newly expanded Holt Renfrew location. Nordstrom, meanwhile, has opened stores in malls in Ottawa and Calgary, and has plans to launch several more stores in Toronto and Vancouver. Hudson’s Bay Co. is in the midst of rolling out more than six Saks Fifth Avenue locations across Canada (as well as 25 of its discount Saks Off Fifth stores) over the next few years. There are also rumours that Bloomingdales is searching for space to open stores in Toronto and Vancouver.

SOCIAL SELLS_MAC222 04The well-to-do clientele being targeted by these retailers are largely Baby Boomers who, after a lifetime spent building their personal wealth, are treating themselves to an upper-crust lifestyle. A recent report by Sotheby’s International Realty found Boomers with an average household income of $300,000 to $500,000 are the principal drivers of the luxury real estate market in Canada. For the most part, the aging demographic prefers larger, well-appointed homes in tony neighbourhoods, but is also increasingly purchasing luxury condos in major cities such as Toronto, Vancouver, Calgary and Montreal. At the other end of the spectrum are well-heeled members of the Millennial generation, who are snapping up tiny luxury condos near urban centres. As many as 95 per cent of these buyers are reliant on mortgages to make their real estate purchases, and the “vast majority” also receive considerable financial assistance from their Boomer parents, the study says.

And what point is there to owning a 3,000-sq.-foot Tudor home unless you have a Land Rover to park in the driveway? Not surprisingly, luxury car sales have also been booming, with manufacturers such as BMW, Audi and Mercedes all posting double-digit sales increases in recent months. “Canada has one of the largest Boomer groups as a per cent of population of anywhere in the world,” notes Dennis DesRosiers, a Canadian automotive analyst and longtime industry watcher. “Those Boomers are retiring and have accumulated wealth and want to treat themselves to a nicer ride.” The trend is also being fuelled by record-low interest rates and carmakers’ embrace of longer borrowing periods, up to seven years, which makes it easier than ever to buy a new Jaguar F-Type or a BMW 5 Series. Altogether, sales of luxury vehicles have more than doubled since 2000 to about 184,000 units, according to DesRosiers’s figures.

Related: How Tata Motors are reviving some luxury car brands

Yet, what’s striking about the pending lux-ification of Canadian retail is that many residents of the cities being targeted are less flush than they were a decade ago. A recent study by the Broadbent Institute found that median employment income in Vancouver fell by three per cent between 2006 and 2012, while the drop in Toronto was 2.8 per cent. And while Canada-wide median incomes were up by an inflation-adjusted 3.5 per cent over that time, the performance was heavily influenced by oil-rich provinces such as Alberta and Saskatchewan—a trend that’s since hit a wall, thanks to the collapse of global oil prices. The left-leaning think tank said the finding was “worrisome” because Toronto and Vancouver have seen some of the biggest increases in cost of living over the same period, with the price of houses, in particular, skyrocketing by 37 per cent in Toronto and 62 per cent in Vancouver.

Related: Inside Canada’s condo hell

Other studies, however, suggest that the Canadians who are piling on most of the debt—nearly 40 per cent of it—are families with incomes of $100,000 or more. The Fraser Institute even suggested in a recent report that Canadians are actually managing their finances quite well, despite news headlines that fret that households now owe a record $2.63 for every dollar they earn. The key, the report’s authors say, is not necessarily how much Canadians are borrowing, but who’s borrowing it and what they’re spending the money on. If they’re sinking it into long-term investments, such as post-secondary education and starting a business, that’s less of a problem, as long as interest rates remain low. Where people tend to get into trouble is when they rely on borrowed cash to load up on consumer goods they can’t really afford: vacation properties, boats and designer handbags. Economists call it the “wealth effect” created by rising house prices—namely, the more the value of your house increases, the wealthier you feel and the more money you’re likely to spend. A 2012 report by the Canadian Association of Accredited Mortgage Professionals estimated that between 2007 and 2011, the rise in home values was responsible for an extra $17 billion in economic activity in Canada, driven by an increase in consumer spending. Numbers from Equifax also show that the average balance carried on a credit card in Toronto grew from $16,200 to $19,200 between 2008 and the end of 2014. In Vancouver, the average balance climbed from $21,100 to $23,500 over the same period, and in formerly oil-rich Calgary, it ballooned from $24,000 to $28,200.


Those in the business of loaning money like to say Canadians are “richer than [they]think.” But, if interest rates start to rise, as they inevitably will, or Canadians fall behind on their monthly payments, many could soon start feeling a whole lot poorer than they anticipated.

Mainstream consumers first developed a taste for luxury goods after the stock-market boom of the 1980s and the years of conspicuous consumption that followed. That’s around the time European fashion houses such as Valentino entered into licensing deals that put their logos on all sorts of unrelated products—including ceramic tiles and cigarette lighters—in a bid to boost profits. “Luxury brands realized there was a much bigger market out there, outside of their traditional small circles,” says Serdari, the New York University professor.

These days, in contrast, the rising popularity of luxury goods has more to do with television and the Internet. “Look at celebrities like the Kardashians, who have been promoting products on TV for the past 10 years,” says Serdari. “Every girl wants to be like them, carrying a Chanel bag or a Birkin bag. And because we’re in a very vain society, parents are encouraging that behaviour. Parents are buying these brands for their high school kids.”

SOCIAL SELLS_MAC222 03This, of course, is exactly what today’s luxury business is all about: aspiration. Create limited-edition luxury products and sell them to famous people at an exorbitant price, all while papering the market with more affordable, mass-produced alternatives that carry the same brand name. The risk, of course, is that a luxury brand that becomes too ubiquitous will lose its appeal. That’s effectively what happened to Burberry back in the early 2000s, when it was putting its distinctive tartan on just about everything through licensing deals—hats, visors, belts, dog collars, bedding, you name it. But, while many fashion houses have since pulled back on the strategy in a bid to restore the allure of their names, the luxury automobile sector continues to race in the opposite direction. Just look at BMW. The German carmaker once offered a few pricey models aimed at well-to-do driving enthusiasts, but now offers all manner of (mostly black) coupes, cabriolets, sedans, SUVs, crossovers and hybrids, at prices ranging from $35,000 to $130,000. In some Canadian cities, “bimmers” and “benzes” are now as plentiful as Hondas and Toyotas in once firmly middle-class neighbourhoods.

An emerging challenge for the luxury market is that it’s getting downright crowded. Advancements in manufacturing technologies and falling labour costs mean many mass-market products carry a luxury-looking fit and finish but at a fraction of the cost. Remember when luxury cars were the only ones equipped with suspension selectors, rear-view cameras and large dashboard touchscreens? Now you can get all that and more in a Hyundai Elantra. The same goes for clothing. J. Crew’s off-the-rack suits have been lauded for their sophisticated styling, while H&M has built its entire empire on so-called fast fashion.

Related: Why a high-end London department store is moving into real estate

As the quality gap narrows, many luxury brands are scrambling to find new ways to differentiate themselves—and justify their higher prices. Increasingly, that means focusing more on how products are sold, as opposed to merely the products themselves. “One of the most important aspects of luxury goods is the experience,” says Jaehee Jung, an associate professor of fashion and apparel studies at the University of Delaware. At many stores, that now includes services such as appointment-only shopping, free bottles of mineral water and thank-you cards sent to your home following your visit. “Luxury brands are all about having a loyal customer,” says Jung. “They want people to come back over and over.”

Yet, even in the relatively costly customer-service department, there’s evidence that mass-market brands are making inroads. Take Apple. The iPhone- and iPad-maker became the most valuable company in the world, in part by selling the devices it stamps out in China in retail stores that sometimes rival the temples built for high-end fashion brands such as Prada. Even the device-maker’s biennial product launches, where eager fans line up around the block, are being replaced with a more sophisticated approach. Customers interested in buying a new Apple Watch, which ranges from $450 to as much as $17,000 for the gold-plated version, are being invited to make appointments to view the devices instead of being forced to camp outside the store. “It’s important to remember that Apple Watch is not just a new product, but an entirely new category for us,” wrote Angela Ahrendts, a former Burberry CEO who is now Apple’s senior vice-president of retail. “There’s never been anything quite like it. To deliver the kind of service our customers have come to expect—and that we expect from ourselves—we designed a completely new approach.” Well, new for Apple customers, at least.

All of that competition threatens to make life difficult for the industry’s established players, particularly when coupled with concerns about anti-corruption efforts in China, sanctions against Russia and unrest in the Middle East—all markets where luxury sales had previously been booming. Prada, for example, recently posted a 28 per cent decline in 2014 profits, while luxury giant Kering is attempting to turn around its Gucci brand after earnings tumbled seven per cent last year. French luxury goods-maker LVMH Moët Hennessy Louis Vuitton is also trying to turn around its fortunes, promising a return to growth in 2015.

In the longer term, all the big brands face the challenge of appealing to a younger generation that doesn’t care nearly as much about the look of luxury—big, recognizable brands that scream “expensive”—as their parents did. Instead, many are more interested in products that reflect craftsmanship and authenticity. Jung, meanwhile, says her students tend to be influenced more by their close friends on social media than by the styles featured on TV or in magazines. “On campus, there’s almost a uniform,” she says.

Back in Vancouver, the architects of the country’s first luxury outlet mall are well aware of both the opportunities and inherent risks. Scratch a little beneath the surface and it quickly becomes apparent that the new McArthurGlen Designer Outlets is really a regular outlet mall with a prominently advertised luxury component. Something for everyone, in other words. “You need a variety of retailers,” explains the Vancouver Airport Authority’s Gugliotta. “You can’t have all luxury brands.” As for all those Euro-style design flourishes—the columns, fountains and roof spires? “If people are more comfortable, they will stay longer and shop longer.”

It’s all about appearances, in other words: today’s luxury business in a nutshell.

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