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Alberta: Luxury market to feel pinch of falling oil pricesWednesday, January 07, 2015 > 09:30:34
Luxury brand retailers are putting on a brave face in the midst of plunging oil prices that some economists say will dramatically impact Calgary’s economy and consumer spending in 2015.
One economist said Tuesday that the province’s economic growth rate will be slashed in half this year while another warned that a recession is possible.
Larry Rosen, chairman and chief executive of men’s luxury clothing retailer Harry Rosen, said Tuesday that he expects sales in Alberta — its leading growth province the past five years — to remain strong, despite the dire forecasts.
“We don’t expect it to be the leading growth province this year, but we expect it to grow,” he said. “I was expecting that we might have had a softer December by virtue of the declining oil price but we had a terrific December out there as well.
“I think the people in Alberta have been through a lot of price changes. The development of the Alberta energy industry is not short term. Right now, I think it’s safe to say that prices are ridiculously low but it will firm up.
“We haven’t seen any change in behaviour yet … We expect it to just grow more modestly. Whereas we’ve been spoiled over the last number of years with double-digit growth, well maybe this year it will be single-digit.”
Pedro Antunes, executive director and deputy chief economist with the Conference Board of Canada, said while his organization doesn’t specifically assess the luxury retail market, the ongoing oil price decline has significant implications for Alberta.
“With oil prices where they are, should they stick, the implications will be very important and we’re probably going to see an economy that instead of growing four per cent is going to not grow at all or maybe be in recession,” said Antunes.
“If the retailers are used to that very high growth of four per cent … and all of a sudden that falls to flat or perhaps even negative that’s going to be a very drastic change for them.”
Doug Porter chief economist with BMO Capital Markets, said the luxury sector could be one of the more vulnerable components of the economy.
“When you stand back and look at it region by region, who will be hurt the most, who will be helped the most, it’s arguably the case that the high-end items, whether you’re talking about houses, cars, toys, in Alberta will be hit harder than any other component of the economy,” he said.
On Tuesday, during a panel discussion in Toronto hosted by the Economic Club of Canada, Porter said falling oil prices will shift the balance of power among Canada’s provinces this year, with Alberta expected to see its growth rate slashed in half. Alberta’s economy grew by 3.9 per cent, according the province’s website.
Bruce Graham, president and chief executive of Calgary Economic Development, said city retailers could see a recurrence of reduced retail sales growth seen during the recession of 2008/2009.
“I think it will be a leaner year for the retail sector including the luxury retail sector if this low oil price environment continues,” said Graham.
“The luxury retail market has maybe some greater insulating factors by virtue of the fact that the audience it caters to is maybe more secure, but I think that all parts of the labour force from the executive to the person working the shop floor will potentially feel some impact of this.”
Mark Derbyshire, president of Holt Renfrew, in an e-mailed statement, said the retailer looks forward “to continued growth in the market.”
Last fall, the company announced it will add 20 per cent more space to its downtown store including updates to its personal shopping areas. As well, a cafe/restaurant will be added and footwear and leather goods areas significantly expanded.
“Enhancements are underway, and we look forward to sharing updates in the coming months,” said Derbyshire.
Jaydean Boldt, director of development and planning with Focus Equities for Meadows Mile on Blackfoot Trail S.E., said the project, which includes a luxury auto mall component, has not experienced any slowdown.
“On the contrary, we have just put a deal together with another premium car dealership for one of our largest lots, and are currently entertaining a variety of proposals for our last remaining lot,” he said. “Sales and interest in Meadows Mile continues to be brisk.
Each of the dealerships is moving forward with construction this spring and summer, he said, noting a Lamborghini/Lotus dealership is well underway and expected to open in the spring.
The mall has five dealership commitments with expected openings between spring and the fall of 2016. The dealerships include Lamborghini/Lotus, Ferrari/Maserati/Rolls-Royce, Porsche, Mini and another to be announced.
Dennis DesRosiers, of DesRosiers Automotive Consultants Inc., said Alberta saw record sales of luxury vehicles in November and December.
“The early indication is that there’s been no impact (from falling oil prices),” he said, noting the luxury segment is a relatively small portion of the overall auto market.
Michael Kehoe, a retail specialist with Fairfield Commercial Real Estate Inc., said luxury retail sales can be quickly affected in a slumping economy as consumer confidence erodes.
“The luxury retail sector is driven by high levels of disposable income and discretionary spending and is vulnerable to any kind of economic downturn,” he said.
“Luxury retailers will tailor their retail offerings to suit the changing market conditions and as the economy recovers the luxury brands will bounce back as aspirational shoppers and core affluent shoppers return to their free-spending patterns.”