Incomes, Not Values, Explains US-Canada Difference in High-End Retail Consumption

With another high-end American department store about to open in Toronto’s Eaton Centre this week, the New York Times today contrasts the retrenchment of department stores in the United States with their expansion in Canada. In addition to the new Nordstrom stores, it notes the expensive renovation of the Hudson’s Bay’s flagship store, located immediately south of the Eaton Centre, and the expansion of Quebec’s La Maison Simons into other parts of Canada.

A little irksome, however, is the resort to tiresome cultural comparisons between Canadians and Americans in order to explain differences between the retail markets of the two countries. The article, for example, cites the greater Canadian frugality to explain why Canada hasn’t had the same explosion of high-end retail shopping that the US has experienced in the past few decades. This assumes that consumers in each country are about equally wealthy. Of course, it was the New York times itself that did much a couple of years ago to hype the idea median incomes in the United States were falling behind those in Canada.

graph

“Falling behind” is a relative term, as the NYT’s own data demonstrates. The top 50 percent of American earners still do better than their Canadian counterparts.

The US middle class, the Times lamented, was falling behind Canada’s (an idea that did not go uncontested at the time). Whether this was accurate or not, the striking thing is that once you go above the median income, at which point Canada and the United States are relative equal, Americans in every decile (i.e. increment of 10 percent) above earn significantly more than their Canadian counterparts.

Surely the explanation for the supposed frugality of Canadian consumers when it comes to high-end retailers is this: Canada is simply home to fewer super-rich earners (and consumers) than the US. In 2010, for example, the richest 1 percent in Canada took home about 10 percent of the national income; in the US, they “earned” 25 percent of it. To break into the top 1 percent in Canada that year, you had to earn just $201,400; in America, $352,000.

The retrenchment of the high-end retail industry in the United States suggests the American market is oversaturated with stores like Nordstrom, Macey’s, and Saks. My bet is it will eventually happen in Canada, too, and probably more quickly than south of the border. And Canadian frugality will have nothing to do with it.

Advertisements