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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Thrifty shoppers threaten retail recovery

Friday, August 23, 2013 > 12:30:16
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Canadian shoppers are in a funk.

Evidence is growing that consumers are holding back their spending, raising questions about the potential for a retail recovery in the back-to-school shopping season and all-important holiday period.

Statistics Canada said retail sales fell by 0.6 per cent in June from a month earlier, weaker than analysts’ forecast of a 0.4 per cent drop. Business was bruised by the effects of Alberta flooding and a Quebec construction strike, but perhaps more worrisome was a steeper slide in Ontario despite higher car sales there.

“It’s brutal – this is one of the toughest six months,” said Phil Lichtsztral, a retail consulting partner at RSM Richter Chamberland, which advises domestically-owned chains. “It’s going to be a tough next six months. I think you’re going to see restructurings, inevitably.”

As more foreign players crowd the market and consumers keep their wallets tight, retailers are struggling to find growth.

Chains ranging from U.S.-owned discounters Wal-Mart Canada Corp. to Target Corp., a newcomer in this country, and teen clothier American Eagle Outfitters Inc. have reported soft second-quarter sales (at outlets open a year or more) in this country. Low-cost fashion purveyor TJX Cos. Inc., which owns Winners and Marshalls, posted barely any gains here – a much weaker performance than a year ago and below the company’s outlook.

U.S. merchants suffered more during the recession, but are now enjoying a better recovery. Sales-per-square-foot at Canadian malls, excluding anchor stores, fell 0.3 per cent to $603 in June while they rose 2.2 per cent to $460 (U.S.) in U.S. malls, according to the International Council of Shopping Centres.

In the U.S., brisk business at Apple stores – and more of them being added to malls – helped boost shopping centres’ overall productivity, ICSC research director Jean Lambert said.

“Canadians are feeling pessimistic when it comes to their finances and jobs,” said Corrine Sandler, chief executive officer at market researcher Fresh Intelligence. “We are in a cautious frame of mind and see this continuing, even sliding further into the holiday season. …We will be more frugal this festive season, no doubt.”

Still, she expects that e-commerce sales will make up for some of the slack in the coming months, with retailers ranging from Amazon.com Inc. and Wal-Mart Canada ramping up their online offerings.

“Shopping patterns are changing and more Canadians will be completing their holiday shopping online,” she said. “Canadian retailers need to provide compelling reasons for shoppers to visit their brick-and-mortar stores.”

Retailers in Canada are still making adjustments to deal with new competition from Target – although the Minneapolis company revealed this week that it also is grappling with soft sales and tighter profit margin rates.

Robert Hanson, chief executive of clothing retailer American Eagle, which saw its second-quarter same-store sales fall 7 per cent, said the chain is stocking new styles, beefing up its factory outlet and online operations and shaving costs.

Still, its key U.S. and Canadian businesses “are clearly under pressure from a broader competitive set that’s fighting for market share in a tough youth environment, particularly with high teen unemployment,” Mr. Hanson told analysts this week. “And predominantly at very sharp prices to fight for discretionary spending.”

Despite the tough climate, some retailers are outperforming their peers. Costco Wholesale Corp. executives called out its Canadian division as among its strongest in each of the past few months, while Canadian Tire Corp. Ltd. enjoyed healthy second-quarter results.

Statistics Canada said overall June retail sales slipped 1.3 per cent in Quebec and 0.6 per cent in Alberta, while tumbling even more – 1.4 per cent – in Ontario.

The volume of sales, which helps predict shifts in gross domestic product, dropped 1.2 per cent, the biggest drop since December. (All figures are seasonally adjusted.) On a more positive note, June sales were 1.2 per cent higher than in April and up 3.1 per cent from a year earlier.
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