THE RESURGENCE OF PRIVATE LABELS
During tough times, consumers tend to gravitate to lower-cost private labels. That's exactly what happened in the U.S. last year, but in Canada, private-label sales didn't budge, or slipped slightly, according to researcher Nielsen.
One reason for the discrepancy is that Loblaw Cos. Ltd., the top private-label player in Canada's grocery aisle, was bogged down by other operational challenges and was late in focusing attention on its iconic President's Choice and No Name lines.
But all that is expected to change as Loblaw and major rivals step up their store-brand game. "Watch for the trend to reverse and for private-label share to increase," said Kevin Grier, senior market analyst at the George Morris Centre, an agribusiness think tank in Guelph, Ont.
This summer, Loblaw grabbed attention with controversial ads that pitted its President's Choice products against their national brand rivals. Called "Switch and Save," the blitz touted, for example the Decadent Chocolate Chip cookie as serving up a $1.28 saving over Kraft's Chips Ahoy. "We've been very happy with the results," said Allan Lindsay, vice-president of marketing at Loblaw.
Executives at national brand giants may not be as delighted. "You have to have the No. 1 or the No. 2 brand, especially in an increasingly competitive environment where private label is rearing its ugly head," Doug Conant, chief executive officer of Campbell Soup Co., said recently.
BACK TO BASICS
It's been a bumpy road for retailers. But one thing is clear: consumers are still shopping for necessities. While sales of discretionary goods, like electronics and appliances, have slipped, food and beverage sales have continued to climb.
At Wal-Mart Canada Corp., second-quarter sales were stagnant at stores open a year or more, but the basics - food, consumer products, and health and beauty items - stood out as bright spots. Canadian Tire Corp. was another retailer that cashed in on the tried-and-true. Sales of household cleaning products soared to double-digit increases, according to Mike Arnett, president of its retail division.
To try to entice cost-conscious consumers and fend off competition from dollar stores, Wal-Mart's U.S. parent plans to carry smaller product sizes.
"The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending," said Wal-Mart CEO Mike Duke.
U.S. discounter Target Corp. is pumping up food offerings in its stores in an attempt to lure customers. The strategy attracted more people to its stores in the second quarter, but customers shelled out less on each trip. The number of purchases rose 2.4 per cent but customers' total purchases shrank 0.8 per cent, while the selling price per item sold fell 2.7 per cent.
THE CHINA EFFECT
Clothing merchants are struggling to maintain pricing amid escalating import costs - particularly from China - as well as other expenses. They are simultaneously under pressure to attract penny-pinching customers with bargains. This past week, for instance, clothier Gap Inc. offered a dramatic promotion - a half-price coupon on the discount website Groupon.com.
Thanks to such discounting, clothing prices have actually dropped in each of the past five years, according to data compiled by market researcher Randy Harris at Trendex North America. The trend continued in July, when consumers paid 2.7 per cent less for clothing and footwear, Statistics Canada reported on Friday.
Declining prices are partly the result of the so-called Wal-Mart effect, in which the giant retailer's aggressive discounting drives down prices throughout entire categories. But the trend to lower prices has also been driven by cheap imports, particularly from China.
However, "the party is coming to an end," Mr. Harris predicted in this month's Canadian Apparel Insights publication. "The prices paid for Chinese apparel imports are certain to increase." Industry experts say the increases will be driven by higher wages in the Asian country, as well as increased transportation and commodity costs.
George Feldenkreis, chief executive officer of U.S.-based clothing company Perry Ellis International Inc., predicted recently that apparel prices could rise up to 10 per cent in the next two years. "Prices have to go up at some point."