Adopting recessionary-type habits, Canadian consumers are hunting for deals and cheap private labels despite a relatively stable economy – and showing scant signs of changing their ways any time soon.
The latest quarterly results of retailers ranging from grocers Metro Inc. and Loblaw Cos. Ltd. to home-improvement chain Rona Inc. and pharmacy leader Shoppers Drug Mart Corp. highlight consumers’ restraint in their purchases. Amid worries about the global debt crisis and swooning markets, shoppers may remain in a funk for a while.
“Promotional [discounting] activity is aggressive and consumers remain very cautious,” Eric La Fleche, chief executive officer of Metro, the country’s third-largest grocer, summed up in a conference call on Wednesday.
The soft consumer sentiment and global uncertainties don’t bode well for retailers as they move into the important back-to-school shopping season, the second-busiest selling period of the year after the winter holidays.
Canadians are heeding the warnings of Bank of Canada Governor Mark Carney that they have taken on too much debt and need to start saving. If consumer spending habits don’t pick up soon, retailers risk being pinched during the crucial holiday selling season.
“Consumers appear to be more cautious now and aren’t spending as freely as they were in the second half of 2010,” said Donald Marleau, retail analyst at Standard & Poor’s. “Consumers are feeling fatigued.”
S&P expects Canadians to remain cautious about taking on more debt to pay for major purchases. With first-quarter household debt reaching a new high of 147.3 per cent as a share of worker disposable income, the rating agency anticipates that slowing demand for credit will limit further increases in this measure of household indebtedness for the rest of the year.
The fatigue is manifesting itself in retailers’ financial results. Rona, hurt partly by poor spring weather, missed analysts’ quarterly profit targets, mainly because of a disappointing 9.6-per-cent drop in critical same-store sales (at outlets open a year or more.) Rona said Wednesday its quarterly profit tumbled to $37-million or 28 cents a share from $66.3-million or 51 cents. Revenue slipped to $1.37-billion from $1.4-billion.
“It is clear that the years of [hyperfast] market growth are behind us,” said Robert Dutton, chief executive officer of Rona. “ …That pace could not be maintained.”
Retail analyst Irene Nattel hinted that consumer restraint is now “the new normal,” requiring smaller stores and revamped business models. New foreign competitors, including U.S. home improvement retailer Lowe’s Cos. Inc., are putting pressure on incumbent retailers. By 2013, U.S. discount titan Target Corp. will also arrive in Canada.
Grocers are already feeling the squeeze of a new normal. As giant discounter Wal-Mart Canada Corp. rapidly adds more food aisles in its new Supercentres, supermarket rivals are being forced to stay competitive on pricing.
Quebec-based Metro is feeling the heat after Wal-Mart last month began to open its first Supercentres in that province. Wal-Mart is “getting some share from everybody so all main grocery players are affected a bit,” Mr. La Fleche told analysts Wednesday.
Metro and Rona are among retailers that are beefing up their private labels to meet shoppers’ appetite for cheaper store brands. At the same time, Metro and other grocers are barely able to pass on price increases as customers demand lower prices – or head somewhere else.
Metro’s profit rose to $124.9-million or $1.21 a share from $120-million or $1.12 a year ago. Sales picked up slightly to $3.58-billion from $3.56-billion.