At the beginning of the year, anticipation was high among mall operators that a slew of new foreign retailers was gearing up to enter Canada and cash in on its relatively strong economy.
Today, the mood is more restrained. Some U.S. retailers, including discounter Kohl’s, have yet to approve tentative store leases in this country, industry sources said. Others, such as high-end department store Nordstrom, can’t find suitable space. Meanwhile, an internal report from the Retail Council of Canada casts an anxious eye on merchants’ outlook at the approach of the crucial holiday shopping period.
“Retailers expect this uninspiring environment to continue for some time,” says the council’s report on retail conditions. The title sums it up: “Sales & margins ok, but no fun; challenging conditions and worries about the future.” Another warning: “The holiday season may turn out to be weaker than forecast.”
As retailers prepare for their biggest season of the year, they are increasingly jittery as sales growth here slows, in contrast to strengthening U.S. sales. The consumer funk in Canada could last for a while, threatening to spook some foreign chains, at least for now.
But at the same time, the U.S. retailers already here are pushing ahead, squeezing incumbents. By March of 2013, U.S. discount giant Target Corp. will open its first stores in Canada after closing a $1.8-billion deal to buy Zellers leases, putting more pressure on existing merchants.
Retailers already feel the heat. Their sales in Canada (excluding auto and gas sales) are expected to pick up just 1.8 per cent in the second half of this year, compared with a 2.8-per-cent gain in the second half of 2010, according to a survey by realtor Colliers International. For 2011, it anticipates only a 1-per-cent increase in those retail sales, compared with an average 3.5-per-cent gain in each of the four preceding years.
The data may convince some U.S. retailers to keep their plans for Canada on hold. Kohl’s and J.C. Penney, which checked out the Canadian retail landscape at the beginning of 2011, aren’t signing leases, sources said.
Nevertheless, domestic merchants feel the strain of foreign retailers already here and expanding, including Wal-Mart Canada Corp., Bed Bath & Beyond and cosmetics chain Sephora, said Ed Strapagiel, executive vice-president at consultancy KubasPrimedia. “This could be not a great Christmas, but it might be the best one for a couple of years.”
Last month’s retail council report paints a picture of a cautious shopper who is heading to stores less frequently, anxious about the volatile global economy and family debts.
Retailers have responded by slashing inventories “drastically” in anticipation of modest sales growth, the report says. Less stock, resulting in fewer markdowns to clear out excess merchandise, is helping to boost profits. So is the Canadian dollar which, until recently, outpaced the U.S. dollar in value, shoring up retailers’ bottom line because a lot of their purchasing is done with greenbacks.
“Most retailers are confident they can sell through their fall inventories and achieve their margin goals,” says the report. “Expectations for the holiday season are another matter … There is a high degree of nervousness about how the season will turn out, driven by the scary economic environment.”
Still, many retailers say they will stick with their business plans, partly because they had ordered stock conservatively, it says. In any case, “there is little room to manoeuvre at this point. Stocks are already in distribution centres or are arriving now. Wherever possible, merchants are trying to delay the moment of commitment. As one member says, ‘It’s not, ‘am I buying more or less?’ – I’m buying late – as late as possible.’”