Retailers in Canada are bracing for a tough back-to-school season as heightened global economic uncertainty rattles consumer confidence.
Still stinging from disappointing spring results, merchants aren’t likely to find relief any time soon. Forty-five per cent of shoppers plan to scale back school spending as worries over the recent stock market volatility and global turmoil intensify in Canadian households, new research shows.
One-third of Canadians feel financially insecure or in financial trouble – a figure that is 8 per cent higher than just six months earlier, according to the Boston Consulting Group survey conducted this week. Levels of consumer anxiety are sharpest in Quebec and the Atlantic provinces.
Signs of growing consumer fears come after many retailers struggled through a difficult spring, partly because cool and rainy weather kept shoppers out of stores in much of the country. Second-quarter results in Canada were disappointing for a range merchants, including school supplies specialist Staples Inc. , home improvement merchant Rona Inc. , generalist Canadian Tire Corp. and discount apparel and home goods chains Winners and Home Sense.
Now, merchants face the added pressure of consumers worried about a sluggish North American economy and a European debt crisis that threatens global stability. Major chains are being forced to offer a wider array of deals to lure frugal consumers in the important back-to-school period, which is the second busiest shopping season after Christmas and worth up to $7-billion a year in Canada.
“Retailers can expect that consumers will continue to only buy the essentials, to trade down most of the time and not buy the luxuries in their back-to-school shopping that they have done in past years,” said Cliff Grevler, managing director of Boston Consulting in Toronto.
“Just given the time of the year, back-to-school is the next place to suffer.”
Leslie Szirt, a Montreal mother of three school-age children, plans to cut back her spending this fall to roughly $1,000 from $1,200 last year. She is being more strategic in her purchases, re-using binders, folders and notebooks and trading down wherever possible..
After having launched a pediatric therapy service business about 18 months ago, she and her husband are watching their expenses more closely, particularly in the unsettling global economy. “I’m being a little more cautious in my spending,” the 40-year-old former teacher said.
Still, while the prospects for retailers are weak in the coming weeks, they aren’t totally bleak. Ernst & Young has forecast that back-to-school spending will at least remain flat. Anxious about gas prices and inflation, consumers are finding savings in any way possible, including cross-border shopping – sometimes online – to benefit from a stronger loonie, said Daniel Baer, E&Y’s Canadian retail and wholesale industry leader.
His forecast of no-growth in back-to-school retail sales compares to a gain of about 4 per cent a year earlier. And in the first five months of 2011, excluding auto, gas and food sales, retail sales dipped 0.5 per cent from the previous year, according to Statistics Canada.
At Staples, for instance, while second-quarter North American same-store sales were flat those in Canada were softer than in the U.S., Ron Sargent, chief executive officer at Staples, told analysts on Wednesday. Customer traffic fell 1 per cent while the average order size grew about 1 per cent.
“I think we are probably more likely to stay in economic purgatory for a while longer,” Mr. Sargent said.
At TJX Cos. Inc. , which owns Winners, Marshalls and Home Sense, “second quarter results were disappointing” at the Canadian division, chief executive officer Carol Meyrowitz said on Tuesday. Same-store sales at outlets open a year or more – a crucial measure of a retailer’s health – dropped 3 per cent compared with a 6-per-cent increase last year. “We believe that we could have better execution, particularly in women’s and the children’s business, both of which performed poorly,” she said.
Second-quarter same-store sales tumbled 5.8 per cent at Sears Canada Inc. , and 7.4 per cent in the first six months of 2011.
Still, discount giant Wal-Mart Canada enjoyed a 1.2-per-cent gain in its second-quarter same-store sales, its parent reported on Tuesday. Even so, customer traffic slipped 0.9 per cent while the average purchase price picked up by 2.1 per cent.
“It is clear that many consumers are still struggling,” Wal-Mart CEO Mike Duke said on Tuesday. “They are trading down to stretch their budgets, buying a lower-priced brand of detergent, moving from branded canned goods to private label.”
Wal-Mart Canada spokeswoman Susan Schutta, in describing shoppers’ sentiment, said consumers continue to be concerned about the economy and are looking for deals. But she said the back-to-school season is going well so far, with strong sales in areas ranging from apparel and school supplies to specialty items such as allergy necklaces for children with peanut allergies.Report Typo/Error