Skip to main content

Report on Business Canadian retailers brace for rocky year as consumers curb spending, economy slows

Consumers are showing signs of scaling back their spending, prompting many retailers to brace for a rocky year.

Canadian retail sales growth slowed in 2018, with some executives now warning that a harsher economy could make business more difficult.

“We recognize we are facing significant market pressures and we will have to overcome these forces by leaning on our ability to be innovative,” Heather Reisman, chief executive of Indigo Books & Music Inc., told analysts last month.

Story continues below advertisement

Indigo, which has branched out beyond books into toys, gifts and home-decor merchandise, reported a disappointing holiday period, partly because of lost business as a result of the postal strike. “The larger issue is: there is a general slowdown in the Canadian economy … particularly for those items that consumers consider non-essential.”

From giant Canadian Tire Corp. Ltd. to Leon’s Furniture Ltd. to Indigo, retailers are grappling with weaker sales and a softening economy amid rising consumer debt, forcing merchants to rein in their operating costs and sharpen their marketing.

Signs of a slowdown mounted on Friday when Statistics Canada reported surprisingly weak fourth-quarter gross domestic product growth, expanding at just 0.4 per cent, reflecting softness in household spending among other factors.

Meanwhile, Canadian retail sales in 2018 rose to $605-billion, 2.7 per cent over the previous year – almost two-thirds less than the 7.1 per cent increase in 2017, according to Statscan data. Categories such as furniture and home goods saw a slowdown last year while stores selling sporting goods, toys, books, music and shoes saw sales declines, Statscan found.

“We went from a banner year in 2017 to a bummer year in 2018,” said Toronto retail consultant Ed Strapagiel. In 2019, there is “no relief in sight,” he said.

Retail sales gains deteriorated last year with each quarter, ending with a 0.8 per cent uptick in the fourth quarter from a year earlier compared with a 4-per-cent increase in the first quarter, Statscan figures show. On a month-to-month basis and seasonally adjusted, sales declined in four out of the last five months of 2018, it found.

Some Canadians are struggling with rising debt levels and higher interest rates can result in consumers buying fewer big-ticket items such as automobiles, furniture and appliances, Mr. Strapagiel said. Gasoline prices also increased in mid-2018, leaving people with “less money for everything else,” although prices have since dropped somewhat, he said. At the same time, the housing market is sagging.

Omar Abdelrahman, economist at Toronto-Dominion Bank, said retail sales volumes (excluding the effects of price changes) picked up by only 0.7 per cent in 2018 from a year earlier, the slowest pace since 2009. He expects just “modest” consumer spending growth in 2019.

“We’re surrounded with macroeconomic concerns in the market: consumer confidence, tariffs, government regulations, and the list goes on,” said Canadian Tire CEO Stephen Wetmore. “We are very aware of the environment and its challenges.”

“It is not an easy market,” added David Friesema, CEO of Sleep Country Canada Holdings Inc. The country’s leading mattress chain reported last week a 2.7-per-cent drop in its fourth-quarter sales at stores open a year or more – an important retail metric that softened throughout the year.

Fewer shoppers are coming to the stores, Mr. Friesema said. The difficulties emerged despite the demise of Sears Canada Inc., a big mattress seller that closed all its outlets by early last year, leaving more business for rivals such as Sleep Country.

The fragile housing market is starting to hurt other chains. U.S. home-improvement titan Lowe’s Cos., which also owns Rona, posted “negative” same-store sales in Canada in its fourth quarter as it closes outlets, it said.

”We anticipate weakness in the Canadian housing market which is exerting pressure on our outlook for that business over the near term,” Lowe’s CEO Marvin Ellison told analysts last week. Lowe’s recorded a US$952-million writedown tied to its Canadian operation, deciding essentially that it was worth less than it had originally estimated following its $3.2-billion Rona acquisition in 2016.

Story continues below advertisement

At Leon’s Furniture, which owns the Brick, fourth-quarter same-store sales slipped 0.1 per cent after dipping 1.6 per cent in its third quarter, its weakest same-store-sales in more than four years. Pointing to light consumer spending, CEO Edward Leon said the retailer went through a “rough patch” before enjoying some recovery until February’s “three weeks of weather from hell” that kept away customers.

His plan to win them back entails investing in marketing and promotions while shaving distribution costs. “Our job frankly, in my mind, is to change that consumer sentiment.”

Even discounter Walmart Canada, whose U.S. parent posted a stellar fourth quarter, saw its same-store sales gain just 1.1 per cent here compared with a 4.2 per cent lift in the United States and a 2.9 per cent increase in Canada a year earlier.

Meanwhile, the toy segment faced its own challenges. It failed to generate a must-have holiday hit item, such as previous years’ Fingerlings puppets or Hatchimals robotic pets, contributing to overall sector fourth-quarter sales dipping 5 per cent, said Humphrey Kadaner, president of the 65-store Mastermind LP.

“When you have multiple increases in interest rates, that has an impact – that takes money out of people’s pockets,” he said.

Canadian Tire said its December weakness was tied to unseasonably mild weather that melted away sales of shovels and snow blowers. The retailer hasn’t seen signs of a stretched consumer, Mr. Wetmore said last month. Customers weren’t cutting back on purchasing expensive discretionary items such as furniture nor trading down to cheaper goods.

Story continues below advertisement

Still, Canadian Tire can rapidly pivot to focus on less pricey inventory if it started to see indicators of a downturn, he added. “We can react really quite quickly.”

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Discussion loading ...

Cannabis pro newsletter