In its fourth quarter, Sears Canada’s profit plummeted by more than half to $38.7-million while sales dropped 6.4 per cent to $1.37-billion.Andy Clark/Reuters
Canadian retailers, hurt by rising competition and a reluctance by consumers to spend, have a dire warning about their predicament: It's not going to get better any time soon.
Their tough slog could persist for three years as savvy foreign retailers like Target Corp. invade the country.
"The easy days are over," is the title of a new internal report from the Retail Council of Canada to its members. "Retailers foresee slow growth, no momentum."
It warns that the challenging environment could continue until 2015, squeezing out weaker retailers in a fast-changing landscape that will be further transformed by the arrival of giant U.S. discount chain in early 2013.
"Either strong growth returns, or a number of competitors get into trouble and exit the market – bankruptcy, closure, merger or sale," says the report, based on a members' survey this month.
"The departure of these competitors would allow the remaining companies to grow more strongly by increasing market share. … In retail even a slack tide will see some ships end up on the rocks."
The industry shakeup is being triggered by Target's plans to set down roots here by picking up about 220 Zellers stores in a landmark $1.8-billion deal. Some of those sites have been sold to rival Wal-Mart Canada Corp. and other retailers, helping them to buttress their market position.
At the same time, Zellers Inc. will soon begin massive liquidation sales to clear out its stores, adding more pressure for incumbent retailers.
Merchants that have struggled, including department-store retailer Sears Canada Inc. and some fashion chains such as Urban Behavior, Costa Blanca and Sterling Shoes, are vulnerable in the shifting market, observers warn.
"If you're already having a difficult time, it's going to be tough to pull out of it," said Ed Strapagiel, executive vice-president at market researcher KubasPrimedia. "Retail fortunes take a while to turn around."
In its fourth quarter, Sears Canada's profit plummeted by more than half to $38.7-million while sales dropped 6.4 per cent to $1.37-billion. Calvin McDonald, the new chief executive officer, said he was disappointed with the 2011 performance but "we believe we have begun to stabilize the business and create a foundation for returning the business to historical performance levels.''
Since arriving last summer, Mr. McDonald has raced to cut jobs, declutter stores and focus on core segments such as appliances and women's and children's apparel. Starting this month, it's reducing prices by as much as 30 per cent on more than 5,000 items.
Diane Brisebois, president of the retail council, said the organization doesn't specify which retailers may be in trouble, noting that their situation can change quickly. But she said it could take another two or three years for the sector to stabilize as it grapples with a rocky global economy and new competition.
"The market changes quickly in retail," she added. "We've seen companies rebound and readjust. The operative word here is fast and sophisticated. I'm not counting anybody out at this point in time."
The report's title was sparked by a comment from a member who speculated that "the current soft challenging conditions could well continue until 2015," it said. "This assessment is shared by many in the trade who foresee a bumpy ride for at least the medium term."
Its members forecast another year of slow sales growth and challenging competitive conditions. "Most do not see any momentum developing. … This stands in direct contrast to expectations at the start of 2011 when merchants hoped that things would gradually improve.
Even sales of gift cards, once seen as a bright spot for retailers, are starting to lose momentum, the report says. Retailers now face competition from malls and Visa and MasterCard, which issue their own forms of gift cards.
On a bright note, some retailers noticed a bump in sales tied to the Chinese lunar New Year last month.