This is the make or break season for retailers. The final quarter of the year usually accounts for around 34 per cent of annual sales, compared to about 24 per cent in the preceding two quarters. December alone historically generates 11.2 per cent of annual sales. What is the outlook for retail sales now?
Costs for retailers are rising, similar to what most of us are experiencing. Over the past several years hourly earnings (wages) of retail employees increased by more than 25 per cent, in contrast to the stagnant wages of most Canadians. Retailers’ occupancy costs have climbed, too, as rents have been raised along with other maintenance costs.
Retailers are promising big discounts in order to stimulate sales, following the pattern with the automobile industry. Nevertheless, when possible retailers are carrying lean inventories; they do not in fact expect a surge in sales anytime soon.
The Canadian consumer, who has been one of the bulwarks against a business downturn, is increasingly reluctant to spend. An index of consumer confidence reflects our concerns about high gasoline and fuel prices and sluggish employment gains, along with weak home prices. The wealth effect of the latter prompts a great deal of consumer caution.
What Canadians plan to do now reveals the changing profile of national consumption, Canadians need to spend more on food and fuel, as their disposable income is strained by all manner of rising prices. They are cutting back on non-essentials such as clothing and even trimming their purchases of “hot” consumer electronics.
Many of us are trading down to discount stores whose sales have been well maintained, and are shunning luxury retail chains. Higher food costs are a boon to warehouse clubs, and unbelievable as it may be, consumers are stockpiling frozen foods against rising prices. That seems foolish as food prices are expected to decline in coming months. Witness the precipitous decline in so-called soft commodities, such as wheat, corn, and soybeans.
To save money and help to protect the environment, there have been double-digit increases in the use of public transit in most Canadian cities. Furthermore, numbers are relying more on trains and buses in place of the increasingly expensive plane travel.
Profligate spending habits in Canada are unlikely to return soon. Until we see the housing industry bottom out and energy prices come down, consumers will spend less. Their dollars probably are going to discount stores rather than expensive retailers that hitherto have been widely patronized.