Retailers face repeat of 2008 holiday season

November 02, 2009
Nov. 3, 2009 - Canadian retailers should brace themselves for another challenging holiday shopping season, as recession-sapped consumers are unlikely to open their wallets too widely, too quickly, Ernst & Young says.

“Consumers today may be somewhat buoyed by better news in the last several months, and consumer confidence has increased. But a long, tough year has left them battered, concerned over employment and salary growth and weary of spending large amounts of cash all at once”, says Daniel Baer, Ernst & Young Partner and National Retail Industry Leader.

Baer says this year’s holiday shoppers will be more price savvy than ever, all looking for the best deal. “Consumers are spending more of their dollars at discount chains, warehouse clubs and dollar stores. Finding the right price is paramount in this market, and shoppers are likely to hold off on making actual purchases until they find the bargain they’re looking for. Consumers will likely avoid impulse purchases.”

Traditionally popular holiday categories such as apparel, electronics and toys are likely to suffer deflation this year, as retailers rely on heavy promotions and deep discounts to draw in consumers who have come to expect sales in these categories. However, retailers have reduced purchases and inventory levels, such that discounting will be somewhat less prevalent than last year.  “Inventory management is the hallmark of a new era of retail,“ says Baer.

Statistically, Ernst & Young expects holiday sales to be flat versus 2008 sales. However, given the weakness in last year’s results, this translates into less than buoyant sales for retailers.

“Because consumers have likely been holding off on major purchases this year, we could actually see some pent-up demand result in a surge of certain categories, such as sales for flat-screen televisions, notebooks or next-generation iPods,” explains Baer. “But consumers will still be choosy, and products will only move if the price feels right. Gift cards will continue to be a popular gift.”

Retailers are already jostling to capture their share of holiday spending, with major chains launching “Boxing Day” sales as early as September. Those price cuts and promotions will be crucial to keeping Canadian shoppers on this side of the border if the dollar continues to climb.

“Depending on the strength of the Canadian dollar, we could begin to see something similar to the 2007 shopping season, when retailers here had to compete not only against one another, but also against American counterparts,” Baer says. “Savvy retailers are adjusting their pricing, particularly online.”

Holiday spending will vary across Canada:

  • The recession has hit Alberta and British Columbia hard in recent months, as gas prices fell and oil sands projects slowed.
  • The picture is somewhat brighter in Ontario where, despite consumers reeling from manufacturing losses, the last three months show relatively stable sales that are likely to continue through the holiday season. Ontario is expected to mirror the national average.
  • Quebec — where the manufacturing sector is more diversified than in Ontario and government infrastructure spending more advanced — has shown resilient sales over the last few months, which will likely lead into relatively healthy sales throughout the holiday season.

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