Sliding consumer confidence could put a damper on holiday sales cheer

October 16, 2008
Written by The Canadian Press

Topping retailers' wish list will likely be a boost in consumer confidence as the struggling economy weighs on the minds of shoppers.

The fear of frugality might force merchants to scale back prices to drive more traffic during the critical months ahead of Christmas, the key selling period of the year.

"People are fairly pessimistic. They haven't been this pessimistic in three years about the state of the Canadian economy, particularly in Ontario," Richard Jenkins, vice-president of research at market research firm Taylor Nelson Sofres, said Thursday.

"This week's bad news has the potential to really hurt spending because of the degree to which people are seeing their assets just disappear."

Economic observers see a turning point for consumer sentiment.

Since mid-July the Toronto stock market's main index has lost about 20 per cent of its value, pulling personal investments down with it - and ultimately this shrinkage of wealth will take a toll on people's willingness to spend.

Canadians are already taking a bleaker view of the economy, according to a poll by Angus Reid Strategies.

An online survey earlier this month found 36 per cent of respondents said the economy is in "poor" shape, an increase from 30 per cent in July.

Still, confidence did not appear to be tumbling yet - about 59 per cent in the poll said the economy is in "good" or "very good" condition.

"When it comes to Canadians and their own finances, they seem to believe that things are going steady," said Mario Canseco, a researcher for Angus Reid.

"As we move towards the fall and things start changing, we may see ... they don't think it's a good time to spend."

Retailers are already bracing for the impact. Few publicly traded store operators in Canada have said they expect to see a surge in sales during the last half of the year.

Canadian Tire Corp. (TSX:CTC.A), one of the more optimistic national retailers, started the year with an enthusiastic forecast before scaling back due to slower spring-quarter sales.

"Even if the retailers expect this and go into the holiday season with lighter inventories, I still think they're going to have to be aggressive on promotions to drag people in the door," said Brian Yarbrough, a retail analyst at Edward Jones in St. Louis.

Last year, retailers had to contend with the rise of the Canadian dollar, which forced them to take an axe to the prices of many items to be competitive with the United States.

This year, even though the dollar has lost some altitude, retailers are going to have to get creative and aggressive to drive sales, Yarbrough said.

"There's still going to be a demand for electronics, but otherwise outside of that - apparel and general merchandise - it's going to be tough."

Yarbrough expects holiday sales totals will be about one or two per cent above last year's, which would be the weakest increase since 2002.

A divide between how men and women view the economy could influence how many pricey items are taken to cash registers this fall.

The Angus Reid poll indicated 67 per cent of men consider economic conditions "good" or "very good," compared with 51 per cent of women.

"Women might actually be more in touch with specific issues and prices because in many cases they are ... the ones who do more shopping and are in touch with the economy," Canseco suggested.

"If women believe that the economic conditions are not right that might manifest the spending habits of Canadians."

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