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Canadian holiday retail sales to prove more resilient than expected: observers

Dec. 17, 2008, Toronto – The Canadian holiday shopping season was widely expected to
be a bust, but deep discounts have kept shoppers scouring the malls for
deals and spending more money than the industry expected.

The Canadian holiday shopping season was widely expected to
be a bust, but deep discounts have kept shoppers scouring the malls for
deals and spending more money than the industry expected.

Most shoppers are searching for the best bargains – and Canadian
retailers haven't been shy to offer deep discounts, which will likely
wipe out their prospects for profits, analysts say.

"The
retailers really don't have much hope of making a lot of money," said
David Howell, president of Associate Marketing International, said
Monday.

They're "doing just about anything they can to drive business, and doing so will evaporate any margins."

A
report from Kubas Consultants suggests that retailers would rather
discount their inventory than risk having tight-fisted consumers take
their money elsewhere, because next year is rife with uncertainty.

"We expect three quarters of slow retailer sales from fourth-quarter 2008 to second-quarter 2009," the report says.

"Retail
sales will actually decline in some of the months ahead, but this will
be mostly due to severe downturns in the automotive sector, including
especially gasoline station sales numbers."

On Thursday,
Statistics Canada is expected to report that October retail sales
numbers declined one per cent from a month earlier, partly on a
slowdown in automobile and gas sales – the two weakest links in the
retail sector.

The results wouldn't be much of a surprise,
especially considering that the Conference Board of Canada said last
month that consumer confidence dropped 2.9 points its lowest level
since the recession of the early 1980s.

However, shoppers are
showing some resilience, despite the weaker prospects, said Wendy
Evans, head of retail consultancy firm Evans and Co. Consultants Inc.

"We've
got a buying habit and we've had it for a long time. You don't just
change it overnight," she said. "There's this willing suspension of
disbelief."

While retail sales have slowed in recent months, the
total receipts are still up five per cent year-over-year through
September, wrote Adrienne Warren of Scotia Economics in a report.

"Early
holiday shopping reports are reasonably good, though buys are favouring
more practical items such as children's clothing, housewares and books
over major appliances, home decor, adult clothing and jewelry," she
said.

The domestic economy hasn't faced anywhere near as many
challenges as the United States, which has seen job cuts galore,
defaulting mortgages and home values plummet.

Doug Porter, senior
economist with BMO Capital Markets, says that's one reason that retail
sales could stay strong in the short term.

"Over the past year we've still seen solid job and income growth in this country," he said.

"It wouldn't shock me if retail sales hold up surprisingly well this year."

Retailers
will start to feel the pain next year if job cuts tear through the
economy, leaving many Canadians facing a financial uncertainty they
haven't seen in recent memory.

For some shoppers, that could mean a "buy now to save for later" mentality – which makes bargain hunting all the more appealing.

Many
retailers began slashing prices as early as October when economists
predicted that holiday shoppers would be cautious with their
chequebooks this year. Storefronts were lined with major savings, from
40 to 60 per cent off promotions to "buy one, get one free" offers.

The
early discounts seemed to create a consensus among shoppers that if it
wasn't a good deal, it wasn't even an option this year.

High-end
luxury retailers like Harry Rosen and Holt Renfrew have been forced to
respond by joining the rest of the industry in cutting prices and
offering incentives.

Hardware and home supplies retailer Canadian
Tire (TSX:CTC.A) declined to offer specifics on its holiday sales
results, but said that consumers are shopping with caution.

"We
have noticed a trend of more practical gift-giving – a return to the
basics if you will – products like small appliances, tools, automotive
and electronics," said Duncan Reith, senior vice-president of
merchandising in an email response.

However, the consumer slowdown hasn't run as deeply as some initially suggested.

"It's
not all doom and gloom here," said John Torella, of the retail
consultancy firm J.C. Williams Group, who said it's "little luxury"
items that are hooking shoppers.

"Things like beauty products, cosmetics, and anything that has to do with technology" are popular this year, he said.

At
the Yorkdale shopping mall in Toronto traffic is up four per cent
during the first-half of December as compared to last year, according
to its general manager Anthony Casalanguida.

However, higher traffic doesn't necessarily mean bigger profits, and its too early to determine sales numbers, he noted.