Retail: Tough sell?

How Canadian retail will fare in 2009.

Retailers must be bracing for a tough year. Since October, more than 200,000 Canadians have lost their jobs. Consumer confidence hovers at levels similar to past recessions.

Despite the challenging environment, Kubas Consultants, a Toronto-based market research and consulting company, predicts the retail sector — excluding car dealerships, gas stations and other automotive-related stores — will grow revenue by 3.5% in 2009. Ed Strapagiel, Kubas’s executive vice-president, says higher prices will be responsible for half the rise, as merchants pass on some of the increased cost of imports — a result of a weaker Canadian dollar — to shoppers. Costlier inventory combined with consumers’ tendency to look for bargains, though, could squeeze margins in 2009, he points out. Still, certain sectors could shine. For example, people will likely eat at home more often this year, helping sales at grocery stores and consumers’ insatiable desire for the latest gadgets will continue to boost sales at electronics retailers.

John Archer, a senior consultant with the J. C. Williams Group, a retail consultancy in Toronto, isn’t as optimistic. He predicts between a 1% decline to a 1% increase in revenue. Archer points out the Canadian economy usually lags the American one, and he has yet to see convincing signs of a turnaround in the U.S. Independent and regional retailers could suffer the most this year, he says, because of the difficulty they could have in getting credit to buy merchandise. Adding to these problems, he says Canadians haven’t fully reined in their spending, which means the situation could get worse, before it gets better.