Dave Chidley/CP
On the heels of Target posting a drop in its second quarter profit Wednesday, it’s become clear right now is not the easiest time to be a major retailer in Canada. In the past week, Walmart, Sears, and Target have all been under the microscope for, respectively, disappointing financial results, staff cuts and speculation over consumer malaise.
And that’s not all these companies are dealing with. In addition to a more competitive environment (due to the entry of major players like Target), the latest consumer spending data, expected to be released this week, will likely show that Canadians have generally been wary of spending their money as of late.
Analysts are expecting a “retracement” in the June Consumer Price Index numbers, following the fairly sizeable gain of 1.9% in retail trade indicated by the CPI in May. Paul Ferley, assistant chief economist at RBC, expects positive results for consumer spending in the quarter overall (up an annualized 2.8% in Q2 from a weaker Q1), but noted that retailers are still dealing with modest levels of spending by households.
The June numbers may also be lower because of some irregular weather patterns. Maureen Atkinson, a retail analyst with J.C. Williams Group, noted that a colder-than-usual spring contributed in part to consumers’ hesitation to spend on items such as clothing. The flooding that struck southern Alberta in late June may also contribute to lower numbers.
“That was a major part of Canada [in which] retail spending probably would not have been typical in that month,” said TD economist Leslie Preston. Preston expects that June will be a bit of a “wild card,” since we don’t yet know the impact that the floods had on consumer spending habits.
Debt levels for the average Canadian household are moving down (perhaps we’ve been taking those warnings from the Bank of Canada to heart), and as a result there’s been “modest” growth in consumer spending, said Ferley. But debt is still a major consideration for most Canadians when they head out to shop, which is limiting the strength in consumer spending and having an effect on the balance sheets of retailers, Ferley added.
“It’s resulting in more of a mixed picture for retailers—some are managing to find their market and do okay. Others are not as successful.”
Adding to this “modest growth” environment is the fact that Canada’s retail market has become much more competitive in the past year. While Walmart only had to deal with a weak and closing Zellers in the recent past, it now has to compete with fellow big box retailer Target. In order to maintain a competitive edge, retailers haven’t been able to raise prices to make up for lower sales lest they scare away those searching for the best deals, noted Preston.
It’s been great for shoppers, who now have more choice and are also managing to avoid being hit with price increases, “but it’s a tougher one for retailers in general,” Preston added.
Who manages to come out on top in this highly competitive, modest-consumer spending environment remains to be seen. One poll from Forum Research, released Monday, put Target in last place among major retailers for customer satisfaction. (Forum’s retail clients include Canadian Tire, Home Hardware, Home Depot, Sam’s Club, Holt Renfrew and Future Shop).
But Walmart, which came in second out of the eight retailers in the Forum survey, doesn’t appear to be having the easiest time either. The Globe and Mail reported that the company’s second quarter results, released last week, showed a 0.6% drop in store traffic, and a 0.4% drop in same-store sales.
Companies & Industries
Canadian retail's terrible summer: Why Target, Walmart and Sears are all suffering
By Kate Wilkinson
Dave Chidley/CP
On the heels of Target posting a drop in its second quarter profit Wednesday, it’s become clear right now is not the easiest time to be a major retailer in Canada. In the past week, Walmart, Sears, and Target have all been under the microscope for, respectively, disappointing financial results, staff cuts and speculation over consumer malaise.
And that’s not all these companies are dealing with. In addition to a more competitive environment (due to the entry of major players like Target), the latest consumer spending data, expected to be released this week, will likely show that Canadians have generally been wary of spending their money as of late.
Analysts are expecting a “retracement” in the June Consumer Price Index numbers, following the fairly sizeable gain of 1.9% in retail trade indicated by the CPI in May. Paul Ferley, assistant chief economist at RBC, expects positive results for consumer spending in the quarter overall (up an annualized 2.8% in Q2 from a weaker Q1), but noted that retailers are still dealing with modest levels of spending by households.
The June numbers may also be lower because of some irregular weather patterns. Maureen Atkinson, a retail analyst with J.C. Williams Group, noted that a colder-than-usual spring contributed in part to consumers’ hesitation to spend on items such as clothing. The flooding that struck southern Alberta in late June may also contribute to lower numbers.
“That was a major part of Canada [in which] retail spending probably would not have been typical in that month,” said TD economist Leslie Preston. Preston expects that June will be a bit of a “wild card,” since we don’t yet know the impact that the floods had on consumer spending habits.
Debt levels for the average Canadian household are moving down (perhaps we’ve been taking those warnings from the Bank of Canada to heart), and as a result there’s been “modest” growth in consumer spending, said Ferley. But debt is still a major consideration for most Canadians when they head out to shop, which is limiting the strength in consumer spending and having an effect on the balance sheets of retailers, Ferley added.
“It’s resulting in more of a mixed picture for retailers—some are managing to find their market and do okay. Others are not as successful.”
Adding to this “modest growth” environment is the fact that Canada’s retail market has become much more competitive in the past year. While Walmart only had to deal with a weak and closing Zellers in the recent past, it now has to compete with fellow big box retailer Target. In order to maintain a competitive edge, retailers haven’t been able to raise prices to make up for lower sales lest they scare away those searching for the best deals, noted Preston.
It’s been great for shoppers, who now have more choice and are also managing to avoid being hit with price increases, “but it’s a tougher one for retailers in general,” Preston added.
Who manages to come out on top in this highly competitive, modest-consumer spending environment remains to be seen. One poll from Forum Research, released Monday, put Target in last place among major retailers for customer satisfaction. (Forum’s retail clients include Canadian Tire, Home Hardware, Home Depot, Sam’s Club, Holt Renfrew and Future Shop).
But Walmart, which came in second out of the eight retailers in the Forum survey, doesn’t appear to be having the easiest time either. The Globe and Mail reported that the company’s second quarter results, released last week, showed a 0.6% drop in store traffic, and a 0.4% drop in same-store sales.