Despite strong holiday sales, 2011 will be rife with challenges for retailers: Ernst & Young

Canadian retailers must adapt their offerings to secure market share

TORONTO, Jan. 5 /CNW Telbec/ - Canadian retailers will have no time to enjoy their sales gains from the 2010 holiday season because the new year will be rife with challenges for the sector, says Ernst & Young. Retailers will be contending with an influx of foreign competitors, a rising Canadian dollar and a potential decrease in consumer buying power.

"National holiday sales to date increased approximately between 3% and 4 % in 2010, higher than the expected 2% to 3%," says Daniel Baer, Ernst & Young Partner and National Retail Industry Leader. "Retail sales are expected to rise again in 2011, but Canadian retailers will face greater competition from foreign entrants who are determined to claim a share of Canada's reviving consumer market. They'll have little choice but to fight back aggressively."

What's more, today's consumers are smarter because of the experiences and strategies they've adopted over the last two years, says Baer. "They're proud to be value shoppers. They want their dollars to stretch further and are keeping their eyes open for the best deals."

Recovery dominated in 2010. But even though retail sales bounced back, the Canadian economy grew and consumer confidence returned, a number of trends that may affect consumer behaviour are expected to continue into the new year.

In 2011, the ever-increasing dollar will likely continue to fuel cross-border traditional and online shopping. Higher gas prices, increased consumption taxes in certain provinces, higher interest rates and rising prices for certain manufactured goods could further erode buying power.

Not surprisingly, the stakes are high for retailers. Retailers will need to capture consumers' attention. Baer recommends retailers make social media an integral part of their online advertising campaigns. "Retailers can build strong relationships and drive brand loyalty with their customers through social media. Some excellent social media campaigns have sophisticated customer review and ratings systems and real-time interactions between employees and customers through social networking sites. They also encourage and display customer feedback and ideas."

Baer also suggests retailers focus on expanding their online services and offerings. "Consumers want convenience and efficiency — we saw that from the favourable online response towards free shipping offers throughout the holiday period. Canadians just don't have time to squeeze in trips to the mall whenever they need to buy something, and that's why online shopping is likely to increase this year. It's not a novelty — it's here to stay."

Retailers should also embrace demographics, including tailoring assortments based on ethnicity and catering to an aging population, to attract consumers and get ahead of the competition.

About Ernst & Young
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