Increasing competition will challenge retailers but make it a good time to be a consumer
TORONTO, March 28, 2013 /CNW/ - Discount department stores are poised to take more market share in the year ahead as debt-conscious consumers and tame wage growth weigh on Canadian retail spending, according to CIBC World Markets Inc.
"Canadians have heard the message from Ottawa: be careful what you borrow for. But turning more prudent on debt accumulation has meant leaner times for retail spending growth over the last year," says Avery Shenfeld, Chief Economist at CIBC, in a note published for CIBC's Retail and Consumer Conference happening today in Toronto.
With a weak finish to the 2012 holiday season, retail sales grew at lean rate of 2.5 per cent last year, marking "the second year of deceleration from a heady 5.6 per cent pace in 2010, when households were much more eager to borrow at low rates to finance their shopping spree," notes Mr. Shenfeld.
With job growth expected to decelerate in 2013 and wages remaining "fairly tame" in 2013, disposable income gains will likely remain modest this year. "In that climate, discount stores will continue to grab market share, particularly given the entry of a major U.S.-based player this year," says Mr. Shenfeld
In another conference note, Perry Caicco, a CIBC Equity Analyst who covers the consumer and merchandising industry, identifies two other consumer trends likely to exert competitive pressure on the retail sector.
One is the increasing tendency by Canadian consumers to "purchase on promotion." Mr. Caicco says that "over the last three years, a material amount of the windfall from a strong Canadian dollar was passed through as increased deals." This has made Canadian consumers, who are already debt-conscious, "increasingly addicted to deals" and "more sceptical than ever about regular prices," he says.
Another consumer trend is "the rising power of Asian and South Asian consumers." Over the next 10 years, approximately 70% of all growth in Canadian consumer spending will come from these groups, he says. This is likely to spur the growth of large-format ethnic grocery stores, which are increasingly competing for market share with established grocers.
Mr. Caicco highlights several other market events that will test Canadian retailers in the coming years.
"It has been a largely peaceful and prosperous decade for Canadian retailers. But that type of environment inevitably invites disruption. Disruption has certainly arrived," says Mr. Caicco.
"The most notable challenge is the arrival of a number of 'strangers' to the Canadian retail scene. Target is the obvious entrant," he says. Others include Nordstrom and international specialty retailers. Increased development of brand-focused clearance outlets and Walmart's acquisition of 39 former Zeller's stores will also increase competition.
These developments "will test the resolve and resiliency of Canadian retailers, large and small" for the next few years, says Mr. Caicco. On the flip side, the competition will "make it a good time to be a consumer as choices will continue to expand and prices will come down."
Other market trends that Mr. Caicco says will shape retail industry include:
The complete conference notes from Mr. Shenfeld and Mr. Caicco are available at: http://files.newswire.ca/256/CIBCRetailConferenceNotes.pdf.
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PDF available at: http://stream1.newswire.ca/media/2013/03/28/20130328_C8786_DOC_EN_24898.pdf
SOURCE: CIBC World Markets
Tom Wallis, Communications and Public Affairs at 416-980-4048, [email protected]
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