Debt-conscious, deal-addicted Canadians a boon for discount department stores: CIBC 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: -- Loyalty Programs: "These types of programs are usually funded by suppliers," notes Mr. Caicco. "Unfortunately, dollars allocated to support these new programs are generally shifted from more focused promotional and pricing programs." -- E-commerce: Retail e-sales are a fraction of the merchandise market in Canada but that could soon change, says Mr. Caicco. Investments by Amazon, Walmart and others could "see sales in e-commerce grow to $50 billion in 10 years," he says. However, with online sales growth, there's the question "about what happens to all that square footage" currently occupied by retailers. -- Real Estate: While commercial real estate space is "growing rapidly in Canada," Mr. Caicco notes that "a large number of Canadian retailers probably have too much space and would happily re-purpose millions of square feet. This certainly opens the door, and gives plenty of options, for multinational merchants or brands looking for an inexpensive foothold in Canada." -- The Loonie: This year's weaker Canadian dollar is increasing purchasing costs on goods bought in U.S. dollars. In a highly competitive market, "it is much more difficult to turn cost increases into price increases," says Mr. Caicco, adding that this will put gross margins under pressure. -- Consolidation: "Eroding margins will cause traditional domestic retailers to consider consolidation," says Mr. Caicco. "Although Canada is already a heavily consolidated market, there are possibilities for more." Possible targets for acquisition are: ethnic grocers and small regional grocers; drugstore operators suffering under the drug reform headwinds; chains of domestic apparel retailers; and retailers sitting on below-market leases. The complete conference notes from Mr. Shenfeld and Mr. Caicco are available at: http://files.newswire.ca/256/CIBCRetailConferenceNotes.pdf. CIBC's wholesale banking business provides a range of integrated credit and capital markets products, and investment banking to clients in key financial markets in North America and around the world. We provide innovative capital solutions and advisory expertise across a wide range of industries as well as top-ranked research for our corporate, government and institutional clients. Tom Wallis, Communications and Public Affairs at 416-980-4048,email@example.com PDF available at: http://stream1.newswire.ca/media/2013/03/28/20130328_C8786_DOC_EN_24898.pdf SOURCE: CIBC World Markets To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/March2013/28/c8786.html CO: Canadian Imperial Bank of Commerce ST: Ontario NI: FIN ECOSURV -0- Mar/28/2013 12:00 GMT
Debt-conscious, deal-addicted Canadians a boon for discount department stores: CIBC
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