June 3, 2014 12:07 pm

Canadian retailers expect to slash prices as consumer demand shrinks

Half of Canadian retailers surveyed by an American Express study said they expect to cut prices to better compete this year.

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Half of retailers expect to reduce prices in the months ahead, new survey results show, in a bid to keep Canadian shoppers spending at their stores.

Lower prices could prove necessary to help revive demand across the Canadian economy, which shrank for the first time since 2009 during the first three months of the year.

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American Express said Tuesday a survey it commissioned from Nielsen showed that one in every two of the country’s grocery stores, restaurants, fast food and apparel store owners foresees lower prices.

The sentiment is up from about third of retailers in 2012, the last time the credit card company commissioned the survey.

“Offering sales, promotions and discounts is now the number one strategy to encourage customer loyalty,” the report said, “slightly higher than improving customer service.”

Forty-nine percent of company owners and managers surveyed said they expect to offer lower prices outright as a “key point of differentiation” from rivals.

 

American Express. Canadian Retail Insights Report.

Still, optimism is high among retailers surveyed. Three quarters said the outlook for their industry was good, and 86 per cent said their own business’ prospects were positive.

Nielsen conducted the study by phone with 375 retailers ranging from independent mom-and-pop shops to some of the country’s biggest retail vendors.

READ MORE: Big-name retailers don’t want to come to Canada anymore

Shrinking demand

The survey results were published the same day economists at BMO Nesbitt Burns said demand for goods and services among consumers and businesses across the domestic economy is contracting.

The economy is still growing, but growth slowed through the first three months of the year, Statistics Canada said last week, to an annualized rate of expansion of 1.2 per cent. That’s the slowest level of growth since the final three months of 2012.

“Among the more worrying parts of the weaker-than-expected” reading on gross domestic product (GDP) was the drop in demand among consumers, businesses and governments, Benjamin Reitzes, senior economist at BMO said.

“The drop was the first with the economy not in recession since 1995,” he said.

Growth (or decline) in domestic demand from households, businesses and government. Demand contracted in the through the first three months of 2014. (BMO Economics)

A harsh winter took its toll in the quarter, the BMO economist said. But the reading nevertheless points to a more fundamental shift in the economy.

“It highlights the fact that we need to see better exports – we can’t rely on household consumption, residential construction, which have really been the drivers for the past few years,” Reitzes said.

“That isn’t going to be the case anymore. Households are carrying a lot of debt, and they’re not going to be borrowing and spending. They’re going to be spending what they earned.”

© Shaw Media, 2014

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