A “prosperous decade” for Canadian retailers is drawing to a close this year, and in its place comes a period defined by a word businesses generally don’t like: “Disruption.”
After a record run of debt accumulation and retail spending, Canadians are getting frugal, economists say. Combined with the arrival of U.S. department store powerhouse Target, the pressure will be felt far and wide across the retail sector, CIBC says in a report released Thursday.
Spending grew just 2.5 per cent last year, the second year of a slowdown and half the clip seen in 2010 “when households were much more eager to borrow at low rates to finance their shopping spree,” the bank said.
While mid- to higher-end stores like Canadian Tire and Hudson’s Bay Co. have thrived in the low-interest, easy credit environment that’s typified the retail scene in recent years, it is discount department stores like Target who are best positioned to suit the new needs of spendthrift shoppers, the report suggests.
“In that climate, discount stores will continue to grab market share, particularly given the entry of a major U.S.-based player this year,” Avery Shenfeld, CIBC’s chief economist said in note prepared for an investor conference held on Thursday.
But it won’t be a cakewalk for Target either. Fierce competition is anticipated from discount rivals like giant Wal-Mart Canada, while Canadian Tire, Hudson’s Bay and even grocers like Loblaw will take measures to better compete like boosting loyalty programs, consolidated real estate, enhancing e-commerce, and – not least – drop prices.
Minneapolis-based Target, which has opened 20 stores in Ontario this month and plans to unveil dozens more across the country, is providing the first real jolt of competition to the market since Wal-Mart entered Canada two decades ago.
But CIBC said that other foreign retailers may be enticed to the party, including high-end U.S. retailer Nordstrom and international “specialty retailers.”
The intensifying market place could result in further consolidation, CIBC said, notably among ethnic grocery chains or regional grocers as well drugstores.
“It has been a largely peaceful and prosperous decade for Canadian retailers. But that type of environment inevitably invites disruption,” Caicco said. “Disruption has certainly arrived.”
Other predictions from CIBC:
- The “rising power of Asian and South Asian consumers” will see the expansion of large-format ethnic grocery stores. The groups are expected to account for 70 per cent of retail spending growth over the next decade.
- A weakening Loonie means purchasing costs will be higher for retailers, but in a competitive environment, they will have to absorb more of the burden instead of passing on to shoppers.
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