BUSINESS

HOLIDAY HUMBUG

JENNIFER WELLS December 25 1995
BUSINESS

HOLIDAY HUMBUG

JENNIFER WELLS December 25 1995

HOLIDAY HUMBUG

BUSINESS

Cautious consumers and slim profit margins add up to a chilly retail season

JENNIFER WELLS

So the weather was lousy. That can't excuse all of what happened at Creative Craft Fairs in Victoria in mid-November. Creative Craft is one of the major Christmas crafts buying events on Vancouver Island, held annually for 18 years. Judy Moody was there as usual, selling her clay jewelry, which she markets under her company name, The Driven Woman. Sadly, consumers were far less driven than the crafts’ creator. Moody’s daily sales, at $500, were exactly half of what she made last year. And it was not just Moody. Other retailers were down, too. Still, it could have been worse, which it was when she attended a wholesale craft show in Toronto. “I damn near died there,” says Moody. “I made my booth and my expenses.” It seems unlikely that this has anything to do with the popularity of what Moody makes—she successfully sells her wares in the National Gallery in Ottawa—but rather with cautious consumerism. “People come up, they love it, they don’t open their wallets.”

Moody’s complaint has become a nationwide retailers’ lament this Christmas. Anecdotal reports of a dismal season abound, with retailers banking on a windfall during that final pre-Christmas weekend, or, failing that, an explosive Boxing week. “The fact of the matter is, it’s a lousy Christmas,” says retail analyst George Hartman of James Capel Canada Inc., a brokerage in Toronto. “Everyone I’m talking to is having a tough time.”

When Konrad Hoenig, sales manager at Artimonde Trading Inc. in Montreal, talks to retailers he hears of sales dropping by 20 to 30 per cent over last year. When John St. Onge, who manages the 225-store Sherway Gardens shopping mall in Toronto, phones the mall’s retailers at random, he hears of sales decreases of 10 to 12 per cent. “People,” he says, “seem to be tapped out.”

And emotionally drained. This was, after all, a grim year for workers. The latest round of job cuts has been aimed at the public sector, where more than 110,000 direct government employees lost their jobs over a 12-month period to November. Job anxiety is also rife, particularly in Ontario, as more than 11,000 civil servants wait to hear who will get the axe. Those who are confident of hanging on to their jobs cannot be cheered by Conference Board of Canada predictions that unionized workers will see an average 1.4-per-cent pay increase in 1996. Non-unionized employees will not fare much better, with anticipated average increases of 2.4 per cent.

Those figures seem skinny reward for the great strides in corporate profits—increases of 80 per cent, 46 per cent and 21 per cent, respectively, in the first three quarters of 1995. “There are two realities,” says Andrew Jackson, senior economist with the Canadian Labour Congress in Ottawa. “A major restructuring in the public sector, which has created a public sector recession, twinned with no real income growth and no real job growth in the private sector.” Retail gets hit because, as Jackson says, that sector mirrors society as a whole.

Retailers have had enough bad news to deal with over the past halfdozen years. Sales fell off a cliff after 1989, and in the recessionary aftermath Canadian retail companies have had to deal with the incursion of all manner of U.S. stores, from specialty to so-called big-box discounters. John Williams, a Toronto retail consultant, says the retail picture has not been unrelievedly grim. He says there has been steady growth since 1991, though retail has seemed a relative orphan in an export-driven economy. George Hartman is much more pessimistic. He thinks a high percentage of Canadian retailers will be felled yet—perhaps as high as 33 per cent by the year 2000.

That seems an astonishing number, particularly given the moves the retail survivors have made to rein in expansion plans, restructure, or even seek bankruptcy protection. As the smartest Canadian retailers benchmarked themselves against a higher standard of excellence— and as the economy, if slowly, pulled itself out of recession—the news improved. Retail sales were up 6.8 per cent in 1994, after stripping out inflation. There had been expectations that 1995 would repeat that performance. Instead, says retail consultant Len Kubas, there has been a definite softening over 1994. He thinks British Columbia and Alberta are nevertheless poised to see a three-to-fiveper-cent improvement over last year, though it will be months yet before the hard data are in. There is no question, he says, that Ontario, which accounts for 40 per cent of the $225-billion retail market, and Quebec are apprehensive.

Amidst all of this has been a whacking increase in consumer debt. In the third quarter of this year, debt as a percentage of personal disposable income hit 89 per cent. That, says Aron Gampel, economist at Scotiabank in Toronto, is a historic high, 34 per cent higher than a decade ago. For the past five years, instead of paying down debt, Canadians have been rolling it into lower-cost loans.

The brightest news for consumers is not good news at all for retailers—shops are discounting goods earlier and deeper than ever before. Retailers across the country are doing it, says Kubas, and there are bargains to be had. Hefty price reductions translate into squeezed profit margins. Nance MacDonald, general manager of the Square One shopping centre in Mississauga, cites mid-December discounts of 65 or even 75 per cent. “I don’t know how much lower they can go,” she says. Big stores might carve profits from what is left on the basis of large volume. Small stores cannot.

It is the high-volume companies that have recast Canadian shopping, from big-box players such as Price/Costco to so-called category killers like Computer City and Sportmart, Inc. In what locals call the GTA—the Greater Toronto Area— more than a half-million square feet of shopping space has opened this year in the sporting goods and athletic footwear segment alone. On Nov. 30, Calgary’s Forzani Group Ltd. opened a 35,000square-foot Sport Chek store just outside MacDonald’s Square One. The place throbs, nonstop, with hip-hop music and features two batting cages and a basketball court—for trying out those Nike Air Tenacities, on sale now for $89.99, and for playing a little three-on-three. The Forzani group has opened 25 Sport Chek stores in the past two years, including Moncton, N.B., and Halifax and one in Vancouver with a putting green and tennis practice board. This is the new age of retail—for the moment.

Kubas wonders whether the market can support all the action. The answer: unlikely. There is no doubt consumers will benefit from the competition in the interim. They already have in computers and software—a sector that is still, according to Kubas, moving nicely this year. Toys, however, are having a tough time, says Kubas. No single toy is blisteringly hot this year, and computers have supplanted much of the action for any child above the age of three. Apparel remains in the doldrums, while some bookstores have started discounting bestsellers, as is the policy of the nascent Chapters Inc. bookstore chain, which has moved into Burlington, Ont., and Burnaby, B.C. Consumers have become educated. They know their price points.

At the opposite end of the spectrum from the discounters are niche luxury markets. In addition to the tidal wave of profits that sloshed over corporate Canada, it was a very good year for Bay Street Bob Landau, president of Winston & Holmes Ltd., says there is money around. Winston & Holmes is a cigar-cum-writing-goods-cum-shaving-equipment emporium in Toronto. Landau is currently planning the move of his Yorkville shop to a large spot across the promenade, one that can accommodate a 500-square-foot smoking room, where one may enjoy a $50 double corona Regal Conocedores, “the Rolls Royce” of cigars, as Landau calls it “People are pampering themselves,” he says. “It’s a renaissance back to the good old days.” They are heading for service, too. Glenn Wideman’s eponymous leather goods shop in Square One is experiencing its best holiday season ever. Among Wideman’s more popular items are hand-stained leather Bosca briefcases that sell for $575. And he has no trouble selling them. Either Wideman or his wife, Mary, is in the shop every day, seven days a week. They issue their own currency, giving 10 per cent back on every purchase in Wideman money, which helps ensure a continuity of customers. ‘Two guys have $1,000 in our money,” says Wideman, which is a handsome payback on $10,000 worth of purchases. The Widemans have plenty of corporate customers. And they rarely put anything on sale. ‘We don’t want that customer,” says Wideman.

Andrew Jackson feels an increasing polar pull between the haves and the have-nots. He says that 1995 was “a pretty bad year for people,” and 1996, he fears, looks no better. The good news? Well, PNC Bank, run by Pittsburgh National Corp. in Philadelphia, reports that the “Twelve Days of Christmas Index” took a big tumble this year. PNC totted up the cost of the proverbial dozen and found that while the cost of eight minimum-wage milkmaids was unchanged at $34 (U.S.), and those lords-aleaping went up in price, trumpeter swans could be had cheap. The final tab in 1994: $15,944.20. For this Christmas? $12,481.65. In U.S. dollars, of course.

SPIRIT OF THE SEASON

Q: This Christmas, do you plan to spend more, less or the same as last year? More 15% The same 49 Less 29 Unsure/Do not celebrate Christmas 7

Q: How much do you plan to spend on gifts for your spouse!partner?* Under$25 $26 to $50 $51 to $75 $76 to $100 Over $100

*Percentages exclude respondents who are unattached or do not celebrate Christmas. Source: Angus Reid poll of 1,506 Canadian adults, Nov. 20 to 26