FALLING SALES AND HIGHER VACANCY RATES USHER IN A LEAN SEASON FOR RETAILERS
CAUTIOUS YULE SHOPPERS
FALLING SALES AND HIGHER VACANCY RATES USHER IN A LEAN SEASON FOR RETAILERS
Traditionally, the 11 weeks between Thanksgiving and Christmas are a time when both store owners and their customers are full of cheer. Retailers often ring up half or more of their annual sales during the pre-Christmas rush, selling most of their merchandise at full price. But this year, with the economy crumbling, store owners have little to celebrate. Wilfred Posluns, for one, chairman of one of Canada’s largest retail chains, Toronto-based Dylex Ltd., is candid about today’s harsh selling environment. Although the current recession is just beginning, Posluns—whose company holdings include the Club Monaco fashion chain, Fairweather and Suzy Shier womenswear shops, along with Harry Rosen and Tip Top Tailors menswear stores—predicts that it will be even worse than the 1981-1982 downturn. For Dylex and its competitors, Posluns says, “it’s going to be a fight just to hold even.” Thousands of smaller retailers have already closed their stores. Instead of cheery Christmas decorations, more and more store windows across the country bear the grim signs of recession: banners advertising deep discounts and “For Rent” signs. In a desperate bid to hang on to struggling tenants, many mall owners and developers have slashed rents to almost half the levels that prevailed during the booming late 1980s. And the pain from the slump is spreading far beyond stores and shopping centres.
Last week, after Toronto’s Hudson’s Bay Co. completed its purchase of Towers Department Stores Inc., it told all 375 employees at
Towers’ Toronto head office and 55 in Montreal that they will lose their jobs by Feb. 9. Those layoffs followed an announcement a week earlier by Sears Canada Inc. that it will eliminate up to 900 jobs in Ontario, Quebec and Atlantic Canada. Said one laid-off Towers buyer, who asked not to be identified because he still is unaware of the terms of his severance package: “I feel like Custer at Little Big Horn.”
Most merchants say that they expect conditions to deteriorate in the months ahead. Last week, the Toronto-based chartered accounting firm Deloitte & Touche released its annual Christmas outlook survey of 135 small and large retail chains. Forty-three per cent of them predicted that industry sales would be lower this year than last year, while 35 per cent predicted that sales would stay about the same. And four out of five predicted that the Canadian economy would continue to shrink in 1991.
In part, retailers are paying the price for the strong sales they enjoyed during the late 1980s. As consumers went on a spending spree, average household debt grew by more than 10 per cent a year between 1986 and 1989. Now, many people have curtailed their
spending and are trying to pay down mortgages and a wide variety of other debts.
Says Posluns: “You’ve got a very insecure consumer who has more debt and less savings than he’s ever had before.”
Posluns and other retailers say that the prospect of the seven-per-cent federal Goods and Services Tax is also causing consumers to reduce spending. Only a few months ago, some retailers were predicting a sales spurt before the end of the year as buyers rushed to purchase items— such as clothing—that will be taxed at a higher rate if the GST goes into effect on Jan. 1.
But the sales bubble has failed to materialize. Said Leonard Kubas, a Toronto retailing consultant: “People have stopped spending because they are not sure what is going to happen.”
Another problem for retailers is that the number of stores and shopping centres increased rapidly in many parts of the country during the 1980s, increasing competition. “There are more retailers out there than ever before,” Posluns says.
“They’ve all grown, built up, built new shopping centres.”
In Montreal, for one, four new major downtown shopping centres have opened in the past three years. Said Mark Oppenheim, a Montreal-based partner with Deloitte & Touche: “Montreal is over-stored, especially in the clothing field.”
In fact, the oversupply of vacant store space in many cities is one of the few bright spots for retailers who plan to renew leases or open new stores. The reason: mall owners have slashed rents in order to attract tenants. Seymore Obront, a partner in Toronto-based Snowcap Investments Ltd., which negotiates leases on behalf of 70 national retail clients, says that annual store rents currently average between $20 and $30 per square foot, down from $30 to $40 last year and nearly $50 three years ago. But Obront, whose clients include A&A record stores and Black’s camera stores, cautions that only a small proportion are able to benefit from the glut because most are locked into leases of seven to 10 years.
Fearing hard times, many small retailers, such as Donna Becker, who operates a shoe
outlet in Collingwood, Ont., are trying to reduce inventories. Last month, Becker held a so-called warehouse sale in rented premises behind her store to clear out a backlog of several hundred pairs of shoes. She also told the firm’s 20 employees that they may be laid off for one week each early in the New Year. “I hope we can avoid layoffs,” she added, “but we’ll have to see what happens.”
The timing of the current recession is especially unfortunate for Canada’s major department stores, many of which are still reeling from heavy losses in the 1980s. During that period, department stores lost market share to smaller, more specialized retailers. The 26store, Vancouver-based Woodward’s Ltd. chain, for one, has lost $100 million in the past five years as a result of an unsuccessful attempt to sell designer fashions and other expensive items to wealthier consumers. Woodward’s new president, Hani Zayadi, 42, began trying to reduce losses earlier this year by stocking more modestly priced merchandise. In addition, he ordered the layoffs of 623 employees and slashed other costs.
Toronto-based Hudson’s Bay, which owns the Bay, Simpsons and Zellers department store chains, also faces formidable problems. Buoyed by the success of the budgetpriced Zellers chain, HBC earned $22 million in 1988, its first profit in five years. Analysts say that Zellers will likely continue to prosper during the recession, as consumers purchase cheaper goods.
But some experts say that HBC executives may eventually regret their decision to invest $25 million over the past six years to renovate Simpsons’ flagship store in downtown Toronto. The store is now stocked with high-fashion merchandise designed to attract younger, more affluent shoppers—items that consumers, who are nervous about the recession, may choose to live without. Says 2 Toronto retail analyst John 5 Winter: “Simpsons is the E weak link in that portfolio, 5 and it will become weaker I because of the recession.”
J Even the weather appears to be turning against retailers. Forecasters are predicting lower than average snowfalls in December for southern Ontario, Quebec and Atlantic Canada. “You want a big snowfall to put people in that Bing Crosby kind of mood,” says Winter. This Christmas, however, retailers will almost certainly be dealing with shoppers who feel more like Ebenezer Scrooge.
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