COVER

SURVIVING THE STAMPEDE

RETAILERS FACE THEIR TOUGHEST DECADE EVER

BARBARA WICKENS April 29 1991
COVER

SURVIVING THE STAMPEDE

RETAILERS FACE THEIR TOUGHEST DECADE EVER

BARBARA WICKENS April 29 1991

SURVIVING THE STAMPEDE

COVER

RETAILERS FACE THEIR TOUGHEST DECADE EVER

When Lynn Posluns became president of Fairweather in September, 1989, she took over a 135-store womenswear chain that she says was badly out of touch with its intended customers. In its heyday during the early 1970s, Fairweather, a division of Toronto-based Dylex Ltd., catered to baby boomers who were then in their teens. But as that generation grew up, Fairweather kept its focus on the dwindling teen market. “The stores were tacky,” said Posluns, 32. “I didn’t want to shop there.” One of her first steps was to conduct so-called psychographic studies, which extend demographics by looking at the psychological profile of potential customers as well as

such standard data as age and income. Posluns used that information to introduce sweeping changes. Fairweather stores began selling lingerie, the fastest-growing segment of the North American womenswear market. Posluns also experimented with sales promotions by offering, in one case, to sell a $45 tote bag for $20 with each $75 purchase of other merchandise. Said Posluns: “I borrowed that from the cosmetics companies, who never have sales but always do well. Hey, I’ll get help wherever I can.”

Increase: Posluns’ approach appears to be working. The Fairweather chain reported a nine-per-cent increase in sales over 1989. Indeed, analysts say that Posluns has taken much

of the action that other Canadian retailers must emulate in order to survive what is shaping up to be a difficult decade. The year-old recession and the introduction of the seven-per-cent Goods and Services Tax on Jan. 1 have shaken consumer confidence and have driven many Canadians to shop in the United States. The tough economic climate arrived at a time when other changes, including a rapid increase in the number of retail outlets in Canada, were already exerting pressure on retailers’ profits.

Many shoppers are spending less in Canada either because they have found American alternatives, run out of money—or run out of things to buy. Retailers say that the slowdown is most noticeable among the baby boomers,

who provided the engine that drove the conspicuous consumption frenzy of the 1980s. Said Leonard Kubas, a Toronto retail marketing consultant: “We are seeing a fundamental restructuring of the retail marketplace.”

Still, many Canadian retailers say that their most visible problem is the U.S. competition. And, increasingly, that competition is emerging from within Canada’s own borders. A growing number of U.S. businesses, from the Paramus, N.J.-based Toys “R” Us chain to the San Franciscobased The Gap clothing stores, have set up shop in recent years in Canada. Analysts say that the size and competitiveness of the U.S. market gives any retailer who thrives there a major edge in Canada. Said Alasdair McKichan, president of the Retail Council of Canada: “Canadian retailers are lookz ing at a whole new level of

1 competition. The Americans

2 coming to Canada are among g the best merchants in the I world.”

“ Disaster: Canadian stores £ face other challenges as well, g The recession and the introeo duction of the GST combined to make last winter one of the worst in recent decades for retailers. Statistics Canada reported that sales at supermarkets, clothing stores and other retail outlets tumbled to $14.7 billion in January, down from $15.9 billion in December—a 7.6-per-cent drop. That was much steeper than the usual postChristmas decline in sales and the largest monthly drop since 1972, when the federal agency began to keep track of retail sales. Then, in February, department-store sales alone fell by nine per cent to $705 million from $775 million in January. “The first quarter is always bad, but this is not bad, this is a disaster,” said John Winter, president of John Winter Associates Ltd., a Toronto-based retail consulting firm.

Other fundamental changes have combined to hammer retailers. Throughout the heady years of the 1980s, developers built stores and malls at a record pace. There are now 50 per cent more retail outlets in Canada than there were during the last recession in 1981 and 1982. Indeed, at least one mall manager says that the Toronto area is the most overserved retail market in North America. John St. Onge, vice-president and general manager of Rouse Service (Canada) Ltd., a subsidiary of Columbia, Md.-based Rouse Co., said that the Toronto area has 15 square feet of regional mall space per capita, while other major centres have about 10 square feet per person.

But with more stores there are fewer shoppers. Angela Joyce, an investment analyst with Toronto-based Burns Fry Ltd., said that the ratio of Canadian consumers’ average total debt to income is now more than 70 per cent. That is the highest rate ever. Even during the last recession, the ratio of consumer debt to income was just over 50 per cent. Joyce said that consumers cannot lead an economic recovery until they have reduced their debts and interest payments and started to save again. She added: “If we don’t get the cleansing of debt, the economy will continue to limp along.”

Other analysts say that even if baby boomers reduce their debt, they may not spend nearly as freely as before. That is because their median

age is now 32, while the oldest of them are in their 40s, an age at which most people have bought and furnished their first house. Said Kubas: “The real driver of the economy is household formation.”

Despite the drawbacks, a growing number of U.S. retailers have decided that there are profits to be made in Canada. Talbots Inc., for one, a 196-store womens wear chain based in Hingham, Mass., announced on March 9 that it will open three stores in Toronto in September. Said Arnold Zetcher, president of the company that entered the limelight when Barbara Bush became known as a regular customer: “We are in this for the long haul.” Zetcher added that Talbots first considered opening in

Toronto when computer tracking of customers’ zip codes showed that many customers in the Buffalo, N.Y., store had Canadian postal codes. He added that follow-up focus groups confirmed that there was a market for Talbots’ classic New England styles in Toronto.

Survivors: Still, Canadian retailers like Posluns say that they are determined to be among the survivors. In addition to trying to attract older, more affluent customers, she has introduced cost-control measures like computerized inventory tracking. Indeed, her father, Wilfred Posluns, Dylex’s chairman, told Maclean’s that he would be instituting many of his daughter’s innovations to try to pull the rest of the stores in the Dylex fold out of the doldrums by 19921993. Dylex is one of Canada’s largest retail chains, with more than 1,500 stores ranging from the Bi-Way budget stores to the upscale Harry Rosen menswear stores. Said Wilfred Posluns: “Lynn paved the way. What she learned is transferable.”

Some smaller retailers have also been able to compete successfully. Their owners say that the keys to surviving are specialization and attention to service. In April, Elisa Kowalczyk celebrated the second anniversary of Techno-Kids, a store that specializes in science kits, educational toys and nature books. The 39-year-old Vancouver entrepreneur said that cross-border shopping has had almost no effect on Techno-Kids, even though it is located in White Rock, B.C., just 10 km north of the Washington state-British Columbia border. She added: “We are a specialty store, and there is not a similar store immediately south of the border. We actually have people coming up from northern Washington to shop here.” She acknowledged that the GST has hurt sales, but added: “You really have to build up your clientele and give your customers good service. If you don’t follow those criteria, you will probably go under regardless of where you are.”

Ultimately, American competition may be an incentive to some Canadian retailers to increase their competitiveness. For his part, Michael Pearce, who teaches retailing and consumer marketing at the University of Western Ontario in London, said that cross-border shopping is only one symptom of what is wrong with Canadian industry. “If we all said that the factory mall across the border was causing all our problems, we would all miss the point,” he added. “People are coming to grips with the fact that they have spent too much for too long.” The retail council’s McKichan agreed that Canadian retail sales will continue to take a beating. Said McKichan: “The real underlying problem is a combination of too much space chasing too little disposable income. As well, the retail cost base is too high in relation to that in the United States.” Clearly, Canadian consumers are going to continue to shop wherever retailers are most competitive, regardless of the store owner’s nationality.

BARBARA WICKENS with HAL QUINN in Vancouver

HAL QUINN