Canadians likely more cautious than U.S. holiday shoppers

Financial Post, November 14, 2011

Canadians will be more cautious holiday shoppers than their U.S. counterparts this season, while sales at some U.S. retail stores operating in this country are weaker than the stateside division.

Average retail sales in the U.S. are projected to grow 5% in November and December, Sal Guatieri, vice-president and senior economist at BMO Capital markets, said in the firm’s annual holiday sales outlook on Monday. That is down from 5.7% in the same period last year.

In Canada, holidays sales are projected to grow 2.5% in the period, compared with growth of 3.1% a year ago.

“Consumer spending after inflation in Canada has downshifted quite meaningfully form a year ago and is running weaker than the U.S. pace,” Mr. Guatieri said. In real terms Canadian consumer spending is expected to slow to 1.2% for the fourth quarter of the year, down from 3.2% in the fourth quarter of 2010. In the U.S., real consumer spending growth in the fourth quarter is expected to be 1.7%, down from 3% a year ago.

While consumers on both sides of the border are both cautious, analysts said, Americans are spending more on discretionary items, reflecting a pent-up demand, but are still less willing to splurge on big-ticket items.

Like Americans, “we have also built up a lot of debt in the past decade and we are starting to cool our pace of spending to more modest rates and I expect that to continue in the holiday season.”

That means a lot of retailers are offering Canadians unexpected early deals, said apparel market analyst John Morris.

“We are finding the Canadian portions of the businesses in apparel have been below expectations and weak through the period,” a trend that began during the back-to-school period and is expected to continue into the new year, he said. “The Canadian performance in apparel retail has been below commensurate business in the U.S., with retailers such as TJX Cos. (owner of the chains Winners, Home Sense and Marshalls) and Abercrombie & Fitch Co. noting softer than anticipated sales in this country. “Lululemon we expect to continue to perform very well,” he said of the popular Vancouver-based sportswear retailer.

But any caution on the part of consumers might not take too much of a toll on retailers, who have inventory levels 5% to 10% below that of last year due to higher fabric costs and higher labour costs in the far east, Mr. Morris said. “Retailers do not want to be stuck with a lot of carry over goods at the end of the season.”

A popular retail trend this season will see customers getting a gift with their purchases, Mr. Morris said, citing such incentives from retailers including Aeropostale, Victoria’s Secret and Children’s Place.

Toy analyst Gerrick Johnson said real growth in the category, generally considered to be “recession proof,” will be flat, “about as weak as it gets in the toy category.” With low inventories on the retail side, however, it won’t lead to deals; many retailers could be out of stock on popular selling toys well before Christmas, he said.