Canadian Retailer - Winter 2013 - 28

THE ECONOMY

Anxiety in Canada

If there is one event that brought
the systemic uncertainty pervading
the world economy into clear focus,
it was the U.S. rush towards the socalled “fiscal cliff.”
The “cliff” refers to a series of automatic tax hikes and spending cuts—
costing $600 billion—that would
have come into effect on January 1,
2013 had U.S. politicians not compromised at the eleventh hour.
The wait-and-see December drama
helped to tank retail stocks during
the holidays. In the week leading up
to Christmas, a time when retail is
normally buoyant, Amazon, a barometer of retail performance, lost
nearly 4 per cent ($9.99). The Gap’s
stock price guttered in December,
Abercrombie & Fitch shed value and
other retail stocks took a knock.
Canadians were not immune to
fears about plunging off the fiscal
cliff. When Canadian officials spoke
about the possibilities of another recession arising from failed fiscal cliff
negotiations, they adopted a cautious, wary stance.
“[What was] striking was the increased unwillingness among U.S.
politicians to compromise, to see
their way clear to put good policy in
place that provides support for the
economy,” Paul Ferley, an economist
at RBC says.
Ferley points to the downgrading of
U.S. credit as an indication of the damage that Total War politics in Washington have had on the U.S. economy.
“The downgrade the U.S. recently got
wasn’t so much the size of its deficit
and debt, it was more concern about
dysfunction within Washington,”
he says. “Even with pretty dire fiscal restraint measures, there [didn’t]
seem to be evidence of willingness on
either side to compromise.”
But the gloom will pass eventually.
Already the clouds are breaking, says
Pedro Antunes, a forecaster at the
Conference Board of Canada. Even
though consumer confidence has
been at depressed levels since the
recession, the trend for the last six

28 |

CANADIAN CONSUMER CONFIDENCE

-2.4%

17.4%

Based on surveys conducted in the first
weeks of December, 2012, consumer
confidence dropped by 2.4 points from
the previous month to 77.9.

The share of respondents who said they
expect their financial situation to worsen
over the next six months now stands
at 17.4 per cent, which is 2.8 percentage points higher than last month and
no better than it was one year ago. In
addition, it said the share of respondents
who said they expect their finances to
improve over the same period dropped
0.8 points to 23 per cent.

16.6%
The percentage of respondents who
said they expect more jobs in their area
decreased to 16.6 per cent, while the
share that expect fewer jobs climbed
1.5 points to 21.1 per cent.

17%
When asked if they felt they were better or worse off financially today than
they were six months ago, 17 per cent
of respondents said they were better
off — up 0.4 percentage points from
last month.

39.3%
When asked if they feel that now is a
good or bad time to purchase a car,
home, or other major item, 39.3 per
cent said it is a good time — up from
38.5 per cent in November. 48.7 per
cent answering that now is a bad time
to make a major purchase.

SOURCE: The Conference Board of Canada's index of consumer confidence.

months has been “slightly upward.”
Still, retailers shouldn’t put the
champagne on ice just yet. Canadians are in great shape relative
to other parts of the world, and they
are better off than during the recession, but a challenge lies ahead. That
problem is debt.
In 2010/2011, spending outpaced
income. Canadians carry heavy debt
loads and have mostly ignored saving, producing conditions where consumer spending is unlikely to accelerate, Antunes says.
Differentiation as stimulation

So how should Canadian retailers
respond to the systemic uncertainty
in the market?
“I don’t think hunkering down is
going to cut it in this kind of environment," asserts Maureen Atkinson,
a senior partner at J.C. Williams
Group. “You have to be up there fighting, you have got to be trying things
that are different.”
She points to lululemon as a textbook example of a retailer that figured out what the market wanted
and delivered it. The yoga apparel

canadian retailer | winter 2013 | www.retailcouncil.org/cdnretailer

store differentiated itself by offering
consumers something new. There is
always room in retail—and in most
household budgets—for the new and
the different, she says.
“There is so much ‘me too’ in retail,”
Atkinson advises retailers. “Maybe
you don’t have as much money to
invest in your business, but you sure
need to be doing multi-channelling,
making sure your stores are really
exciting and your product is special.”
Retail has always been a difficult
profession, Atkinson admits, and
while stagnant consumer confidence
puts a drag on retail momentum, larger economic issues will always be
present in some form or another.
“If what you’re doing is waiting for
the economy to change, then I think
you’ve got a problem.”
Balanced business

“Retail across the country is very
fragile,” observes Wynne Powell,
president and CEO of London Drugs.
Although customers are reticent to
spend on discretionary items, the veteran retailer says things are looking up.
“The economy isn’t as negative

http://www.retailcouncil.org/cdnretailer

Canadian Retailer - Winter 2013

Table of Contents for the Digital Edition of Canadian Retailer - Winter 2013