Optimism mixed with caution
Canadian merchants sharpen focus to counter downturn
By Michael J. Knell -- Furniture Today, December 29, 2002
Canadian retailers are cautiously optimistic about 2003. They're optimistic about their own businesses while concerned about world and economic events over which they have no control.
The discovery of another Enron-type scandal, the suffering of another terrorist attack or an American declaration of war may be enough to convince the consumer to hide whatever disposal income she has under her mattress. This would sap the remaining strength out of the Canadian economy.
Economic booms are driven by two factors: consumer spending and business investment. Because business investment has taken a nosedive since the dot-com bubble burst almost three years ago, that has left consumer spending to hold up the economy. And consumer confidence is a shaky thing at best.
"Our crystal ball is a little foggy but we're going in to 2003 with an upbeat attitude," said Mark Dufresne, CEO of the Winnipeg, Manitoba-based Dufresne Furniture & Appliances. "We just don't know how the consumer is going to react to a war in Iraq or another terrorist attack. There are a lot of unknowns right now."
Getting more aggressive
"It's not easy to predict what next year is going to be like," agreed Willie Poitras, executive vice president of the Montreal-based BMTC Group, Quebec's largest furniture retailer. "There are lots of things we don't control.
"But we're not going to change anything. We're going to be aggressive, we're going to advertise heavily and we're going to move forward."
The important domestic economic indicators would seem to support this charge-ahead attitude.
Record low mortgage rates continue to drive a red-hot housing market, even though growth in personal income has been sluggish over the past couple of years, according to Stefan Wille, president of the Aktrin Furniture Information Centre, a private industry think-tank based in Oakville, Ontario.
"In fact, the first quarter of 2002 saw the highest levels of new residential construction in many years, reaching 204,000 units on an annualized basis," Wille said. "No doubt, this will prove a welcome stimulus to the forthcoming demand for residential furniture."
While this pace slowed somewhat as the year progressed, by the end of 2002, some 190,000 new housing units will have been started, up significantly from 2001 and 2000. However, the outlook is for slower growth in 2003.
Tighter purse strings
Consumers are increasingly reacting to the economic realities by scaling down their expenditures, Wille said. "After growing at a rate of 3.7% in 2000, consumer spending slowed to 2.6% last year. We believe that this same rate will again prevail this year and next.
"Durable consumer goods are very interest-rate sensitive and their historically low rates have helped to keep sales at a fairly healthy level. The growth rate (for durables) of 7% in 2001 will likely be surpassed this year with an anticipated clip of 9.1%."
However, Wille anticipates growth in consumer spending on household furniture will be less than 5% in 2003.
Many retail executives believe people who bought homes in late 2001 and throughout 2002 will be ready to buy furniture in 2003. This will generate a healthy growth rate but won't set any new sales records.
"When consumers buy a home, especially in cities like Toronto, they often can't afford to buy furniture right away," said Alixe MacRae, divisional merchandise manager/furniture and appliances for The Bay. "People who moved into their new homes eight to twelve months ago are starting to get to the point where they want their homes to look a lot better.
"They've purchased their 'have to haves' — such as appliances and lawn mowers — and they'll be wanting to buy their 'want to haves' pretty soon."
But satisfying this pent-up demand won't be enough to ensure profitability.
Improving efficiencies
"We're also concentrating on improving our operational efficiencies," said Melanie Kau, president of Mobilia Group, a regional chain with stores in Montreal, Ottawa and Toronto that has been investing heavily in IT systems over the past 18 months. "We're now beginning to see the payback from these efforts to manage our customer base more efficiently."
Even though the case can be made that 2003 should be a year to save for a rainy day, most retail execs say they will continue to invest in their business.
"When you're only getting 2.5% at the bank or negative growth in the market, where better to invest than in your own business?" asked Terry Leon, president and CEO of Leon's Furniture, the Toronto-based national chain. "We're plowing ahead with our investments."
Leon's has launched a campaign that will see the addition of 18 stores over the next five years. "Thanks to our strong financial position we'll be spending more money next year than we ever have before," Leon said. "You have to remember that the economy is basically sound."
Dennis Novosel, president of Stoney Creek Furniture in Stoney Creek, Ontario, is also seeing 2003 as a year to invest.
"We are planning to do the Stoney Creek Furniture expansion next year," he said, "And we're planning to add another 80,000 square feet to our Design Centre, space which should be occupied next fall. So at Stoney Creek, we're looking at 2003 as a banner year."
A proactive stance
But Novosel cautions that business will only go to those retailers who are prepared to fight for it. For example, it's not a year to cut back on advertising budgets, he said. "If you're going to go out after the business, you're going to get it, but if all you do is tighten your belt, you're going to have a down year."
Others also are building. Mobilia has just opened its tenth store in the Montreal suburb of St-Hubert. It will relocate its downtown Montreal store into larger quarters in early January and is planning a new store for Burlington, Ontario, later in the year.
"We're going to be aggressive and we have a positive outlook even though we think the market is going to be somewhat tighter next year," Kau said.
Dufresne, meanwhile, will build a second Palliser Rooms store in Calgary, Alberta, next year, further expanding its presence in that city, while BMTC will relocate and expand at least one Brault et Martineau store next year.
These execs all agree it's counterproductive to worry about that over which you have no control.
"People are going to have to work for every customer and for every sale," Leon noted. "The years from 1996 to 2001 were relatively better years for a lot of organizations, including ours. I don't think we'll see the economy turn bad enough for that to change."
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