Canadian retailers still cautious
By Michael J. Knell -- Furniture Today, January 9, 2005
Toronto — Coming off what most describe as an average to good 2004, retailers are heading to market here in a cautious frame of mind and with mixed views about prospects in 2005.
Veteran retailers agree the changes seen over the past year or so will come into play at the winter market, with deflation perhaps the critical challenge. Other key factors are Asian imports — closely connected to deflation — and the strengthening Canadian dollar.
"Our industry is facing a very challenging time, and it's coming at us from all sides," said Joe Ramia, president of Gallery One in Halifax, Nova Scotia. "We've had a fair year, so we really can't complain."
"It's been a good, average year," said John De Boer, president of De Boer's, a five-unit contemporary specialist based in Toronto. "It's been another year that just rolled along. But I can't see anything really positive on the horizon."
"We were doing OK until a few months ago, but we're holding our own," said Jim Demers, president of Today's Colonial, a three-unit operation in Ottawa. "We're predicting a moderate increase for next year."
"Business has been very good in 2004," said Bill Tepperman, president of Tepperman's Furniture, a regional chain based in Windsor, Ontario. "But business is going to be very tough in 2005, much tougher than people currently think it's going to be."
"Our business so far has been quite nice, and October was our best month ever," said Dennis Novosel, president of destination store Stoney Creek Furniture in Stoney Creek, Ontario.
"2004 has been a very good year and we're looking for a good 2005," said Mark Dufresne, president of Dufresne Furniture & Appliances, a regional chain based in Winnipeg, Manitoba, with stores throughout western Canada,
Dufresne's positive outlook is based in part on the current record-high oil prices, which drive much of the economy in western Canada, although he said that will be offset somewhat by troubles in the agricultural sector.
Demers points to Ottawa's growing high-tech sector as a positive sign. Others note that a slowdown in housing starts and a wave of industrial layoffs and other bad economic news are likely to distract consumers, even though interest rates remain in their favour.
Others see growth as an offshoot of investment in their business. For example, Stoney Creek is undergoing the largest renovation and expansion in its history, and Novosel expects sales will be driven up accordingly. Also, his Furniture Investment Group, which currently operates two Ashley HomeStores, has enjoyed greater than anticipated growth.
On the matter of deflation, retailers across the country report that sales in dollars range from flat to up in the high single digits, while unit sales are up much more, anywhere from 10% to 30% depending on the market niche.
"We have definitely seen deflation," said Dufresne.
"My biggest concern is deflation," said Ramia. "Almost all of our price points have come down. We're almost at the point where we have to sell twice as much to get the same dollar volume."
"The consumer is certainly benefiting, but the cost of delivery is at an all-time high," De Boer said.
Imports, particularly from China, are driving deflation, with retailers reporting that domestic suppliers are responding by cutting their prices.
Canadian retailers also say they are being courted by Canadian manufacturers who, as recently as a year ago, were focused on developing their U.S. business. Now that the stronger Canadian dollar is making that business harder to get and keep, they're turning their attention homeward.
For retailers, the challenge is to protect margins and ensure they generate sufficient dollars to meet operating costs while producing acceptable profits.
Meanwhile, freight costs in relation to product prices have been increasing, sometimes substantially. For example, Novosel points out a container of leather upholstery from China can be bought for as little as US$15,000, but it costs US$6,000 or more to ship it across the Pacific.
"This means that we're sometimes facing a 50% freight factor, and a lot of retailers haven't caught on to that yet," he said. "There's no doubt that customers are getting great deals, but in a lot of ways it's hurting us."
For retailers at market here, the question isn't simply what to buy, but who to buy it from. Regardless of the price niche they occupy, they say their priority is to strike a balance between the consumer-friendly values offered by imports and the more profitable margins delivered by better-quality domestic goods.
"We want to align with Canadian manufacturers that have the anti-China factor figured out," Dufresne said. "We are going to look for a balance; we can't go 100% either way. There are advantages to having custom content and quick delivery. There are also advantages in the values coming out of Asia."
Most retailers say their demands of Canadian and U.S. manufacturers will be focused on areas other than price. Quick delivery, custom orders and unique looks are at the top of the list.
"We have to be on the lookout for things that are different, and we're telling manufacturers that if they want to do business with us, they have to have fast delivery," Ramia said.
Tepperman pointed out the industry has gone through many periods of change and upheaval. He said it's time for back-to-basics retailing.
"You either have the stomach for competition or you don't," Tepperman said. "We have to continue to do what we do best. We always have these ups and downs. What you do in the downs is build for the ups."
Stony Creek's Novosel said this isn't the time for retailers to be passive. "If you're not out there promoting, you're not getting the business, even if you're sitting next door to someone who is promoting," he said. "We're going into 2005 with a positive attitude."
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