Canada 1Q furniture store sales tumble
By Michael J. Knell -- Furniture Today, September 18, 2005
Ottawa — Sales at Canadian furniture stores fell 19.9% in 2005's first quarter to C$1.9 billion from C$2.4 billion in last year's comparable period, according to preliminary data from Statistics Canada.
The first quarter drop came after fairly good growth in 2004, when furniture store sales rose 7.4% to C$8.5 billion, compared to 2003's C$7.9 billion.
In addition to furniture and bedding, the sales figures include other products such as appliances, electronics, decorative accessories and floor coverings, but are net of sales taxes, which average 15% nationally. The figures also do not include furniture sales by department stores such as The Bay or by mass merchants and discounters such as Zellers and Wal-Mart.
Industry observers estimate that sales of appliances and electronics account for about 30% of volume for furniture stores.
Statistics Canada also reported that indoor furniture sales for a select group of large retailers grew 11.3% in 2004 to C$2.7 billion, compared to 2003's C$2.4 billion. The group includes Hudson's Bay Co., Sears Canada, Wal-Mart, Costco, Ikea, Today's Colonial (a regional chain based in Ottawa), BMTC, Leon's Furniture and The Brick. The latter four also are included in furniture store sales data.
Whither the second half?
Most retail executives said their businesses performed reasonably well in the first half. Some believe things will improve somewhat in the second half, but others expect more of the same. Many note that consumer behavior has been erratic recently and consumer confidence may not be as strong as it seems.
"Business is tough; it's not coming easily," said Ed Leon Jr., vice president of merchandising for Toronto-based chain Leon's.
Bill Tepperman, president of five-store Tepperman's Furniture in Windsor, Ontario, described business as "going up and down like a yo-yo. It's just really frustrating because there are no discernable trends. Things change from week to week. We were up in the first half because we became very aggressive, so in many ways these are not bad times."
At Edmonton, Alberta-based The Brick Group, this country's largest furniture and bedding retailer, Vice President Colin Donnelly said, "The first half was a little more challenging than it has been in the previous three years, but we're very positive about the second half. There's a little pent-up demand and there's a switch out there somewhere and all we have to do is find it."
"The first quarter was strong and the second quarter was a little waffling," said Bruce Watton, national merchandising manager/furniture at Sears Canada. "It's going to be tough the rest of the year. I hear a different analysis of the consumer's behaviour every week, so it becomes difficult to follow."
"It seems to be challenging at retail for most of our members," said Rob Alexander, vice president of merchandising for Mega Group, the big buying group. "Overall, we're performing pretty close to flat."
While there are some strong regions, notably Alberta and parts of Atlantic Canada, troubles in the auto industry have helped make Ontario's economy soft, and The Brick's entry into Quebec has changed the dynamics for independent retailers in that province.
Most indicators favorable
Most of the key economic indicators remain in the industry's favor, particularly housing starts and resales and mortgage interest rates, although there seems to be growing concern in Canada's financial community that interest rates will rise and growth in the housing market will moderate.
According to Stefan Wille, president of Aktrin Furniture Information Center, the Canadian residential housing market is becoming saturated and demand is waning. After advancing 8.4% in value in 2004, he's estimating a growth rate of only 3.1% in 2005, which will drop even lower in 2006 if mortgage rates continue to climb.
"In unit terms, this represents a drop from 232,000 units (of housing starts) in 2004 to about 215,000 this year and less than 200,000 next year," Wille said.
Meanwhile, the Canadian Real Estate Assn. is forecasting that home resales will slide 3.2% in 2005 to 446,500 units, down from the record-setting 461,098 units sold last year.
On the positive side, Wille pointed out that personal income has continued to grow over the past couple of years, although he anticipates the rate of growth will moderate this year, as will consumer expenditures on durable goods.
"The Canadian furniture market (at retail prices) has been ploughing ahead without interruption since the third quarter of 2002," Wille said. "Last year's market size stood at C$9.6 billion (including sales taxes), up 8.2% from C$8.8 billion the year before. However, parallel to the retreating residential housing construction, growth this year will be somewhat slow at an anticipated rate of 7.6%. If this materializes, the market value would surpass the C$10 billion mark for the first time in 2005, culminating at C$10.3 billion."
Retail executives concur that generating growth won't be easy, particularly in a world where price deflation, particularly in categories such as leather upholstery and bedroom, meets rapidly changing consumer expectations.
The strategies employed by major retailers vary but share a common goal: to broaden their existing customer base by appealing to different demographics.
Sears Canada aggressively has been introducing direct imports into its offerings in recent months. This has driven average ticket prices down considerably, but it's also giving the multi-channel merchant an entirely new consumer group.
"We're now into price points that consumers haven't seen in a Sears Home store before," said Watton. While there have been serious issues to overcome, particularly in quality and inventory control, the imports initiative is starting to pay off.
"We're moderately happy with what we've seen so far and are confident it'll get better," he said, adding the company has lost none of its core better and best business. "All we've done is fill out our price point offerings; our middle and high-priced goods are still moving quite well." Watton said.
Meanwhile, Leon's has been varying its assortment to attract younger consumers. "We've been consciously trying to go after a younger demographic," Leon said. "We've tweaked our buying to appeal to a younger crowd." This mostly means adding more contemporary product to the promoter's typically more traditional lineup.
Leon's also is expanding its price points, moving into the higher brackets. Leon noted that a few years ago the chain may have had 10 bedrooms under C$1,000, but that's down to five or six today, with the vacant slots allotted to higher price points. "We have re-merchandised our stores somewhat," he said. "And our customers are buying up."
Aggressive planning
Looking to the second half, retailers are concerned that interest rates will rise. "That would definitely impact us," Leon said.
The key will be to keep working for business.
"You just have to plan to be aggressive," said Tepperman. "You have to keep controlling your expenses, controlling your inventory. If your game plan has been good, if your product sourcing strategy has been good, if your promotions have been working, then now isn't the time to make big changes."
"The Canadian economy is good; that just means we have to work a little harder," said The Brick's Donnelly. "The guys who come up with the strongest campaigns and the best offers are going to do well."
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Canada 1Q furniture store sales tumble
Sep 20, 2005
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