Modest Growth Forecast
Retailers Still Grappling with Tough Economy
Michael Knell -- Furniture Today, January 13, 2011
TORONTO - This will not be a stellar growth year for Canadian furniture and home furnishings retailers.
That is the painful truth as this country's only national industry event opens for its annual four-day run this weekend at the International Centre here. But it is not necessarily cause for despair, as most observers are forecasting modest growth in 2011 even though consumers will continue to grapple with a number of serious economic concerns.
While furniture stores - the primary clientele of exhibitors at the Canadian Home Furnishings Market (TCHFM) - saw modest sales growth last year, these merchants are still stuck in a slump that is driven mainly by forces beyond their control. These forces include a shaky job market, high household debt levels, little real growth in disposable income, tight credit and a probable upswing in interest rates come mid-year.
According to Statistics Canada, furniture store sales for the first three quarters of 2010 were just under C$7.02 billion, up a scant 2% from sales in the comparable period of 2009 and still 7% below the pre-recession record for the period of C$7.6 billion set in 2008.
October was the best month furniture stores had in 2010, when sales hit C$851 million, although the total was off from the C$862.2 million rung up in October 2009.
In recent weeks, estimates and forecasts of furniture store sales have been cut back for 2010 and 2011.
Ed Strapagiel, executive vice president of retail consulting firm KubasPrimedia, noted that the pace of growth for all retailers slowed considerably during the third quarter after a fairly brisk first half. KubasPrimedia is now estimating that Canadian furniture stores ended 2010 with sales of C$9.7 billion, a 2.3% gain over C$9.5 billion for 2009. Previously, the firm had been forecasting that 2010 growth would be 4.1%.
Furniture store sales are now forecast to gain 3.8% to C$10.1 billion in 2011, adjusted from the prior forecast of C$10.2 billion, which would have brought these merchants back to the peak they set in 2008. It is now clear that furniture stores won't return to their pre-recession peak until 2012 at the earliest.
TCHFM's other primary retail constituency - home furnishings stores - have continued to lose ground despite what is described by most Canadian economists as a year of modest recovery. Year-to-date sales at the end of September were C$3.81 billion, down 3% from the comparable period in 2009 and 13% off the pace set in 2008.
KubasPrimedia also revised its 2010 estimate for home furnishings stores downwards to C$5.2 billion from the previously anticipated C$5.8 billion, representing a year-over-year gain of 4.9% from the C$5 billion rung up in 2009.
In 2011, these merchants should see sales of $5.5 billion, up 5.9%. This is still well below the pre-recession peak of $6.1 billion set in 2008.
While the big sales picture and forecast looks weak, the retailers who will be attending the market say their businesses are in pretty good shape as key performance benchmarks continue to trend toward the positive.
For example, a report published in early 2010 by Industry Canada in collaboration with the Retail Council of Canada noted, "Although retail sales have decreased during the economic downturn, the sector has remained consistently profitable in part due to better control of global sourcing activities and responsiveness to changes in consumer demand."
After declaring a loss in 2008, The Brick Group returned to profitability in mid-2009 and has been in the black every quarter since then. The two other publicly held chains - Leon's Furniture and BMTC Group, the operators of Brault & Martineau and Ameublements Tanguay in Quebec - have been consistently profitable despite pressures on top line sales.
Most industry insiders believe the majority of privately held furniture retailers in Canada - be they singlestore independents or small regional chains - are profitable and probably meet the retail sector's overall average 3% operating profit margin. This can best be attributed to influence of the four major Canadian buying groups, all of which stress the need to achieve cost efficiencies in everything from product acquisition to store operations.
For the 320 or so exhibitors taking part in the Toronto market this weekend, the really big question is whether those retailers walking the halls will have an open-to-buy. The short answer is yes, they will, but it won't be all that big.
Buying group members - who are by far the largest single bloc of attendees - are going buy defensively and probably won't stray too far from the merchandising and promotion plans they'll be briefed on during their pre-market meetings Thursday and Friday. The buyers for the majors have already locked in their programs for the first half of 2011 and probably can't be tempted to veer off course.
Most buying group executives say their members saw growth in the first half, while business in the second half was more sporadic. They also see 2011 as a challenging year for their members.
Canadian retail sales forecast
Home furnishings stores1
1. Furniture stores are defined as retailers with more than 51% of their sales consisting of furniture and mattresses, such as The Brick or Stoney Creek Furniture. Home furnishings stores have a lower percentage of furniture sales and also sell other home goods, such as Pier 1 Imports or Bombay Company Canada.
"No one is forecasting a quick return from the downturn, so we will be working diligently with our members to provide them with advantages in their product and services selection," said Pat Kelly, director of furniture networks and retail programs for Cantrex. "There is a feeling of optimism and confidence for growth in 2011 but it will take effort and hard work to get there."
Mega Group is forecasting same-store sales growth of about 3% in 2011, but Michael Vancura, executive vice president of retail, said he believes it won't be an easy mark to hit. "Given the price erosion, particularly in bedding and appliances, it's going to be a lot of work to achieve that growth," he said.
"Our outlook for 2011 is conservative with a 3.5% increase in sales," said Home Furniture's general manager, Bruce Hammer. "Our forecast is to increase profits through sales training and better inventory management by our dealers."
"Same-store sales will see modest growth in 2011," said Steve Braniff, director of the Dufresne Retail Solutions Group, adding that his members' open-to-buy in Toronto this weekend will be guided by the group's merchandising and promotion plan.