Downturn has many retailers 'standing on the edge'
2008 holiday season could be a make-or-break period for merchants
Bruce Constantineau
Vancouver Sun
Saturday, November 15, 2008
Linens 'N Things trumpets a "going out of business" sale.
The Source by Circuit City files for court protection from creditors.
A 25-year Vancouver giftware retailer -- Kim-John Gifts & China -- closes its last store this fall.
It's hard to remain overwhelmingly positive about the Metro Vancouver retail sector these days.
Retail sales that grew by five to six per cent during the first half of this year have slipped to monthly increases in the one-per-cent range and the global financial meltdown has seriously damaged consumer confidence.
A recent Deloitte survey found that 40 per cent of Canadians plan to spend less on holiday gifts this year.
The retail sky isn't falling yet but the 2008 holiday selling season looms as the most important in a decade -- likely a make-or-break period for many merchants.
"This economy will shake out some retailers for sure," Vancouver retail consultant David Ian Gray said in an interview. "It's hard to pick them right now but in the new year, we will see the weak business models get exposed."
Retail BC president Mark Startup doesn't feel there's a higher rate of store closures taking place now and notes some retailers tell him they've had outstanding sales recently. But others are suffering and he agrees the industry faces unique economic challenges now.
"Right now, we're kind of standing on the edge of this thing -- hoping to weather the storm," he said. " . . . B.C. and Alberta could still eke out growth even if the country falls into recession."
Gray said most major B.C. retailers based in the province are still doing well -- including companies such as Aritzia, London Drugs and Urban Barn. Even Lululemon, with a significant presence in the U.S., has performed well recently but he fears its exposure to the U.S. market might hurt sales over the short term.
"It's the retailers based elsewhere with operations in B.C. that seem to be most vulnerable now," Gray said, noting the Canadian operations of Linens 'N Things and The Source by Circuit City essentially got caught up in bigger problems in the U.S.
He said the U.S. downturn has caused successful retailers such as Crate & Barrel and Abercrombie & Fitch to delay their Canadian expansion plans.
Retail consultant Ian Thomas said U.S. consumers appear to be "hiding" now but feels that negative mindset hasn't yet fully taken hold in Western Canada.
"I've never seen double-digit sales growth disappear so quickly as it has in the U.S.," he said. "You know something is wrong when a store like Williams-Sonoma -- the darling of the industry a year ago -- has sales decline by an average of 28 per cent in October."
Thomas said the North American retail market has seen this movie before, with mediocre or declining sales that lasted from 1990 until 1995. He said the retail winners then were stores that offered value, along with great selection and quality merchandise -- including stores such as Wal-Mart, The Gap, Costco, Future Shop and London Drugs.
But Thomas said people still rewarded themselves with small indulgences, which explains the phenomenal 1990s growth experienced by Starbucks.
"Look at the success of the Apple Store," he said. "Even in these problematic times, it has become one of the most successful retailers of all time by creating must-have products."
Park Royal Shopping Centre vice-president Rick Amantea, whose mall houses a 47,000-square-foot Linens 'N Things store, feels there should be no problem filling that space when the store closes.
"We've had lots of interest in that space from a number of parties," he said.
Longtime Park Royal tenant Kim-John Gifts & China fell on tough times recently and had to close for good after being in business since 1983. But Amantea doesn't feel many more will automatically follow.
"Sales have not been extraordinary lately but I think many retailers bought smartly when the Canadian dollar was strong," he said. "That should help offset a decrease in sales for a while."
A strong dollar earlier this year briefly became more valuable than the U.S. dollar, making it much cheaper for Canadian retailers to buy U.S. goods.
Startup said during challenging economic times like this, it's vital for retailers to stay focused with a strategy that emphasizes costs savings and customer service.
"But none of that will help if the retailer is undercapitalized," he said. "If they have cash-flow problems or didn't focus on the expense side of the business during better times, they're going to have a rough ride."
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GOING, GOING ... GONE
The Source by Circuit City
- Canadian operator InterTan Canada Ltd. filed for court protection from creditors this week following similar action by its U.S. parent -- Circuit City Stores.
- There are 772 The Source stores across Canada and 683 Circuit City stores throughout the U.S.
- The Canadian operation is profitable and rumoured to be up for sale.
Linens 'N Things
- The company is winding down operations at 371 U.S. outlets and 40 Canadian stores, including seven in B.C.
- It had more than 600 U.S. and Canadian stores before filing for bankruptcy in May.
Kim-John Gifts & China
- The china, flatware and cookware store opened in 1983.
- Chain had three stores at its peak.
- Its last store, in Park Royal mall, closed this fall.
- Maynards is now selling the company's remaining $500,000 worth of inventory.
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