They say war is hell, but this particular war could be heaven for Canadian consumers.
Analysts are predicting that Target’s arrival in Canada — which begins next month, with the first wave of store openings — will start a war the likes of which have rarely been seen in Canada's comparatively tame retail sector.
But Target’s arrival is coming at what appears to be an inopportune moment for Canadian retailers — just as evidence grows that Canadian consumers are running out of steam.
The pressure to keep profits up at a time when retail sales are stagnating, combined with the arrival of a major new discount retail player, will likely send Canada’s major stores scrambling to retain customers.
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"I think it's going to be World War 2 when Target opens up in a few weeks,” Toronto-based retail analyst John Winter told the Winnipeg Free Press last week. “There will be about 13 million square feet of Target suddenly opening across Canada, and that's going to cause a great fight between Target and Walmart, the Bay and Sears. It's going to be all-out war.”
A report from Barclays Capital last December identified five retailers operating in Canada that it says are the most threatened by Target’s move north: Canadian Tire, Loblaws Joe Fresh, Old Navy, Sears Canada and Walmart Canada.
Walmart is facing the Target threat head-on and planning to spend $450 million opening new locations across Canada and hiring thousands of new employees.
The company expects to have nine new stores open by the end of the year, with several dozen others refurbished, and is adding thousands of private label products to its lineup.
But some of the existing chains’ plans for retail war look more like a retrenchment than an opening salvo.
Electronics retailer Best Buy announced last month it’s closing 15 Best Buy and Future Shop locations across the country, reducing its total floor space by about 10 per cent. The company announced 900 layoffs as well.
Things were little better at Sears Canada, where it was announced 700 people would lose their jobs as part of a “right-sizing” effort by management.
Of course that may have as much to do with Canada’s recent, disappointing retail sales numbers as with Target’s arrival.
StatsCan reported last week that retail sales over the crucial holiday shopping season fell 0.7 per cent from the previous December — an unexpected and unusual decline for a holiday season. That report fits with recent data showing consumer spending in Canada leveling off in recent months, and heading into something of a decline.
Meanwhile, Sears announced on Thursday that its same-store sales had fallen 3.8 per cent in the fourth quarter, compared to a year earlier.
All that should translate into lower prices for Canadians — unless, of course, the retailers can help it.
Walmart’s refurbishing of locations, and a similar refitting of certain Canadian Tire locations, is all designed to enhance the in-store customer experience, in the hopes of bringing more customers into stores without slashing prices excessively.
“We need to inspire our customers in-store more than ever,” Canadian Tire President and CEO Stephen Wetmore said recently, as quoted by Global News.
But inspiration will be difficult as Canadian consumers, saddled with record-high debt levels, pull back on spending.
“[Y]ou have a very cautious consumer out there who is buying less,” said Doug Stephens, president and principal at Retail Prophet Inc., told Global News. “Consumers have been borrowing their brains out, but that is coming to an end now.”