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Debt-conscious, Deal-addicted Canadians A Boon For Discount Department Stores: CIBC

Stocks in this article: CM

Increasing competition will challenge retailers but make it a good time to be a consumer

TORONTO, March 28, 2013 /CNW/ - Discount department stores are poised to take more market share in the year ahead as debt-conscious consumers and tame wage growth weigh on Canadian retail spending, according to CIBC World Markets Inc.

"Canadians have heard the message from Ottawa: be careful what you borrow for. But turning more prudent on debt accumulation has meant leaner times for retail spending growth over the last year," says Avery Shenfeld, Chief Economist at CIBC, in a note published for CIBC's Retail and Consumer Conference happening today in Toronto.

With a weak finish to the 2012 holiday season, retail sales grew at lean rate of 2.5 per cent last year, marking "the second year of deceleration from a heady 5.6 per cent pace in 2010, when households were much more eager to borrow at low rates to finance their shopping spree," notes Mr. Shenfeld.

With job growth expected to decelerate in 2013 and wages remaining "fairly tame" in 2013, disposable income gains will likely remain modest this year.  "In that climate, discount stores will continue to grab market share, particularly given the entry of a major U.S.-based player this year," says Mr. Shenfeld

In another conference note, Perry Caicco, a CIBC Equity Analyst who covers the consumer and merchandising industry, identifies two other consumer trends likely to exert competitive pressure on the retail sector.

One is the increasing tendency by Canadian consumers to "purchase on promotion."  Mr. Caicco says that "over the last three years, a material amount of the windfall from a strong Canadian dollar was passed through as increased deals." This has made Canadian consumers, who are already debt-conscious, "increasingly addicted to deals" and "more sceptical than ever about regular prices," he says.

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