Consumers win as Canada’s retail industry evolves

It’s a good time to be a consumer in Canada.

Greater competition and more online shopping options means better selection and lower prices for a wide range of products.

For retailers, it’s a different story. The same factors that are good for consumers are squeezing profits for the companies offering goods and services in Canada, a market valued at about $468 billion in 2012 according to KPMG.

The increase in U.S. discount retailers entering and expanding across Canada, alongside a growing number of online shopping sites from around the world, has forever changed the Canadian retail landscape.

“It’s more competitive that it’s ever been,” says Retail Council of Canada CEO Diane Brisebois.

The challenges for retailers aren’t just increased competition, but a more cost-conscious consumer at a time when household debt levels are near record levels. Retailers are under increasing pressure to continue offering the deep discounts that consumers became accustom to during the last recession.

“What we have is a more hesitant and conservative consumer,” says Brisebois.

More competition, more choice

That’s an opportunity for some retailers, in particular the discount brands coming to capitalize on the Canadian market. The heightened competition has forced others not only to rethink how they do business, but where and who with.

The Canadian retail industry has seen a number of changes in 2013 alone. Target Corp. is on track to open 124 stores across 10 provinces in Canada this year, while Amazon.ca has ramped up its offerings, including delivering food and automobile parts to Canadians. U.S. department store chain Nordstrom is setting up shops across the country and Hudson’s Bay is bringing in luxury American store Sak’s after buying the company this summer for US$2.9 billion.

Meantime, Sears Canada is selling off real estate and closing stores, including its flagship store at Toronto’s Eaton Centre, to cut costs and pour more dollars into its ecommerce business. There have also been big changes in the grocery aisle with Sobeys Inc.’s C$5.8 billion purchase of Safeway's Canadian assets and Loblaw’s 12.4-billion offer to buy Shoppers Drug Mart this summer.

Loblaw executive chairman Galen Weston said at the time of the deal that something had to be done for the company to compete in the “increasingly competitive marketplace."

Canada's retail landscape a challenge for entrants

The retail space in Canada will continue to see more foreign competition as consumers think more globally about their brands, and search for savings as they pinch their pocketbooks.

While there are a number of examples of Canadian retailers failing in their attempts to expand abroad, experts doubt the same will happen with many of the competitors coming into the country.

“A lot of people who have come in have been very successful,” says Terry Henderson with the retail consultancy J.C. Williams Group. “It’s harder to find someone who hasn’t been successful entering Canada than to find someone who has.”

Still, Target has stumbled out of the gate and in its latest quarterly results show a “sales shortfall” in Canada, which reduced its earnings per share by 29 cents in the third quarter. It proves even the Golaiths are finding the Canadian retail environment challenging, especially as its main rival Wal-Mart Stores Inc. is spending $450-million to beef up and expand its Canadian store network. It’s all part of the relentless fight to capture market share in a country clamouring for more choice and better prices.

That pressure to lure and satisfy consumers is expected to bring ongoing improvements to the Canadian shopping experience, says Henderson.

“It’s going to get more exciting,” he predicts. “More and more retailers will come in to entertain and to provide value to the Canadian consumer. That will sharpen the game for every player here. In the end, that makes it even better for the customer.”

As the battle intensifies, consumers can expect to see more choice, better prices, and an overall better shopping experience. At least, that’s the hope.