Canadian stores set to drop prices to keep customers

Don’t like the price tag on that pair of pants you’ve been eyeing or what the grocery store is asking for a loaf of bread? A new report says the cost of those and other goods could soon drop as many Canadian retailers prepare to slash prices to lure consumers.

The Canadian Retail Insights Report, released by credit card company American Express, says 48 per cent of Canadian retailers surveyed plan to drop prices this year, up from 35 per cent when they first did the survey in 2012. It says 83 per cent of Canadian retailers plan to offer sales, promotions or discounts to attract customers.

The survey, conducted by Nielsen between March 17 and April 3, included 375 businesses across Canada that sell products such as gas, groceries, pharmaceuticals, food and clothing. Among those industries, 89 per cent of general retailers said sales and promotions are a top strategy to promote customer loyalty, as well as 86 per cent of apparel companies and 85 per cent of grocery stores.

"Canadian merchants are clearly serious about cultivating and maintaining customer loyalty, and they're reducing prices to get them in the door," says American Express Canada’s Jennifer Hawkins. "As a result, I expect we'll see increased competition among retailers across all verticals as they fight to retain and reach new customers."

The report is the latest evidence that retailers are feeling the squeeze from increased competition, including larger, discount players entering the market and a growing number of products being offered online. The result is a changing retail landscape in Canada, where companies that can’t compete are being forced to downsize, or close up shop altogether. For example, fashion retailer Boutique Jacob Inc. said last month it would shut its stores across Canada, while Sears has been closing stores in parts of the country and is now considering selling its troubled Canadian operations.

“The easiest thing to do is drop your price, but that sets off a chain reaction in the marketplace,” says Doug Stephens, founder of Retail Prophet. “I would argue if your store is nothing but a sea of sales an discounts, that’s an indication you are under extreme pressure.”

It’s brands that can distinguish themselves as either high end, such as Michael Kors, or as discount retailers, such as Dollarama, that will perform best in this changing market, Stephens says.

“It’s the huge middle ground that’s vulnerable,” he says. "Those stores will have to redefine the value they bring to the consumer.”

The potential price cuts flagged in the report come after Statistics Canada said recently that the cost of living in Canada increased by the largest amount in two years in April. The consumer price index (CPI) hit two per cent in April, an increase from 1.5 per cent the previous month.

Energy and electricity prices were largely behind the increase. Gas prices have risen 6.6 per cent in the past year, natural gas prices were up 26 per cent and electricity prices were up 4.6 per cent, Statistics Canada said. Food prices were up almost 2 per cent year-over-year, while the cost of clothing, footwear and household furnishings were flat.