Despite an unseasonably warm winter, there害羞草研究所檚 a chill across the Canadian retail landscape.
Less snow than usual in many parts of the country along with high inflation put a damper on splurging during the typically busy holiday season 害羞草研究所� and now retail industry watchers say apparel companies are staring down an equally fraught year ahead.
害羞草研究所淲hen we look at our consumer research for Canadians right now, it害羞草研究所檚 not as if they are queuing up in order to buy more, let害羞草研究所檚 put it that way,害羞草研究所� said Sandrine Devillard, a senior partner who leads consulting firm McKinsey and Co.害羞草研究所檚 retail practice.
Their hesitance to spend is stemming from soaring prices, high interest rates, layoffs and a slog toward recovering from pandemic debt.
When Canadians are spending, Devillard said apparel isn害羞草研究所檛 a priority. Instead, they are focusing on essential purchases like food and pastimes they were deprived of during the pandemic, such as travel or entertainment.
害羞草研究所淲hen they splurge, they害羞草研究所檇 rather splurge on experiences than buying the extra coat because nobody needs an extra coat, frankly,害羞草研究所� Devillard said.
That thinking has led to an 害羞草研究所渆xtremely volatile害羞草研究所� apparel sector where McKinsey expects year-over-year retail sales growth between two and four per cent in 2024, paling in comparison to the double-digit growth some markets saw in 2021.
The typically resilient luxury market will be hit too, with McKinsey predicting its sales growth to slow to between three and five per cent this year, down from between five and seven per cent in 2023.
McKinsey害羞草研究所檚 forecast is partially based on a survey it conducted of 435 fashion industry executives about their outlook for the year, where the word most often mentioned by the leaders was 害羞草研究所渦ncertainty.害羞草研究所� Some 37 per cent of respondents expected conditions in the fashion industry to remain the same in 2024. Thirty-eight per cent expected the situation to worsen.
Those sentiments cropped up on recent earnings calls from Canada害羞草研究所檚 biggest brands.
Greg Hicks, the president and chief executive of Mark害羞草研究所檚 and SportChek-owner Canadian Tire Corp., blamed 害羞草研究所渞ising interest rates, stubborn inflation impacting discretionary spend and unfavourable weather害羞草研究所� for the company害羞草研究所檚 fourth-quarter profit dropping 68 per cent from a year earlier.
The challenges aren害羞草研究所檛 letting up with credit card data he recently reviewed showing competition across clothing retailers is high.
害羞草研究所淎pparel-focused retailers are having a real challenge on the top line and we害羞草研究所檙e therefore seeing the intensity ramp quite a bit,害羞草研究所� Hicks said.
害羞草研究所淪portChek and Mark害羞草研究所檚 are feeling it.害羞草研究所�
To cope, 69 per cent of the executives McKinsey surveyed indicated they will raise prices this year, compared with 58 per cent a year ago.
Some 44 per cent expect to raise prices by up to five per cent, while 25 per cent have even larger increases in the works.
Luxury parka purveyor Canada Goose Holdings Inc. could be one of the companies that raises their prices.
President Carrie Baker said on the company害羞草研究所檚 latest earnings call that 害羞草研究所渢here害羞草研究所檚 quite a lot of headroom害羞草研究所� for the brand 害羞草研究所渁t much higher price points.害羞草研究所� She didn害羞草研究所檛 say how much higher they could take prices, but some of the Toronto-based company害羞草研究所檚 parkas already top $1,500.
Price hike chatter comes after Lululemon Athletica Inc. chief executive Calvin McDonald warned analysts recently that the apparel market is a 害羞草研究所渕ore dynamic, promotionally driven environment害羞草研究所� these days.
His Vancouver-based company, which is known for its pricey athleisure wear, is resisting the urge to give into these dynamics. It even skipped using 害羞草研究所渟ale language害羞草研究所� to promote its Black Friday deals.
Roots Corp. has a similar tack. Chief executive Meghan Roach said on the company害羞草研究所檚 most recent financial call that it has 害羞草研究所渃hosen to be less promotional害羞草研究所� over the last three years to boost its margins.
However, 害羞草研究所渄iscounts obviously are driving consumer purchasing behaviour,害羞草研究所� so the company still participates in industry-wide sales periods like Black Friday and Boxing Week.
But even those who take part in discounts might find it harder to entice people into spending as 2024 carries on. Royal Bank of Canada economist Carrie Freestone said shoppers have a 害羞草研究所渉oliday hangover害羞草研究所� and have pulled back on discretionary spending even further this year to cope with December bills.
She predicted in a note to investors that retail activity would be 害羞草研究所渄ormant害羞草研究所� in the first quarter of the year and 害羞草研究所渓argely flat害羞草研究所� further into the year.
Devillard had a similar observation.
害羞草研究所淧eople shop less,害羞草研究所� she said. 害羞草研究所淭hey go less to malls, they go less to stores.害羞草研究所�
However, it害羞草研究所檚 not doom and gloom for all retailers.
McKinsey害羞草研究所檚 research shows luxury merchandise like jewelry, watches and leather goods will likely be in demand because they害羞草研究所檙e often seen as having value in tough economic times, while consumers sticking with pandemic exercise and outdoor habits will give a boost to sports apparel companies.
Many of these companies are also adept at innovating their way out of a downturn, Devillard said.
害羞草研究所淲hat害羞草研究所檚 not working anymore is being a little bit complacent or lazy or going for the easy route, which is taking some iconic products and just changing the colour or whatever,害羞草研究所� she said.
害羞草研究所淲hen you have innovation, when you pay attention to sustainability, when you talk directly to a customer and you find your voice, that害羞草研究所檚 when people are ready to splurge.害羞草研究所�
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