Canada's unemployment fell to its lowest level in 30 years recently while interest rates and inflation have both been stable for several years. These are trends that boost consumer confidence and stimulate demand, all of which should be good news for the country's retailers.

But retailing is a tough business these days, especially for the little guy.

The hours are long, punishingly so if you happen to be based in a mall. The margins are thin and the competition is a killer. Everybody is trying to steal their neighbour's lunch. Food giants such as Loblaws are selling general merchandise while general merchandisers such as Wal-Mart are getting into food.

And everyone wants a share of the Canadian market, which is why Home Depot, Costco and European companies such as the Swedish clothier H&M now occupy prime locations while domestic icons such as Eaton's fold, or fall on hard times like The Bay.

Retail Council of Canada's Peter Woolford says tight budgets affect consumers.

Meanwhile, consumers want the best of everything. According to focus group research, they expect a broad and reliable selection. They like well-organized stores. They demand prompt, courteous service. They look for a good returns and exchange policy.

On top of all that, they also have become bargain hunters, according to Peter Woolford, vice-president of policy development and research with the Retail Council of Canada, and there's a good reason for that. Despite all the good news on the economic front, Canadians are not earning as much money as their counterparts south of the border.

Woolford was the keynote speaker at a recent conference on retailing and he told those in attendance that, in the early 1980s, the average Canadian earned about 85 per cent after tax of what a typical American earned. Today, the Canadian earns only two-thirds as much.

"Canadians tend to believe that the U.S. is richer because they have more millionaires," Woolford says. "But their middle class and lower-middle families are better off than we are. Their garbage collectors, clerks, secretaries and truck drivers make more money than their Canadian counterparts."

Woolford went on to say that high-end merchandise doesn't move as well in Canada as it does in the U.S. Canadians are more likely to respond to sales promotions and price discounting, which helps explain the proliferation of dollar-stores.

"Americans get much more excited by bling, glamour and features," he says. "Canadians are more cautious. We're focused on value. The best parlour game in town these days is: 'Guess how little I paid for this.' It's a reflection of how much tighter our budgets are."

Individual retailers confirm his view. Steve Matyas, president and CEO of Staples Business Depot, says the company runs about 25 sales promotions per year at the 265 stores it operates across the country whereas Staples Inc., its U.S. parent, gets by with about 20 annually.

"Canadians are a lot more cost conscious," he says. "Sales promotions do drive footsteps into the stores."

The Canadian shopper isn't all that different when it comes to buying pens and papers, but they behave differently when purchasing high-cost items such as office furniture, computers or digital cameras. The value-driven Canadian tends to decide how much he or she can afford and looks for the product that best fits the budget. Americans are more likely to decide what features they want and spend to get them.

Americans also enjoy another significant advantage. Their dollar buys more than ours, especially when it comes to imported goods. "In absolute terms, Canadians and Americans may spend the same amount, but they get more features because of exchange rates," Matyas says.

The gap in personal disposable incomes in Canada and the U.S. is not likely to disappear anytime soon because of structural differences in the two economies, Woolford says. Americans work harder, their businesses are more competitive, they produce more value per person than we do and their taxes are lower.

So, the retailer can expect to face continued pressure from consumers who are looking for value and from big competitors who are transforming the landscape - and leaving casualties in their wake.

"Very large, sophisticated retailers from all over the world are coming to Canada and bringing their best game with them," Woolford says. "There are fewer animals out there. They're becoming faster, bigger, stronger and meaner. It's a battle of the titans and when they do battle the lesser creatures scurry for shelter."

(D'Arcy Jenish can be reached at jenish@businessedge.ca)