It's going to be a white-hot Christmas for Canadian retailers.
Better yet, say analysts, the outlook for retail sales shouldn't dim once Santa has made his rounds, as sales are likely to remain strong into early 2007 before tapering off later in the year.
Shoppers, who spent $55 billion in the 2005 holiday shopping season, are expected to dig even deeper into their pockets this year. Predictions are that they'll increase their spending by six to seven per cent.
In Alberta, consumers are expected to deck the malls with cash. No matter how much snow is on the ground, retailers there will have a very "green" Christmas, with sales projected to rise by more than the 16 per cent they rose in December 2005.
"It looks like Santa is going to be spending a lot more time in the province, as we forecast December sales this year to eclipse that figure," says Toronto-based TD economist Steve Chan.
But it's not just Alberta that will be powering Santa's sled.
In Saskatchewan, retail sales are expected to grow by six per cent this month, a slight rise in spending from December 2005, when sales were up by 5.8 per cent.
Manitoba at 6.4 per cent and British Columbia, at 6.2 per cent are likely to match the same sales growth numbers they saw in December 2005.
The rest of the provinces, including Ontario (a 4.2-per- cent growth rate this month as opposed to a 5.4-per-cent gain in December 2005), should still see strength in December retail sales, although they will be below the national average, says Chan. He is predicting a six-per-cent overall hike in retail sales this month, with Canadians pouring an additional $1.6 billion into cash registers across the country.
Ernst & Young LLP foresees a similar escalation in spending, forecasting an increase of between six to seven per cent for holiday sales, a figure that is up slightly from a 5.9-per-cent rise in 2005.
Low unemployment, greater consumer confidence, and declines in energy prices from record highs experienced earlier in the spring and summer are why shoppers will be spending more, says Logan Day, the Edmonton-based vice-president of transaction and advisory services for Ernst & Young.
Day says that while Internet sales generally peak in mid-December, and the popularity of gift cards means that holiday sales spill over into the week between Christmas and New Year's, most shoppers will still hunt for last-minute bargains on the two days before Christmas.
In dollar figures, Canadians will spend $877 on holiday gifts, decorations or other items, according to TNS Canadian Facts' monthly Consumer Confidence Index tracking study.
That marks a significant 12- per-cent increase over last year, when the average amount doled out was $782.
TNS, a Toronto-based marketing, opinion and social research organization, also says that the number of big spenders is on the rise: 13 per cent of Canadians plan to ring up more than $2,000 in holiday purchases this season, up from nine per cent last year.
Doug Pepperdine, president of Calgary's PM Hobbycraft Ltd., which sells radio-controlled cars, boats and airplanes, along with plastic and die-cast models, electric trains, and decorating and art supplies, is already witnessing this spending pattern.
"People seem to be going for more of the big-ticket items," says Pepperdine.
"One of the most popular ones is a radio-controlled nitro-monster truck that is about two feet long. They sell for about $500.
"Everybody talks about our booming economy (in Alberta). I would probably suspect that's at least partially responsible," he adds. "When Calgary had a tough time, our sales moved to less-expensive items like plastic models. We're projecting that our November sales (once finalized) will be up by about 20 per cent. I would say December would probably be the same."
In Winnipeg, Cecely Neufeld, owner of Poppie Clothing, says early indications show sales are up by 10 per cent. Neufeld's boutique, which carries women's clothing and accessories and features Canadian designers, is just under two years old.
She's finding that her customers are buying more pieces as she is ringing up more multiple item sales than in the past. There are also more customers in the store, which she attributes to a strong local economy.
"Christmas shopping definitely started earlier this year than it started last year," adds Neufeld, whose previous experience includes working in the manufacturing end of the clothing industry.
"It's not necessarily people buying for other people. A lot of people are buying their Christmas outfits for parties they have and I've noticed the Christmas parties are starting earlier."
All that is good news for her shop.
"Christmas sales are incredibly important. They make up a large portion of my yearly sales as November and December are probably my two biggest months for sales," says Neufeld.
TD's Chan says of the roughly $242 billion in retail sales in 2005, excluding automobiles and gasoline sales, about $27 billion was spent last December.
The amount is approximately one-third greater than what is spent in previous months.
But while this may be the season to go shopping, Chan says retailers should also like what they see as 2007 gets underway.
"For the first quarter of 2007, we do expect retailers to deliver a moderate or good performance on the retail side," he says, noting this period will see strong year-over-year growth with some of the strength seen in December carrying over into the new year.
Chan does say that consumer spending will weaken later in 2007, as wage and job growth moderates.
"Think of it as a soft patch. Things will slow down for a bit," he says.
"I definitely don't see a recession; things are going to come down a tinge. If anything, the economy is going to start growing again going into 2008 and we're going to pick up."
The Conference Board of Canada agrees the outlook on the Canadian economy is very positive, says senior economist Michael Burt.
But while Burt says the board isn't playing the Grinch, it is predicting both dollar profits and margins will fall gradually in the retail sector in the near term.
"Although sturdy growth in unit sales is expected to keep revenues expanding throughout the outlook period (2006-2010), price growth will be mitigated," the board says its report, Canada's Retail Trade Industry Industrial Outlook.
"Therefore, profits will fall over the rest of this year and in 2007, before rising again in 2008. By 2010, profits are expected to reach a new high of $10 billion."
In 2005, retail profits hit $8.8 billion.
"We don't have a particularly dour outlook," Burt notes. "Profits are weakening in the near term and will continue to grow over the longer term. It's a brief adjustment period, if you will, in the near term."
That adjustment comes because of a slowdown in new-home construction, which has been growing at an unsustainable pace, says Burt, and somewhat higher interest rates that mean Canadians will be devoting more of their income to servicing their personal debts.
A weaker Canadian dollar, which increases the costs of imported product - the Conference Board is forecasting that the dollar will be at US84 cents by 2010 - adds to the mitigating factors.
"Certain components (of the economy) have been outperforming their potential growth over the last year or two and what we're seeing is more of a return to normal," says Burt.
(Laura Severs can be reached at laura@businessedge.ca)
