The forecast for this year's make-or-break holiday shopping season is decidedly chilly.
While Canadian retailers are expected to have a greener Christmas than their counterparts across the border in the United States - sales are expected to rise by about three per cent in Canada; 2.2 per cent on the other side of the border, the lowest growth in six years - consumers could be taking on the role of the Grinch in the wake of a financial crisis that has rocked global stock markets and ravaged their portfolios.
Even though major retail players are looking at earlier rollouts of Christmas merchandise, discounts and smaller inventories as ways to cope, small and medium-sized retail operations are expected to be able to hold their own in a tougher marketplace.
"When the economy is like this, people make fewer trips to stores," says Derek Nighbor, senior vice-president of national affairs for the Toronto-based Retail Council of Canada (RCC), which represents more than 40,000 store fronts of all retail formats across Canada.
"Instead of seeing them three to four times, they might come in once, so retailers need to maximize their face time."
But unlike their larger competitors, smaller retailers can be more nimble in serving their customers, he adds, by following up by phone and knowing their buying habits.
"And when times are tougher, consumers can be more inclined to support local independent retailers," he says. "There is that connection to community, especially when that community is facing a challenge."
The RCC's American counterpart, the Washington, D.C.-based National Retail Federation, and the world's largest retail trade association, is also staying bullish when it comes to retailers in a bearish economy.
"Mom-and-pops always find themselves in a unique, challenging environment - almost requiring them to constantly be innovative," NRF vice-president Scott Krugman said in a late-September conference call.
"Where mom-and-pops have an advantage given the nature of their business is they're set up in local communities and are an inherent part of that community. They probably understand their customers very well, they know their tendencies, it's much easier for them to make merchandising decisions and it's probably also easier for them to adapt those strategies quickly."
But even though big-box stores can be known as category killers - cornering a market with lower prices - Krugman adds that it's not game-over for the small retailer.
"They happen to have a better opportunity to specialize," he says.
"In a lot of cases, big-box retailers might not have that luxury because they're providing a top slice over multiple categories, versus a mom-and-pop, which can offer a deeper selection. So while they can't always compete on price, I think they're certainly better positioned to compete on service and in some cases, believe it or not, selection."
However, ominous financial figures from August released last week are providing more evidence of what many economists strongly suspect is ahead for Canada's economy — a period of major challenges that could add up to recession.
The foreboding facts came in a Statistics Canada report that says retail sales haven't bucked their slowing trend. And that was just at the beginning of the recent turmoil in global markets.
August retail sales dipped 0.3 per cent to $35.9 billion, the agency reported, marking the third such drop in the last four months.
The statistics show "that the Canadian consumer was already weakening into the recent period of market distress" and that August will erase July's "surprising" month-over-month jump in economic growth of 0.7 per cent.
British Columbia posted the largest decline in retail sales among the provinces, falling 0.9 per cent in August. Retailers in Quebec and New Brunswick posted lower sales after four straight monthly increases.
Sales changed little in the other provinces in August.
The owners of Mississauga-based Golda's Kitchen, a family-run business that employs about 20 people and specializes in cookware, bakeware and cake decorating supplies, says its U.S. sales are down by about 20 per cent.
However, sales in Canada are doing fine, says co-owner Fred Pritchard.
"Certainly, my U.S. customers have held back a little bit, they're not as busy as they were," he says. "With U.S. customers losing their homes, they do not need a new set of cookware."But Pritchard isn't worried about the future of his family's business.
"If you sell quality products that last a long time, people are willing to make an investment in that," he says. "I think the cheap-and-cheerful is an area of the market that is going to be certainly feeling a pinch, and we stay away from that stuff. I want the customer to come back year after year."
Pritchard remains cautiously optimistic about the upcoming shopping season and is hopeful consumers will be able to get over what he calls the "stock market bubble," which has seen major indexes drop dramatically in October.
Ted Mallett, vice-president of research and the chief economist for the Toronto-based Canadian Federation of Independent Business, says small businesses still feel somewhat positive about the economy.
"Certainly when you see these kind of changes in financial markets and commodity markets, which are really unprecedented in recent economic history, there's no doubt that small-business owners are looking at the economy with a fair amount of concern," says Mallett.
"If the financial markets stabilize and credit begins to flow, we'll probably see a correction and some bounce-back. If the credit market doesn't improve in the short run, the outlook will be worse - but we're not at that point yet."
- With files from The Canadian Press (Laura Severs can be reached at laura@businessedge.ca)
