TORONTO – Canadian retailers are getting ready for the holiday season with rock-bottom prices and major promotional campaigns in hopes that shoppers will open their wallets and seize the opportunity to save.
Both U.S.-based retailing giant Wal-Mart (NYSE:WMT) and Sears Canada (TSX:SCC) have unveiled lower prices, particularly on bigger ticket items like LCD televisions, Blu-Ray players, pots and pans and other cooking products.
The price cuts come at a time when Canadians are not exactly in a mood to part with their cash – a recent consumer confidence study from research firm TNS suggests an increasing number are planning to put off major purchases this Christmas season.
The report indicates consumers are expected to tighten their spending habits to the lowest levels in four years, with about one-third of those surveyed predicting they’ll spend less during the holidays than last year.
“We often hear talk of so-called ‘cautious optimism.’ But these results suggests now is a time for cautious negativism – clearly, the floor hasn’t collapsed but it might be time to start looking for cracks,” said Michael Antecol, vice-president of TNS Canadian Facts and director of the marketing research firm’s monthly tracking study.
Weaker expectations have persisted throughout the industry in recent months, with many retailers complaining that sales remain stagnant even with the holiday shopping season underway.
In response, some of the country’s biggest retailers have come up with plans to slash prices on more items to lure penny-pinching shoppers.
Discount giant Wal-Mart said Thursday it will cut the prices of more than 18,000 items this month, which it says amounts to 20 per cent more cuts than at the same time last year.
On the list of discounts are a Samsung home theatre DVD and sound system for $296, about $100 off the previous price, and a Rachel Ray stainless steel cookware set for $169.97, about $60 lower.
“We know this has been a tough year for Canadians, so we have made every effort to drop our prices and help Canadians make their dollars go farther this holiday season,” said David Cheesewright, the president and CEO of Canadian operations for the world’s biggest retailer.
Sears Canada has launched a “Boxing Day prices” campaign that reduces price tags on several items for three days this weekend, while some stores will stay open for extended hours. The promotion lengthens a single-day sale that ran at the same time last year.
Sears said a Samsung 40-inch LCD TV will sell for $799.88, while it will offer a Craftsman Electric Snowblower for $299.99, taking $200 off the regular price.
However, some of those prices aren’t necessarily lower than before. A similar Samsung television sold for 10 cents cheaper at the same sale last year.
Deep discounts don’t necessarily drive profitability, and retailers who start the holidays by trying to whip up a spending frenzy could be disappointed, suggest some retail analysts.
“Discounts don’t seem to be as meaningful any more when you’ve seen it for almost the full year with the downturn,” said John Archer, a senior consultant at J.C. Williams Group Ltd.
“There’s probably a lot of consumers really unsure of what a discount means anymore, and retailers who are just relying on the big ‘Ta-Da!’ discount as their primary means might be dissatisfied this season.”
Those blurry lines between a typical sale and the implied deeper discounts of this holiday season become even harder to decipher at supermarkets.
Loblaw (TSX:L) said earlier this week that it’s slashing prices, and could cut them even further, as it attempts to ramp up its competitive position. The comments sparked some speculation that a price war could break out in the near future.
But at least one analyst says she’s skeptical of how much Loblaw has actually done to bring prices lower.
Kathleen Wong of Veritas Investment Research said a study by her firm last month found that while Loblaw was “rounding down” the prices of some items at its superstores, the company was actually boosting prices of others.
Wong said that of 50 in-store items the study examined, about 66 per cent were rounded up from their previous promotional price, rather than rounded down.
Some of the worst offenders on the Loblaw study list in October were Planters cashews or almonds “rounded down” to $4 after previously being on sale for $2.99, while a five-pack of Black Diamond Cheddar Slices sold for $2.44 after being on sale for $3.
“It’s more of an image that Loblaw tried to put into the market,” she said in an interview. “We do not really believe there is going to be a price war.”
Wong noted that she still believes Loblaws superstores are “competitively priced” with other discount grocers.
Overall, retailers need to establish a happy medium between satisfying consumers’ growing expectations for low prices while also turning a profit.
Wendy Evans, head of retail consultancy Evans and Co. Consultants Inc. said price wars aren’t favourable for retailers in this type of economic environment because there’s little to be gained in the long run.
For every item sold at a loss, the company’s need to make it up somewhere else, she said.
“There’s not a lot of real winners out of price cuts,” she said.
“You gain some market share, but you gain some perception that you’re more price-focused. But the bottom line is what people are more concerned about.”
