Indian envoy warns of 'big red line,' days after charges laid in Nijjar case
India's envoy to Canada insists relations between the two countries are positive overall, despite what he describes as 'a lot of noise.'
Despite an unseasonably warm winter, there's 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 - and now retail industry watchers say apparel companies are staring down an equally fraught year ahead.
“When we look at our consumer research for Canadians right now, it's not as if they are queuing up in order to buy more, let's put it that way,” said Sandrine Devillard, a senior partner who leads consulting firm McKinsey and Co.'s 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't 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.
“When they splurge, they'd rather splurge on experiences than buying the extra coat because nobody needs an extra coat, frankly,” Devillard said.
That thinking has led to an “extremely volatile” 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-digital 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's 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 “uncertainty.” 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's biggest brands.
Greg Hicks, the president and chief executive of Mark's and SportChek-owner Canadian Tire Corp., blamed “rising interest rates, stubborn inflation impacting discretionary spend and unfavourable weather” for the company's fourth-quarter profit dropping 68 per cent from a year earlier.
The challenges aren't letting up with credit card data he recently reviewed showing competition across clothing retailers is high.
“Apparel-focused retailers are having a real challenge on the top line and we're therefore seeing the intensity ramp quite a bit,” Hicks said.
“SportChek and Mark's are feeling it.”
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's latest earnings call that “there's quite a lot of headroom” for the brand “at much higher price points.” She didn't say how much higher they could take prices, but some of the Toronto-based company's 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 “more dynamic, promotionally driven environment” 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 “sale language” to promote its Black Friday deals.
Roots Corp. has a similar tack. Chief executive Meghan Roach said on the company's most recent financial call that it has “chosen to be less promotional” over the last three years to boost its margins.
However, “discounts obviously are driving consumer purchasing behaviour,” 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 “holiday hangover” 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 “dormant” in the first quarter of the year and “largely flat” further into the year.
Devillard had a similar observation.
“People shop less,” she said. “They go less to malls, they go less to stores.”
However, it's not doom and gloom for all retailers.
McKinsey's research shows luxury merchandise like jewelry, watches and leather goods will likely be in demand because they're 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.
“What's 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,” she said.
“When you have innovation, when you pay attention to sustainability, when you talk directly to a customer and you find your voice, that's when people are ready to splurge.”
This report by The Canadian Press was first published March 1, 2024.
India's envoy to Canada insists relations between the two countries are positive overall, despite what he describes as 'a lot of noise.'
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