Gift Cards Could Suffer From Economic Woes

I received an e-mail today - one of those forwarded chain notes I often get. It supplied a list of retail stores, and warned recipients not to purchase gift cards as Christmas presents from these companies because they have announced plans to close up shop by January 2009. This got me to thinking: will gift cards, a typically popular holiday gift, suffer in wake of the current economic climate?

An Ipsos Reid study conducted around Christmas-time last year found that 88% of respondents like receiving gift cards. In fact, 72% would rather a gift card than an actual gift! I don't think these numbers will drop this year simply due to fear that a store might close, but if e-mails like the one I received continue to circulate, it might just scare people off from buying gift cards.

The whole idea of a gift card is that the person can buy something they want. While it replaces an actual gift, what I've often found is that you end up spending more money than you otherwise would have with a gift card. Now if the recipient ends up getting nothing from the card because the company went out of business (a horrible experience: trust me, I've been there!), you've now both disappointed the person and lost a whack of money.

Will you be buying gift cards this year?

As an aside, I thought it funny that the most often-requested gift item I've heard over the past few months from family and friends is in fact a gift card, but of a specific kind: a gas card! You know times are tough when filling up your car becomes a luxury!

Recession, or Minor Setback?

Aside from the pending election, the biggest buzz nowadays is about the existence (or perceived existence) of a "recession". But are things really that bad north of the border here in Canada? Many would beg to differ.

An interesting article in the National Post written by Jacqueline Thorpe and Paul Vieira quotes the governor of the Bank of Canada, Mark Carney, as stating that the "sky is not falling" in this country, adding that while we should prepare for "sluggish growth", we do not "have the imbalances in our economy that other economies have going into this time of difficulty."

This shouldn't be taken to mean that Canadians will skate through this time completely unaffected. Companies will need to scale back certain niceties, and make minor adjustments until the situation blows over (and let's face it: it will blow over eventually). But the important thing is to remain as close as possible to "business as usual". After all, when things get back to what many would call "normal", it'll be those who kept their head high through the tough times that benefit the most.

What's more, many are confident that the tech sector specifically is somewhat "recession-proof", if not at least recession-"resistant". TWICE Magazine claims that U.S. TV manufacturers are "cautiously optimistic" that sales will continue to be strong through the upcoming holiday season, despite what's going on in the economy.

The reason is obvious: if you cut costs by not eating out, going shopping, or heading out to see a movie, what do you do? Stay at home! You can take the kids out for dinner and a movie every Friday night, or invest in a home theatre system (and some Ben & Jerrys!) at home that can be enjoyed for years and years to come instead of just one night. As research firm Futuresource Consulting puts it, these items offer much better "value-for-money", along with "tangible benefits." On the TV end, the only cut-back Futuresource has observed is in size: it seems that rather than fork over the extra dough for 50"+-sized panels, customers appear to be, more often than before, opting for 32" and 42" sets instead.

The optimism doesn't just relate to the TV industry, though. It also goes for computer-related products, and even video games. Sure, it isn't healthy to stay seated on the couch every weekend just because you don't want to go out and spend money. But why not watch TV while on the treadmill? Or play some Nintendo Wii games with the family instead of heading out to Chuck E Cheese? Bottom line: there is a way that consumers can reduce frivolous spending that can also benefit the CE industry.

Nevertheless, retailers, manufacturers, and distributors are, and will continue to do what they have to do in order to be cautious and remain profitable. I've seen several e-mail notifications that advise of price increases due to the "falling Canadian currency", or that regretfully announce the cessation of certain incentive programs for the time being. C'est la vie, as they say. But the most important thing to consider is to keep your business strong by whatever means necessary. Otherwise, you'll be eating everyone else's dust once things pick up again.

Holiday Spending in Canada on the Rise?

The Canadian Press reports that, although final numbers aren't yet in, holiday spending in Canada looks to be up about 5% in comparison to last year. Fueled mainly by the baby boomer community, this means that sales in the consumer electronics category has been favourable. In fact, The Canadian Press cites certain Best Buy store locations as having topped $1 million in sales on just Boxing Day (December 26)!

Having walked into a Best Buy store on Boxing Day, I can attest to the pandemonium: there were line-ups a mile long at every cash register around the store, while customers were fighting one another to snag the best deals. By the weekend, line-ups to return or exchange merchandise (gifts that didn't quite fit the bill, perhaps?) were just as long.

It's great news that retail appears to be live and well in Canada, despite issues of cross-border shopping for perceived "better deals" in wake of the strong Canadian dollar. It's also encouraging given the increasing popularity of online shopping. It appears that, although many consumers are turning to the web to get their shopping done, it complements rather than replaces the in-store retail experience, with many still appreciating the face-to-face sale. When it comes to the holidays, even though you might have to wait in line for hours, bump shoulders with a hundred people on your way out the door, and endure the cold weather, snagging that great deal was probably worth it.

Happy New Year!

Canadian Retailers, Manufacturers Continue to Drop Prices

By now, you're probably tired of reading story after story about the Canadian/U.S. dollar, but after weeding through my inbox this morning, I couldn't help but report on the topic.

Retailers like Sears, Wal-Mart, and Future Shop, have all made announcements that they have reduced prices in wake of the Canadian dollar. Wal-Mart is running radio commercials that discuss the rising Canadian dollar and the subsequent reduced store prices. Sears Canada even has a name for its marketing strategy: Stronger Dollar - Lower Prices.

I've done some comparisons myself, and I can attest to the fact that it isn't all B-S: some of the prices have indeed been cut such that they are in line with what the same product is selling for in the U.S. However, I can understand how consumers could be skeptical, judging each move as a mere marketing ploy.

My advice: do your research. With the existence of the Internet, it's pretty darned easy to see if a product is in fact being offered at the same value in Canada then it is in the U.S. Also, even if the price is a bit higher in Canada, don't automatically assume that you're getting hosed. Read the fine print to find out if there are added incentives to the purchase. Is there a longer warranty? Olympus Canada, for instance, just announced that it would be adding an extended warranty to the purchase of any of its digital SLRs (and lenses) in Canada at no additional charge. In fact, this announcement was made in conjunction with the company's announcement that it would be dropping Canadian prices! Another question to ask: are there favourable delivery options that would make purchasing in Canada a better deal? Sears Canada just announced that it would be offering free shipping on soft goods to any location in Canada. The bottom line: dig deeper before making a rash judgment call.

Meanwhile, retailers aren't the only ones taking steps to slash prices. When it comes to discrepancies in pricing between Canada and the U.S., digital cameras are one category of product that often experiences an unusually wide gap. Two manufacturers, Nikon and Olympus, have already made announcements that they would drop prices in Canada. Although Nikon said it could not offer price parity, the company said that the lower prices would still be "competitive". (Keep in mind, however, that, when it comes to the manufacturers, they are reducing their own suggested retail pricing: the actual sale price you'd see in the store is ultimately up to the retailers).

As for the Canadian dollar, it remains relatively on par with the U.S.: at last check, it was worth $0.99 U.S.

Black Friday LCD/Plasma Deals

I just received a note from Consumer Reports that helpfully compiled a list of where U.S. customers will be able to find the best Black Friday deals this weekend. Of course, us Canucks support our own homegrown retailers. Nevertheless, I thought it might be interesting to outline a few of the most jaw-dropping deals being offered south of the border (all prices are in U.S. dollars, of course):

Would you believe that a 42" HD (720p) plasma would be available for $900? It is. Best Buy will be selling Panasonic's TH-42PE7U for that price, as will Sears be offering LG's 42PC5D. Even more shocking is that Costco is reportedly advertising a 58" 720p Panasonic plasma for "$500 off"; while CompUSA will offer Samsung's 50" 720p HP-T5044 for US$1,300.

Kmart will sell a 32" Olevia LCD for a measly $420; while 37" models will be available between $550 (Target) to $600 (BJ's). Sharp's 42" 720p LC-42D43U LCD will go out Circuit City shop doors for just $800, while the 46" 1080p LC-46D64U will be just $500 more at $1,300.

What's even more unbelievable is the fact that many retailers have already begun offering what could be considered "pre" Black Friday sales, like Wal-Mart offering the Toshiba HD-A2 HD DVD player for just $99; and Sears already selling Hitachi's 42" 1080p P42H401 for just $770!

Considering the massive headache one would have to endure by knocking elbows with swarms of consumers, waiting in horrendous lines, and fighting with the guy next to you for the last TV in stock, is it all worth it? I guess it'll make for a nice work-out after U.S. residents have just gorged on excessive amounts of turkey and stuffing (a TV report I saw the other night estimated that the average American would intake 5,000 calories on Thanksgiving night!)

As for us Canucks, we had our fill of turkey a month ago. And with the Canadian dollar continuing to hover around par, we can probably expect some pretty nifty Boxing Day deals once the holiday season has concluded.

Let the Holiday Shopping Begin!

If my experience this past weekend is any indication, holiday shopping in Canada certainly isn't suffering too much in wake of the Canadian dollar. I made the mistake of attempting to step foot into the busy Toronto Eaton Centre, and was nearly buried alive by a sea of shoppers, shopping bags, and child strollers. There were actual line-ups just to use the escalators! Granted, this Sunday was the famous Santa Claus parade, plus the Raptors were playing at home, so both events likely contributed to the magnitude of mass hysteria.

Nevertheless, despite how frustrating it was to work my way through the crowds to reach the few stores I actually wanted to visit, it was nice to observe that shopping is alive and well in one of Canada's busiest cities.

On another note, I noticed that the Music World store was advertising a "going out of business sale". I popped my head in, and saw that CDs were being offered at 10% off (a few at 30%). Not bad.

Meanwhile, shoppers in the U.S. are gearing up for Black Friday, which takes place this Friday, November 23. Black Friday is known as one of the busiest shopping days of the year, with absolutely jaw-dropping deals, and a shopping frenzy that would make the Eaton Centre on the afternoon of December 24 look like a ghost town.

[Photo courtesy of http://www.freedigitalphotos.net/].

Speaking of Lemons...

The 'net is rife with stories about the current state of the Canadian/U.S. dollar, cross-border shopping, and why Canadians should continue to shop in Canada (or, as some opine, should head to the U.S. for "better deals"). One area where many have claimed that it's much cheaper to shop in the U.S. is the used vehicle market. However, Canadians should practice caution when looking for across-the-border deals. CBC News is reporting that tons of used cars that qualify for the "lemon" designation are crossing the border into Canada, and into unsuspecting buyer's driveways. Many are via auction, with no proper history being provided to the unsuspecting buyers, who then sell them at a profit in Canada.

Reportedly, a total of 852 cars have brought forth a sour taste in the country between May 1, 2006 and November 5, 2007. More shocking, however, is that 13% of them (110, to be exact) arrived since the Canadian dollar reached parity with that of the U.S. (which, to my knowledge, was less than a month ago!)

Moral of the story: if you get excited about an amazing deal on a used car in the States, don't automatically assume that things are what they seem. Run the proper tests to ensure that it's not a lemon (http://www.carfax.com/) before you, or your customer, gets taken for a ride (or rather doesn't). Or better yet, buy your cars here, in our home and native land! (Of course, it goes without saying that you should run the appropriate back-checks either way).

As the saying goes, give us lemons, and we'll....wait a second, take them back! We don't want any of your lemonade, thank you very much.

Gift Cards Could Help Consumers Remain in Canada to Shop

Amidst all of the hoopla surrounding the rising Canadian dollar and the risk of more and more Canadians heading over the border to shop, we see a positive sign: gift cards! An Ipsos Reid poll found that 88% of Canadians enjoy getting gift cards, while 72% say they'd even rather receive a gift card than an actual gift!

This will, of course, bode well for the Canadian retail landscape because, for the most part, one is likely to purchase a gift card from a local retailer rather than one in another country. Sure, online shopping still poses a threat in the gift card domain. But, for the most part, I think Canadian retailers can rest easy that they'll be seeing consumer bucks for those handy pieces of plastic.

Although...I am a bit skeptical about the study results: the press release did not mention the sample size of the survey (it was conducted on behalf of Mark's Work Wearhouse), and the number does appear a bit high. This is especially odd, since a similar Accenture survey conducted at this time last year with 498 Canadians found that only 29% would prefer a gift card to a well thought-out gift. This means that, in one short year, 40% more people have decided they'd rather just get gift cards than a gift? I guess a lot of coal was distributed under trees and in stockings last year! We do have to bear in mind, however, that the studies were conducted from two different companies, so the parameters were likely very different. Nonetheless, it does seem like an oddly large jump.

This year's Ipsos study revealed that women appreciate gift cards more so than men (so much for the theory that "it's the thought that counts"), as did younger folks. As a funny aside, Ipsos says that 46% of men admitted to having forgotten to purchase a greeting card to hold the gift card (39% of women suffered from this temporary lapse). A total of 84% of respondents said that they always remember to redeem a gift card.

As for Canadian retailers, those who offer gift cards options will likely receive some extra bucks this year. My advice to any retailer who doesn't offer gift cards is to jump on that bandwagon ASAP; if not for good, at least for the holiday season. If Tim Horton's can do it, so can you. And for those with expiration dates, what's with that? If someone paid for credit at your store, they should be entitled to redeem it when they see fit.

Beware of Black Friday!

As retailers south of the border gear up for what's traditionally known as "Black Friday" (i.e. one of the busiest and most heavily promoted shopping days of the year), we're all wondering how things will fare. Will customers hoard into stores trying to get the best deals? Most definitely. Will retailers drop prices to record-breaking lows? Very possibly. Will chaos ensue? Time will tell.

Black Friday relates to the date in which retailers historically made the transition from unprofitability (the "red" zone) to profitability (the "black" zone). Since it falls on the day after U.S. Thanksgiving, which is always the fourth Thursday in November, the name Black Friday was born.

In 2006, this day led to record low prices and high shipments in the flat-panel TV arena. With sleeker, more technologically-advanced and already low-priced TVs on the market already, what will Black Friday mean for those playing in the LCD/plasma arena? As retailers fight for a larger piece of the shopper's money pie, how low will prices get, and how ridiculously great will promotional offers become? Judging from a move that Wal-Mart has already made, things could become mouth-droppingly exciting: according to DisplaySearch, the mammoth retailer is already offering a 50" HD plasma TV for less than $1,000 (the same TV sold for about $1,700 just last month). If this is a pre-Black Friday promotion, how cheap will the set be come end of the month??

DisplaySearch reports that Black Friday 2006 accounted for almost 20% of all TV units sold and 17% of revenues for the entire fourth quarter: yes, just that one day! Last year, Panasonic's 42" TH42PX75U was the best-selling model based on revenue, which was sold through Best Buy outlets at an impressive price of $999.

"Black Friday has always been a crucial event for retailers, but because of the surge in demand for flat-panel TVs, it has become an important indicator for selling trends for the rest of the holiday season," explained Paul Gagnon, Director of North America TV Market Research for DisplaySearch. "Brands, retailers, and many others can gain critical insights and develop tactical plans from these early Black Friday results."

With the Canadian dollar so high (and getting higher - it's almost $1.08 today!), Canada/U.S. borders could be more flooded than usual the week of Black Friday. Overly brave Canadians might just attempt being trampled by U.S. shoppers in an effort to cash in on the overwhelming deals.

Canadian Retail Sales Up, Says Stats-Can

Statistics Canada reports that retail sales in Canada rose 0.7% during the month of August, reaching approx. $34.5 billion. Surprisingly, sales from new car dealers took top ranks with 3% growth.

But home furnishing and electronic stores also showed strong growth at 1.5%, representing the second consecutive increase over 1% in the category. This category also rose 10.5% when compared to August 2006! The consistent rise was reported to be due, in large part, to home electronics and appliances specifically, which rose a whopping 3.7% in sales: the most drastic rise seen since February 2005. When compared to the same period last year, the category rose an impressive 15.7%. More good news for the industry: sales in the furniture, home furnishings, and electronics stores sector have not dropped since spring last year.

The strongest sales growths were found in P.E.I. (2.5%) and Ontario (2%), fueled mainly by new car dealer sales. Provinces that experienced a decline in retail sales included Alberta (0.5%); Nova Scotia (0.7%); Manitoba (0.2%); and Northwest Territories (1.7%).

This holiday shopping season will prove a critical one for the retail landscape in Canada. Retailers like Wal-Mart have already made announcements that they'll be dropping prices in the wake of the strong Canadian dollar. Wal-Mart Canada President & CEO Mario Pilozzi presented a letter to the company's suppliers in attempt to negotiate lower prices. Meanwhile, Hudson's Bay Co. also announced that it would slash prices at all 298 Zellers outlets across Canada, due in large part to the rising Canadian buck.

One thing's for sure: the 2007 holiday shopping season will certainly work in the consumer's favour. If there's ever a time to get the best value for your money, this is it. Happy shopping!

Canadian Dollar Will Reach US$1.05 by 2008

CIBC World Markets predicts that the Canadian buck will be worth $1.05 U.S. by the end of 2008, representing the biggest premium since 1960.

"The loonie's flight is far from over," said Jeff Rubin, Chief Economist and Chief Strategist at CIBC World Markets. "By the end of next year, you'll get as much as a nickel back when you trade your loonies for greenbacks."

Last month, Lee Distad gave readers a piece of his mind on this blog about the disparity between retail pricing in the U.S. and Canada on consumer goods. In short, he argued that contracts were signed months, maybe even a year ago, and to change pricing now to work in line with the current exchange rate would leave Canadian retailers feeling the pain. With the rise in Internet sales over the last few years, will they be feeling the pain anyway? After all, as it stands, I can buy product X at a Canadian store for $20.00; or purchase it online from a U.S. retailer for something like $18.00, plus shipping and handling. As the gap between the Canadian and U.S. dollar begins to widen, it will eventually make purchasing from across the border even more enticing.

Of course that doesn't hold true for all products and in all situations: in many cases, the after-sales service, and peace-of-mind that you're dealing with a retail outlet around the corner from your home is worth the extra few bucks you could end up paying in Canada. Plus, sometimes waiting for a product to be shipped isn't something the customer's willing to deal with. But we have to be honest: in some situations, the U.S. might be seeing more Canadian dollars than we would like them to.

Distad was correct in predicting that this holiday shopping season will see a price war like no other: but Canadian retailers won't only be competing with one another for Canadian consumers' bucks: they'll also be competing with our neighbours to the south, through things like across-the-border and Internet shopping, in a way they haven't had to deal with in years.

On a related note, Rubin adds that the rise of the Canadian dollar over the U.S. is due largely in part to the shift in "global terms of trade over the last decade, which has seen economic value-added migrate from information technology back to resource rents under the ground." Such shifts are obvious when looking at countries like Dubai, which has raised its profile over the past few years with modern and futuristic real-estate projects like man-made islands and indoor ski hills, and has attracted the attention of corporations from all other world, which have since set up shop in the country's financial district.

It will be interesting to see how the countries of the world are positioned 20, and even 10 years from now.

CE and the Dollar

From the desk of Lee Distad's Professional Opinion:

Regarding the recent surge in the strength of the Canadian Dollar: there’s only one place in the daily newspapers where there are more poorly thought out arguments about economics than the editorial pages, and that’s the letters-to-the-editor page.

The pundits, whether professional or amateur, who are crying foul about price disparity on consumer goods north of the border mean well, but I have yet to see a single diatribe where the writer demonstrates an understanding of the consumer marketplace. To be honest, that might be explained by the fact that every day that I skim the editorials and the letters, I invariably come upon a plea along the lines of “shouldn’t the government be legislating price controls to protect us?” Usually, the paper ends up getting hurled across the room, so I might have missed one or two.

To keep this blog entry simple, let’s examine the two primary factors that govern what goods are sold for: volume and time. There’s a whole host of other factors, but these two are the big ones. I recognize that most people reading this have considerable experience in our industry, and know all this already, but I’ve been building up a head of steam for weeks and need to get this off my chest.

Keen eyed readers will have noticed that foreign exchange isn’t one of the top two reasons. That’s because of time. The products on the shelves this fall were ordered and the contracts signed anywhere from six months to a year or more ago; and the distributors and agents agreed to pay a price that was dependant on a Canadian Dollar that was anywhere from 80 to 90 cents U.S. at the time the deals were made. The product sitting on shelves and in the warehouses wasn’t paid for at par, so for prices to line up with what can be seen across the border, it would be Canadian businesses taking it on the chin. Does anybody reading this think that’s fair?

Speaking of fairness, it may not seem fair that goods cost more in Canada, but a large part of that comes down to volume. The bottom line is that the United States has a population of roughly 300 million people, and Canada has only a little more than a tenth of that. Whether retail store buyers are purchasing seasonal programs for apparel, electronics, or anything else, the amount that Canadian retailers and their suppliers will purchase from overseas manufacturers will never, ever come close to the consumption of our neighbour. As a result American companies pay less for their goods than do Canadian companies because of the volume discounts that they receive. It seems pretty simple.

Or maybe it’s not as simple as that. This week Wal-mart fired the first shot by announcing that they would sell HALO3 at the same MSRP in Canada and the U.S. In one stroke, Wal-mart scored bonus points with consumers, and made every other retailer look bad for not jumping to the pump.

I guess that you could say that there’s a third key factor in pricing: power politics. I was talking with a friend yesterday who represents a number of electronics manufacturers. He was keen to find out if I had heard rumblings of any vendors or retailers getting ready to announce exchange-rate related markdowns on electronics. To hear him tell it, our industry is currently in a Spaghetti Western-style showdown in the middle of Main Street, waiting to see who’s going to draw, or blink, first. The holiday selling season is typically a time for pricing silliness anyway: during a two week span back in October 2002, I had to re-price all the DVD players on my shelves seven or eight times as vendor-driven markdowns were communicated to us. I think that the flat-panel bloodbath of last year is still fresh in our memories.

I’ve got a niggling feeling that we may see a price war this Christmas that makes last year look mild by comparison.

http://businessopinions.blogspot.com/ (For more of Lee Distad's Professional Opinions)

Wal-Mart Canada Sets Precedent By Offering Halo 3 at U.S. Price

In a move that can be considered both strategic and smart, Wal-Mart Canada has decided to offer the highly-anticipated Xbox 360 video game Halo 3 at the same price that it will be offered in the U.S.: $59.83. This will be about $10 cheaper than other Canadian retailers will be charging: both Future Shop and EB Games are currently advertising the game for $69.99 (the limited edition for $79.99).

This move makes sense for any retailer given the current strength of the Canadian dollar (it's virtually on par with the U.S.!), but especially for Wal-Mart, which prides itself on always offering the lowest prices.

Wal-Mart says it will offer Halo 3, which is officially released tomorrow (Sept. 26), at that price for an "extended period".

"We've been negotiating with suppliers for more than one year, based on the belief that a high dollar and favourable business conditions should translate into lower prices for our customers," said Jim Thompson, Senior Vice President of Merchandise at Wal-Mart Canada.

Don't think that other retailers have just been standing by, though. Future Shop will be opening 103 of its 127 stores at midnight tonight in celebration of the game's launch so customers can "get it first", as the company's slogan goes.

Hmm...that's a tough one when it comes to hard-core gamers. Do they want to "get it first" or get it cheapest? My presumption is that the tried and true gamers will be hauling their butts to Future Shop tonight to grab the game before anyone else; while the budget-conscious parents and students (17 and older, of course, since the game is rated M for Mature), will stroll over to Wal-Mart at a later date for the cost savings.

Going forward, only time and sales will tell. But if our dollar keeps up, it will be interesting to see how pricing of CE/IT product changes, or fails to change, in Canada.