Recession mindset takes toll on retail sales

Recession mindset takes toll on retail sales

VIRGINIA GALT AND MARINA STRAUSS
With files from reporter Matt Hartley and The Canadian Press
December 23, 2008

TORONTO -- Fear of job loss is ushering in a new era of frugality, as some retailers saw a sharp decline in pre-Christmas sales and consumer confidence plunged to its lowest level in 26 years.
The monthly consumer confidence index by the Conference Board of Canada fell for a third month in a row to its lowest level since the deep recession of 1982, with half of respondents saying they expect there will be fewer jobs in their communities six months from now, and more than a quarter saying their families are worse off than they were six months ago.

Consumers are caught in a "very negative downward cycle of a psychology of recession," Glen Hodgson, the Ottawa think tank's chief economist, told a news conference yesterday.
After months of hearing about the deteriorating global economy, "that loss of confidence has become very personal. People are now worried about their financial circumstances and about their job," he added.

Their worries are showing up at the mall. Amid the crucial holiday shopping season, same-store sales saw their steepest decline, plummeting an average of 10.2 per cent the week ended Dec. 13, according to a survey of 27 retail chains by RSM Richter.

Same-store sales measure those at outlets open a year or more, and are considered a crucial retail barometer. Sales have been dropping over the past several weeks, RSM retail consultant Lynn Bevan said.

And Boxing Week business may not be nearly as strong as it has been in past years, Ms. Bevan said. Retailers have already been slashing prices to lure customers, leaving fewer attractive deals for the post-Christmas period, she said.

"People are just worried about keeping their jobs," she said. "Until that really stabilizes, I think people are just going to conserve cash. People are very nervous about what 2009 has to bring. There is so much media about the economy and how it's going to get worse in 2009."

At electronics giant Best Buy Canada, customers are snapping up less expensive items, such as video games, MP3 players and digital cameras, Best Buy spokesman Scott Morris said. But shoppers are deferring their bigger-ticket purchases of products such as flat-panel televisions until Boxing Day, he said.

"We've been through it before and people are gun-shy," said Richard Talbot at retail specialist Talbot Consultants International. "The steady stream of bad news in the U.S. and Europe has a ripple effect."

Likely victims: Big-ticket items and luxury goods, Mr. Talbot said. "Furniture, I suspect, will take a big hit. I went through and looked at the Brick and Sears the other day. You could have fired a cannon through there."

At the Eaton Centre in downtown Toronto yesterday, shoppers went shoulder to shoulder in search of the final items on their holiday shopping lists. But some shoppers, worried about the prospect of rising unemployment, were tightening their purse strings.

"I'm spending less, significantly," said Michael Leahy. "We all know people who have concerns about their jobs and I'd be crazy if I said that wasn't a concern."

It's little wonder Canadian consumers are feeling spooked, economist Dale Orr, managing director of Global Insight Canada, said in an interview yesterday. "Canadians have been faced with unrelenting bad news on the economics front in recent months," Mr. Orr said. "The stock market is down 40 per cent this year, house prices are down, and unemployment is rising."

Still, the picture is nowhere near as dire in terms of job losses as the recession of the early 1980s, when unemployment spiked at 13 per cent, or the recession of the early 1990s, when unemployment rose to 10 per cent.

Now, unemployment is at 6.3 per cent, although it is expected to rise above 7 per cent next year, the Conference Board of Canada's Mr. Hodgson said.

The Conference Board survey found Canadians' confidence about the economy declined 3.3 points to 67.7 in December. That's the lowest since 1982, when the index fell to 63.

One bright spot in the consumer confidence survey: Some shoppers are taking advantage of price cuts on TV sets, fridges, stoves and washing machines, Mr. Hodgson said. "And automobiles, of course, are going to be at rock-bottom prices for some time to come," he added.

The outlook for 2009 consumer confidence depends on what the federal government comes up with in the way of a stimulus package and what happens to the overall unemployment rate, he said.

Confidence will start to return as the majority of Canadians realize that they are keeping their jobs. "When that starts to happen, you'll see a change in attitude," Mr. Hodgson said.

President George W. Bush outlined his plan to funnel a total of $17.4-billion (U.S.) towards General Motors Corp. and Chrysler LLC

Bailout fatigue

RTGAM


Investors appear to be getting used to big bailouts, judging from the ho-hum response to the White House's plan to rescue struggling U.S. auto makers.


On Friday, about a half-hour before markets opened for trading, President George W. Bush outlined his plan to funnel a total of $17.4-billion (U.S.) towards General Motors Corp. and Chrysler LLC, in an effort to keep them out of bankruptcy in the near term and prevent a wave of auto-related layoffs. (The longer-term fix is for the next administration.)


That pretty much exhausted the first half of the $700-billion rescue fund approved by Congress earlier this year - so Henry Paulson, the U.S. Treasury Secretary, said that Congress should approve the release of the next half of the fund.


And in Canada, Prime Minister Stephen Harper said that a federal stimulus package could total as much as $30-billion (Canadian) in an effort to prevent the deteriorating economy from spinning out of control.


There was a time when three packages of this size would mean something to investors. Not on Friday.
The Dow Jones industrial average closed at 8579.11, down 25.88 points, or 0.3 per cent. The broader S&P 500 closed at 887.60, down 2.32 points, or 0.3 per cent.


To be sure, General Motors did just fine, rising 22.7 per cent. However, the price of the stock is still mired at just $4.49 (U.S.), suggesting that investors still don't have a whole lot of faith in its ability to survive. Ford Motor Co., which is not part of the bailout deal, rose 3.9 per cent.


Financials, however, did poorly, with Citigroup Inc. falling 5.5 per cent and Bank of America Corp. falling 1.6 per cent. Energy stocks were also down, with Chevron Corp. down 3 per cent and Exxon Mobil Corp. down 2.6 per cent.


In Canada, the S&P/TSX composite index closed at 8552, up 126.65, or 1.5 per cent. Research In Motion Ltd. was the big reason, with the BlackBerry maker surging 14.1 per cent after it released a fourth-quarter earnings forecast that topped analysts' expectations. As well, Royal Bank of Canada rose 0.7 per cent and Canadian Imperial Bank of Commerce rose 2 per cent in a late-day rebound.

And This:


TIP SHEET
David Berman
00:00 EST Friday, December 19, 2008

In an uncertain environment for oil and gas producers, few stocks have suffered as much as Oilexco Inc. - down more than 94 per cent from its high at the end of June, when the price of crude oil was also near its high point. Since then, oil has fallen about 74 per cent and Oilexco shares have plummeted to $1.10 from $19.46, which includes yesterday's 42-per-cent drop.

Yes, there's a connection here to the price of oil. But Oilexco is also suffering from cash issues. On Wednesday, the Royal Bank of Scotland and its banking syndicate cut a deal with Oilexco, which will provide the struggling company with a $47.5-million bridge loan. As part of that deal, the banks get 55.5 million shares of Oilexco - or almost 25 per cent - in the event that the company gets sold.

"This bridge loan makes up the company's cash shortfall that it must be experiencing as a result of current oil prices," Frederick Kozak, an analyst at Canaccord Adams, said in a note.

However, he noted that the loan is a short-term solution, and comes at the expense of diluting the holdings of existing shareholders. He has a "speculative buy" recommendation on the stock, with a 12-month price target of $5.

See David Berman's Market Blog at ReportonBusiness.com

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