Retailers could be shocked as potential economic slowdown overshadows optimism

A recession south of the border and an ensuing economic slowdown in Canada could deliver a new set of challenges to Canadian retailers - including some who've boasted that they're relatively recession proof.
Executives from the country's biggest retailers met with several U.S.-based industry giants at a CIBC World Markets industry conference on Wednesday and some expressed confidence in the face of the possible economic troubles.

But their optimism follows ominous data released by Statistics Canada last month that suggest a slowdown in the U.S. economy could erode local spending later this year, especially in Central Canada.

Metro Inc. (TSX:MRU.A) executive vice-president Eric La Fleche told the audience that major supermarket chains could reap the rewards of tightening consumer purse strings.

Instead of eating at restaurants, Canadians might decide to stay home and cook a meal, which means they'll continue to shop at grocery stores, La Fleche told the conference.

That kind of hopeful outlook echoes recent comments from Shoppers Drug Mart (TSX:SC) chief executive Jurgen Schreiber.

Last month, he shrugged off suggestions that a U.S. recession could migrate into Canada and trample the pharmacy chain's steady sales growth.

"We have a significant amount of categories which are relatively independent from recessions," he said, pointing to pharmacy, over-the-counter medications, and cosmetics as Shoppers' saving grace.

But such confidence sounds like wishful thinking to some industry watchers.

"They're recession-proof in terms of absolute needs, but they're not recession-proof in terms of wants and desires," said John Torella, a senior partner with retail consultancy J.C. Williams Group.

"In Shoppers' case, there are many products within their assortment that run into that hope and wants category."

Aside from medications, Shoppers stores stock up on junk foods, magazines and glamour products - aside from cosmetics - which might be considered less necessary by consumers.

Torella suggested that companies should be reacting faster to the potential slower spending.

"Somebody said you can either act, react or pray - and unfortunately many, many marketers are just praying this (economic slowdown) will go away - and it's not," he added.

The latest data on consumer spending from Statistics Canada are mixed.

In December, retail sales rose 0.6 per cent to $35.1 billion, helped by new car sales. Retailers also saw an uptick of 5.8 per cent over the same month in 2006, selling about $412.2 billion of goods.

Despite the somewhat positive results, economists have predicted that sales growth will slow this year.