Dollar puts retailers on the spot
by investor on 22/01/09 at 1:31 am
The volatile loonie is throwing yet another wrench in many retailers’ playbook at a time when they can least afford it – and the situation could get worse in the months ahead.
Retailers are already feeling the pressure to keep prices low as cash-strapped consumers hunt for deals in the economic downturn.
Up until the financial storm last October, a stronger loonie had helped many merchants who import their products moderate prices, and still generate higher profit margins.
But the slumping loonie could push up merchants’ costs by between 10 and 25 per cent this year, said Tim McGuire, a director at management consultancy McKinsey & Company Canada. It could force them to raise prices or try to offset the expenses in other ways, such as cutting costs.
“The net result may be further pressure on margins, lower sales as customers resist higher prices, or both,” said Mr. McGuire, a retail specialist.
Added Perry Caicco, retail analyst at CIBC World Markets: “The slumping Canadian dollar might be the single biggest cost issue for most retailers this year.”
At about the same time that the loonie began to dive last October, retailers were locking into prices for spring, Mr. Caicco told investors this week. As a result, most of those programs will cost between 5 and 10 per cent more than a year earlier, he said. And in these recessionary times, retailers will have trouble raising prices, resulting in what may be “sizable margin hits” to sell the merchandise.
“The problem gets worse for fall and winter goods, since those entire programs were bought with weak dollars and are lapping a very strong [Canadian dollar] from last year’s purchase cycle.”
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