Shoppers approach holidays with frugality

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Frugal may be "the new cool," but Canadian shoppers are still doing their part to help drive the recovery as American consumers remain wary.

In Canada, where consumers account for 60 per cent of economic activity, shoppers remain out in force as rising house prices and a more stable labour market bolster confidence.

Yet in the United States, where retailers kick off their key holiday shopping season this week with Black Friday, high debt levels and mounting unemployment are combining to keep consumers away from the malls. That's a key measure for defining the rebound in the U.S. as consumer spending makes up about 70 per cent of the economy.

A Statistics Canada report Monday showed retail sales rose 1 per cent in September - topping forecasts and marking the seventh gain in nine months. However, sales were still 3.3 per cent lower than in September, 2008. Sales south of the border fell in September and, excluding autos, were flat in October.

"In Canada, consumers will be significant contributors to growth" partly because they're less shell-shocked than their American counterparts, said Krishen Rangasamy, economist at CIBC World Markets Inc. "In the U.S., the consumer is going to struggle."

U.S. consumers were hit hard as real-estate values began tumbling a few years ago, culminating in a credit and stock-market washout last year. The lingering pain is likely to keep holiday spending muted. Some 93 per cent of consumers say they'll spend less or about the same as last year, an Associated Press-GfK poll showed. And about 20 per cent say they're suffering from debt-related stress, up from 15 per cent in the spring.

Canadian real-estate, on the other hand, experienced a much milder drop in value, and relatively few Canadians have lost their homes due to excessive debt.

Marcus Breitschwerdt, president and chief executive of Mercedes-Benz Canada, wasn't surprised by the strong reading in Canada. Sales at his firm are 18 per cent higher this year than last, and it's opened five new dealerships in Canada in recent weeks.

"There's a high level of confidence," he said.

He has noticed a change in behaviour. Customers are researching purchases more thoroughly, asking more questions at dealerships, taking a little longer in decision-making and appetite is growing for smaller cars, he said. Nonetheless, the company is on track for a record year in 2009.

He noted that Canadians have been more conservative in their spending habits, and are weathering the recession better as a result. "Consumers in Canada have been by far more reasonable than in other places."

Consumer confidence is slowly returning after it plunged earlier this year, said John Williams of retail consulting firm J.C. Williams Group.

"Canadians are ignoring the disastrous news in the States, and have to realize our banking system is solid ... and our housing market has a huge impact on how people feel," he said, adding that low borrowing costs are also underpinning spending.

That said, he doesn't expect a quick return to boisterous levels in previous years. "Frugal is the new cool," he said. "People will be looking for things they need rather than want. Flashy consumerism is out, for sure."

Companies are responding to that shift. Retailers such as Loblaw Cos. Ltd., Wal-Mart Canada Corp. and Sears Canada Inc. have recently touted their lower pricing to lure people into stores.

Monday's report showed Canadians flocked to supermarkets, book stores and car dealers.

September's gains stemmed from across-the-board increases in the auto sector - used and recreational vehicles, new car dealers and gasoline sales all climbed in the month.

Even without the auto sector, sales were 1.1 per cent higher - the largest gain since January, 2009.

The biggest increase was at general merchandise stores. Miscellaneous retailers saw gains as sales at sporting goods, hobby, music and book stores tallied the largest increase in 18 months. Sales also rose at furniture, home furnishings and electronics stores.