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CANADA COCOONING

Confidence in economy drives furniture buying

By Susan Thorne

By midyear furniture, home decor and electronics sales in Canada rose 12.5 percent from the same period last year, compared with a 6 percent increase in the U.S.

Home is where the heart is, and in Canada that sentiment is driving strong sales of furniture and other home-related merchandise at a time when the sector has slumped in the United States.

Furniture and home decor (including home electronics) sales in Canada grew 7.9 percent last year, the highest of any retail category, with the year’s total standing at C$16.4 billion ($10.5 billion), according to Toronto-based retail consulting firm J.C. Williams Group, which incorporated data from Statistics Canada, the federal government research agency.

This performance follows two years of even greater increases — 10.7 percent in 2000 and 9.1 percent in 1999. The latest figures available show that 2002 could also be a banner year. In May sales of home furnishings and appliances grew by 17.3 percent year over year, compared with a 4.9 percent increase for all retail stores. Although home furnishings sales dropped in June to 9.5 percent, they still ran ahead of retail sales at all stores, which rose only 3.6 percent for the period compared with 2001.

The differential continues into 2002. By the end of June, Canada’s retailers in the furniture sector had rung up 12.5 percent more in sales than they had during the comparable period in 2001. Their counterparts in the United States, meanwhile, had a much lower increase of 6 percent for the same period.

Canadians’ rush to buy home merchandise is being driven by confidence in the economy and a resulting boom in house purchases, explained John Archer, a retail consultant at J. C. Williams.

“The housing-starts sector has been phenomenal in the last year or two,” he said, “and those house sales usually translate into strong sales of furniture and other home-related merchandise several months later.”

The new home owners are mainly young people 20 to 35. But baby boomers, sometimes described as weak consumers who make fewer big-ticket purchases than younger shoppers, are doing their part when it comes to home furnishings, said Richard Talbot, president of Talbot Consultants International, a Toronto marketing firm.

“The baby boomers are moving toward the cocooning phase of their lives,” he said. “They’re downsizing, buying condos or smaller homes and replacing the beat-up sofa purchased when the kids were young.” Such mobility means that new residents will move into the boomers’ former homes, generating another round of furniture and furnishings sales, he added.

The home is once again being seen as a center of leisure and entertainment, fueling sales of electronics, especially DVD players, which have been extremely popular.

“There’s a broad social trend that says it’s fun to be at home,” said Bill Morrison, managing director of Home Outfitters, a housewares retail store concept of Toronto-based Hudson’s Bay Co. “With apparel sales declining and travel flat, people are spending on their homes and surrounding themselves with small things,” Morrison said. Among other things, the dinner party is back, and interest in good dishes and table decor has revived, he added.

Furniture retailers are expanding and broadening their offerings to cash in on this new domesticity. Sears Canada, which has experienced double-digit growth over the past four years in furniture and appliance sales, is creating separate, large-format furniture stores to meet the demand. Sears Canada has also wooed Martha Stewart away from Zellers, a Hudson’s Bay subsidiary, signing a multiyear merchandising agreement for the Martha Stewart Everyday brand collection of bed, bath and housewares, which will be on the shelves in 2003.

Leon’s Furniture, Toronto, the leading Canadian furniture speciality retailer, saw sales rise in the first quarter of this year by more than 10 percent to $94.6 million at its 49 stores; it plans to add 15 to 20 stores in the next five to seven years. Ikea Canada, riding high with 10.4 percent same-store sales growth for the year ended April 30, has announced an expansion program and added two new Canadian units in the past 12 months, the first such additions in 10 years.

Hudson’s Bay is in the process of rolling out its Home Outfitters chain, which went from 6 stores to 22 last year and will increase by an additional 32 to 34 stores by year-end 2003. The final count will be between 75 and 100 nationwide, Morrison predicted. The Home Outfitters concept is similar to that of U.S. retailer Bed Bath & Beyond. (Home Outfitters, in fact, bore the name Bed, Bath and More from 1997 to 1999. The name switch was done for strategic reasons, the company said.) The stores offer housewares and accessories — small appliances, bedding and linens, decorative items — rather than the big-ticket furniture and appliances that are the specialties of The Bay department stores. Though he declined to share specific sales figures, Morrison describes Home Outfitters sales to date as “very good.”

Furniture and home goods sales are being further stimulated by the arrival of new U.S. players such as Williams-Sonoma and Pottery Barn, whose novelty gives them a competitive edge. Best Buy, which bought Canadian electronics chain Future Shop in 2001, said it will have opened eight stores under its own brand in the Toronto area by this fall, and Pottery Barn Kids is making its Canadian debut with a store in Toronto.

“You can’t swing a cat without bumping into new U.S. retailers here these days,” remarked J. C. Williams’ Archer.

Aside from traditional housewares and furniture specialists, other retailers are adding home accoutrements to their inventories or increasing their share of home-oriented offerings. This includes fashion retailers, in a logical move, given the weakening of apparel sales in recent months in Canada. Roots Canada and Club Monaco have both developed home merchandise lines and lifestyle store concepts; there are currently two Roots Home stores, and Club Monaco has opened five Caban stores in Montréal, Toronto and Vancouver, British Columbia.

Hudson’s Bay envisions having between 75 and 100 Home Outfitters stores across Canada.

In spring 2001, Winners Merchants, a subsidiary of TJX Cos., launched a chain of discount home goods stores called HomeSense (similar to its HomeGoods concept in the United States), offering merchandise that it said was priced 20 percent to 60 percent below equivalent items at specialty and department stores. Shoppers can check out such bargain-priced imports as $699 Oriental rugs and $25 crystal vases, as well as bedding, garden products, seasonal items and decor accents. The company says the Canadian market will support 60 to 80 of the 25,000-square-foot stores, of which there are currently 12.

Laval, Québec-based Laura Canada, which operates 140 fashion stores under the Laura Petites, Melanie Lyne and other banners, started up a new division in April 2001 called Finds, whose 15,000-square-foot stores combine apparel with such budget-priced home items as candles and throw blankets. There are 12 stores, and continued growth of the concept is planned.

Loblaw Cos., Toronto, Canada’s leading grocery retailer, is focusing on larger-format superstores with a higher proportion of home-related products, from bath accessories to wallpaper, small appliances and lawn and garden merchandise. Canadian Tire, the highly popular automotive, sport and hardware retailer, has announced that it will beef up its range of household items to offer everything from garden hoses to lightbulbs and toasters at its 423 stores.

The drive by Canadians to enhance their homes is also contributing to this expansion of home-building and decoration retailers. The two national leaders — Boucherville, Québec-based Rona, (539 stores, 46 of them big-box size) and Home Depot Canada — have both announced big growth plans. The Atlanta-based Home Depot has talked about an eventual total of 120 stores in Canada, where it presently has 83 in seven provinces. The Ontario market has become particularly crowded. Medium- and large-format players Reno-Depot, of Boucherville, which operates under the Building Box banner, and St. Jacobs, Ontario-based Home Hardware are both expanding their store numbers while competing for market share with Rona and Home Depot. Last year Rona opened its first Rona Home Solutions store, a concept designed to appeal to female shoppers, in Brampton, Ontario. In addition to home decor accessories, the 130,000-square-foot store has a Paint ’n Clix Café where customers can peruse decorating literature.

Much of the home-retail boom is taking place outside traditional shopping centers. Most of the aforementioned retailers have favored large-format stores in power centers or on freestanding sites rather than in regional or super-regional malls. This is partly the result of the pattern of shopping center development in Canada over the past decade, which has seen more power centers built than enclosed malls. But when it comes to furniture, the decline of the department store has something to do with it too, leaving a vacuum that has been filled by big-box retailers.

“Department stores are no longer filling the role of home goods suppliers as they used to,” observed J. Lorne Braithwaite, former chairman, president and CEO of Cambridge Shopping Centres and now chairman and CEO of Ethan Allen Canada, which has nine upscale furniture stores. “In the last decade, we’ve lost Simpsons, Woodwards and Eaton’s, which at one point had 100 stores, and the remaining department stores are decreasing the square footage they devote to furniture and appliances.” The demise of the Sears Canada-owned Eatons (as it came to be spelled) is just the latest example of this trend, said Braithwaite, a former ICSC chairman.

Hudson’s Bay and Sears Canada, the largest surviving traditional department store retailers of home goods, are also joining the category-killer trend. Hudson’s Bay’s creation of Home Outfitters is “a shrewd move,” consultant Talbot said, because the new stores complement the company’s operations in regional malls, many of which are anchored by a Zellers or Bay, or both.

“There’s a whole demographic that is spending in big-box projects,” Talbot said. “Home Outfitters is picking up a hunk of market for Hudson’s Bay that they didn’t have before.”

Though not all Home Outfitters are in power centers, Morrison notes that at 40,000 square feet, his stores usually cannot fit into a traditional shopping center “unless somebody leaves or there’s a major refit or expansion.”

Sears Canada is in the process of taking furniture out of its traditional full-line stores and moving it into specialized freestanding Sears Furniture and Sears Furniture & Appliance outlets, where a much larger merchandise selection can be offered. There are 38 such stores to date. Brent V. Hollister, Sears Canada’s president and COO, explains that the strategy came about because Sears Canada found that furniture and appliance purchases are not usually combined with other shopping.

“These are destination-type purchases,” he said. “If a customer comes in to buy children’s clothing, for example, she’s not likely to browse in the furniture section.”

Where possible, the new, separate furniture stores are located within a kilometer or two of a Sears general merchandise store, but the main site criterion is “to be where retailers with strong retail draw are, where business is being done,” Hollister said. That means power centers in many cases, though the Sears Furniture stores in Belleville, Newmarket and St. Bruno are sited on shopping center pads. Sears Canada also continues to ring up a significant proportion of furniture sales at its 2,100 catalog retail outlets, Hollister added.

The boom in home-related purchases looks set to continue in Canada, given the country’s low interest and mortgage rates, high consumer confidence levels and relatively healthy economy at the present time, observers say. Canada narrowly avoided a recession last winter and has been spared some of the negative impact of the Enron scandal and the Sept. 11 terrorist attacks; the Canadian dollar’s slight climb this summer reflects that relative stability. This economic buoyancy is particularly significant for purchases of home furnishings, which are more a discretionary than a must-buy category.

Archer of J.C. Williams pointed out that demand for new housing is still strong, especially in Alberta and Ontario, the driving forces in Canada’s economy right now.

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