structure of retail in canada

7/29/2019 Structure of Retail in Canada

1/125

The Struc ture of Retail inCanada

Prepared for the Retail Council of Canada inpartnership with Industry Canada

By Jacobson Consulting Inc.

Paul M. Jacobson


2/125

BSON CONSULTING INC.

Table of Contents

The Retail Sector..............................................................................................................................................11 Introduction..............................................................................................................................................12 The Definition of Retail............................................................................................................................1

3 What Retail Sells......................................................................................................................................44 Retail Revenues, Stores and Margins.......................................................................................................84.1 Sectors..............................................................................................................................................84.2 Stores................................................................................................................................................84.3 Margins...........................................................................................................................................11

5 Investment..............................................................................................................................................146 Labour Costs...........................................................................................................................................167 The Drivers of Retail Trade....................................................................................................................188 Products from All Over the World.........................................................................................................25Recent Trends.................................................................................................................................................271 Introduction............................................................................................................................................27

2 Locations................................................................................................................................................273 Retail GDP..............................................................................................................................................314 Retail Sales.............................................................................................................................................315 Employment Growth..............................................................................................................................34Work Force.....................................................................................................................................................411 Introduction............................................................................................................................................412 Employment Structure...........................................................................................................................413 Demographic Characteristics..................................................................................................................474 Occupations in Retail .............................................................................................................................515 Retail Compensation..............................................................................................................................536 The Retail Career....................................................................................................................................60Data Sources and Notes..................................................................................................................................671 Introduction............................................................................................................................................672 Data Classification..................................................................................................................................673 Data Concepts.........................................................................................................................................68

3.1 Data Collection...............................................................................................................................683.2 Retail-Specific Surveys..................................................................................................................683.3 Data Aggregation............................................................................................................................69

Note to Readers..............................................................................................................................................72Statistical Supplement....................................................................................................................................74


3/125

2

Figures and Tables

Figure 1 Retail Establishment Counts 3 Figure 2 Store Counts Per 1000 Persons 4 Figure 3 Retail Commodity Sales 2004 5 Figure 4 Market Share of Major Commodity Groupings 2004 5 Figure 5 Market Share of Large Retailers - 2004 7 Figure 6 Operating Revenue by Trade Group 2003 8 Figure 7 Operating Revenue Per Store by Trade Group 9 Figure 8 Sales Per Square Foot For Chains 10 Figure 9 Operating Revenue by Trade Group and Store Type 11 Figure 10 Gross Margin by Trade Group 12 Figure 11 Profit Margin Rate by Trade Group 13 Figure 12 Regional Profit Margin by Trade Group - 2003 13 Figure 13 Capital Investment Activity 14 Figure 14 Capital Expenditures 2003 15 Figure 15 Capital and Repair Investment 2003 16 Figure 16 Labour Costs as a Share of Operating Revenue 17 Figure 17 Labour costs as a share of Operating Expenses 18 Figure 18 Growth Rates of Sales and Income 19 Figure 19 Selected Household Statistics by Income Quintile - 2003 20 Figure 20 Relationships in Household Spending - 2003 21 Figure 21 Incidence of Purchases 22 Figure 22 Household Statistics by Income Quintile 23 Figure 23 Home Renovation by Income Quintile 24 Figure 24 Import Shares of Domestic Market 25 Figure 25 Chinese Share of Retail-related Imports 26 Figure 26 Store Counts for Canada 27 Figure 27 Growth in Store Counts by Province 1999-2003 28 Figure 28 Growth in Locations by Trade Group - 1999-2003 29 Figure 29 Top 15 Markets by Chain Locations 30 Figure 30 Fastest Growing Urban Markets 30 Figure 31 Industry Gross Domestic Product 31 Figure 32 Average Annual Growth Rates of Retail Sales by Trade Group 32 Figure 33 Per Capita Retail Sales by Province 33 Figure 34 Sales of Commodities by Large Retailers 34 Figure 35 Employment Growth 2000-04 35 Figure 36 Net Employment Gains 2000-04 35 Figure 37 Retail Employment 1987-2004 36 Figure 38 Retail Employment by Class of Worker 37 Figure 39 Employed Workers in Retail 38 Figure 40 Recent Retail Employees by Sector 39 Figure 41 Hourly Wages 40 Figure 42 Retail Employment 2001 41 Figure 43 Retail Employment by Size of Enterprise 42 Figure 44 Employees by Workplace Size 43 Figure 45 Retail Employment Structure 2001 44 Figure 46 Retail Employment by Class of Worker 45 Figure 47 Structure of Retail Employment 2004 46 Figure 48 Weekly Hours Worked 47 Figure 49 Labour Force Characteristics 48 Figure 50 Educational Attainment by Sector 49 Figure 51 Immigrated in the Last 5 Years 50


4/125

3

Figure 52 Prevalence of Female and Part-Time Employment 51 Figure 53 Labour Force Occupational Characteristics 52 Figure 54 Occupational Comparison - Retail and Manufacturing 53 Figure 55 Structure of Income by Sector 54 Figure 56 Structure of Income for Retail Managers By Sector 55 Figure 57 Employed Workers - Union Coverage 2004 56 Figure 58 Average Weekly Earnings by Sector 56 Figure 59 Average Weekly Earnings 57 Figure 60 Distribution of Hourly Wage Rates - Retail Sales Occupation 58 Figure 61 Incidence of Health Benefits 2001 59 Figure 62 Incidence of Health Benefits by Occupation 2001 60 Figure 63 Structure of Tenure by Sector 2004 61 Figure 64 Employee Turnover Estimates 62 Figure 65 Worker Retention - Same Employer in 2001 and 2002 63 Figure 66 Same Employer in 2001 and 2002 by Region 63 Figure 67 J ob Satisfaction 2001 64 Figure 68 Pay Satisfaction 2001 64 Figure 69 Training Activities 65 Figure 70 Training by Workplace Size and Employment Status 66 Table 1 Retail Establishment Counts 75 Table 2 Store Counts by Region 75 Table 3 Per Capita Store Counts 76 Table 4 Market Shares of Major Commodity Groupings 2004 77 Table 5 Sales of Commodities by Large Retailers 78 Table 6 Market Share of Large Retailers 79 Table 7 Operating Revenue by Trade Group 79 Table 8 Operating Revenue Per Store By Trade Group 80 Table 9 Sales Per Square Foot for Chain Stores 81 Table 10 Operating Revenue by Trade Group and Store Type 2003 81 Table 11 Gross Margin by Trade Group 82 Table 12 Profit Margin by Trade Group 82 Table 13 Profit Margin by Trade Group by Type 83 Table 14 Profit Margin Rate by Trade Group and Province 84 Table 15 Gross Margin by Trade Group and Province 85 Table 16 Structures Investment by Retail 2003 86 Table 17 Machinery & Equipment Investment by Retail 2003 86 Table 18 Total Investment by Retail 2003 87 Table 19 Capital Expenditure by the Retail Sector 87 Table 20 Capital and Repair Investment in Retail 2003 88 Table 21 Labour Costs by Trade Group 88 Table 22 Labour Costs as a share of Operating Revenue by Type 89 Table 23 Labour Costs as a share of Operating Expenses by Type 89 Table 24 Sales and Income 90

Table 25 Personal Disposable Income Per Capita 90 Table 26 Selected Household Statistics by Income Quintile 91

Table 27 Relationships in Household Spending 2003 92 Table 28 Selected Household Expenditure Statistics 93 Table 29 Incidence of Purchases of Selected Goods 94 Table 30 Average Expenditure of Reporting Households 95 Table 31 Median Expenditure on Selected Goods 96 Table 32 Home Renovation Expenditure 96 Table 33 Import Shares for Key Markets 97 Table 34 Chinese Share of Imports for Selected Sectors 97 Table 35 Store Counts for Canada 98


5/125

4

Table 36 Store Counts by Province 98 Table 37 Store Counts by Type 99 Table 38 Fastest Growing Urban Markets - Chain Locations 100 Table 39 Top 15 Markets by Chain Locations 100 Table 40 Retail Trade by Trade Group 101 Table 41 Retail Sales Per Capita 101 Table 42 Sales of Commodities by Large Retailers 102 Table 43 Employment Gain 2000 to 2004 102 Table 44 Retail Employment Over Time 103 Table 45 Role of Women and Part-time 103 Table 46 Prevalence of Female and Part-time Employment 103 Table 47 Total Employment in Retail by Sector 104 Table 48 Self-Employment in Retail by Sector 104 Table 49 Self-Employment Share in Retail 104 Table 50 Structure of Retail Employment 2004 - Shares 105 Table 51 Structure of Retail Employment 2004 106 Table 52 Retail Employment by Class of Worker 106 Table 53 Retail Employed Workers 107 Table 54 Retail Employed Workers - 1-3 Months Tenure 107 Table 55 Share of Employees Recently Hired 107 Table 56 Retail Employed Workers by Province 108 Table 57 Workers with 1-3 Month Tenure by Province 108 Table 58 Share of Employees Recently Hired by Province 108 Table 59 Full-time Retail Employed Workers 109 Table 60 Employed Workers with Union Coverage 109 Table 61 Share of Union Coverage 109 Table 62 Hourly Earnings of Hourly-Rated Employees 110 Table 63 Labour Force Employment Characteristics Census 110 Table 64 Retail Employment by Size of Enterprise 111 Table 65 Employees by Workplace Size 2001 111 Table 66 Distribution of Hours Worked 2001 112 Table 67 Labour Force Characteristics 2001 113 Table 68 Labour Force Occupational Characteristics 114 Table 69 Educational Attainment by Sector 114 Table 70 Occupational Comparison - Retail and Manufacturing 115 Table 71 Structure of Income by Sector 115 Table 72 Structure of Income for Retail Managers by Sector 116 Table 73 Average Weekly Earnings 116 Table 74 Distribution of Wage Rates - Retail Sales Occupation 117 Table 75 Incidence of Health Benefits 117 Table 76 Incidence of Health Benefits by Occupation 117 Table 77 Structure of Tenure by Sector 2004 118 Table 78 Employee Turnover Estimates 118

Table 79 Employee Mobility 118 Table 80 Employee Mobility by Province 119

Table 81 J ob Satisfaction 2001 119 Table 82 J ob and Pay Satisfaction 2001 119 Table 83 Training Received by Employees 120 Table 84 Training by Workplace Size and Employment Status 120


6/125

BSON CONSULTING INC.

Chapter

1 The Retail Sector

The Retail Sector

A discussion of the structure and characteristics of the Canadian Retail Sector

1 Introduction

This report outlines the structure and general characteristics of the retail sector in Canada.1 This chapteremphasizes the general characteristics of the sector. Separate chapters of the report focus on recent growthand on the sector labour force. Appendices discuss data sources and definitions as well as provide

substantially more statistical detail. Data underlying all charts are also available in the data appendix.Maintaining the confidentiality of data about single businesses is one of the challenges inherent in theanalysis of data by sector in Canada. Many sectors, even nationally, are dominated by one or two keyplayers. To facilitate the most detailed and specific analysis, the report utilizes various aggregations ofretail stores or businesses:

Industry Sectors based on the North American Industrial Classification System (NAICS),identified by a numerical classification with 3 or more digits;

Trade Groups aggregations of sectors;

Special Aggregations aggregations of trade groups.

Aggregations are chosen to reflect best the characteristics of the specific data source. The definitions ofthese aggregations are included in Appendix A. Data are also presented in terms of commodities. It shouldbe noted that some commodities, such as food, are sold in many different types of stores.

2 The Definition of Retail

Retailers sell things to people, almost always final consumers. Sales of business consumables (e.g. paper,pens, and computer supplies) are often handled through retailers as well. The technical definition, adapted

from the North American Industrial Classification (NAICS) is more specific.2

1 The author would like to acknowledge the significant funding support for this project provided by Industry Canada and theRetail Council of Canada.2 http://stds.statcan.ca/english/naics/2002/naics02-class-search.asp?criteria=44-45


7/125

RETAIL SECTOR STUDY 20/01/06

J ACOBSON CONSULT ING INC. 2

Retail establishments primarily engage in retailing merchandise, generally without transformation,and render services incidental to the sale of merchandise

They are organized to sell merchandise in small quantities to the general public

Store retailers operate fixed point-of-sale locations, situated and designed to attract a high volume

of walk-in customers using:o Extensive displays of merchandise, and

o Mass-media advertising to attract customers.

Non-store retailers focus on catalogue and in-home sales as well as sales of speciality products suchas home heating fuels.

One way to assess the role of retail is to consider the economic importance of consumer expenditure.Essentially, the retail sector facilitates the purchase by consumers of 27% of Domestic Final Demand, thegoods and services sold to final purchasers. Technically, retail does not produce the goods. Rather, theactual production of the retail sector is theserviceof retailing the goods to consumers. The value of thisservice is represented by the margin between the cost of the goods sold and the final price paid by thepurchaser. In technical terms, this difference is referred to as the Gross Margin.

The relative importance of this margin can be seen by the amount of output or domestic product producedby the retail sector. In real (adjusted for inflation or price change) terms, retail produced $60 billion (in$97) out of slightly more than $1 trillion in total (in $97) or 5.7% of Gross Domestic Product (GDP) in2004. Labour is proportionately a much more important input to the retail sector than in most other largesectors, such as manufacturing. Retail provided jobs for roughly 12 per cent of all those employed in 2004.

Bulk of this activity was conducted in stores but some occurred in other venues. In 2003, store-basedretailers had $356.2 billion of operating revenue compared to $12.1 billion for non-store formats. Thelatter includes $5.2 billion for fuel dealers.3

Retail generally has proportionately somewhat more small businesses than other sectors. In June 2004,Statistics Canada identified slightly more than 227,000 retail establishments, or 9.6% of the total for theeconomy as a whole.

3 The non-store sector includes sellers of home-heating petroleum products. However, natural gas and electricity sales arehandled by utilities not classified as retail under NAICS.


8/125



Retail Establishment Counts - June 2004

By Employment Size Groups

50-991.5%

100-1990.7%

200+

0.3%Undetermined

Empl. Size42.9%

Under 10

41.6% 10-4913.0%

Canadian Business Patterns

Figure 1 Retail Establishment Counts

The establishment is the smallest statistical unit for which identifiable financial records, particularlypayroll, are available. Establishments are classified according to size of payroll, where possible. Thepreceding chart (Figure 1) shows their allocation by employment size category.

Retail focuses on stores. For store-based retailing, in 2003, Statistics Canada identified 199,952 storelocations, of which 41,498 were chain stores (4 or more locations under one owner).

Existence of retail locations usually defines a town or neighbourhood. There are probably some economiesof agglomeration so that denser urban areas require fewer stores than more sparsely settled regions. This isapparent in the next chart (Figure 2), which shows the relationship between stores and population at theprovincial level.


9/125



Store Counts Per 1000 Persons

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

CAN NL PE NS NB QC ON MB SK AB BC YK NW NU

Per1000

Persons

1999 2003 Annual Retail Store Survey

Figure 2 Store Counts Per 1000 Persons

Broadly speaking, there were roughly 6 store locations for every 1,000 persons in Canada. Relativelyfewer stores in northern territories suggest greater dependence on non-store catalogue formats and fewertowns or other settlements. The chart with data for 1999 and 2003 indicates modest gains in a number ofregions.

3 What Retail Sells

The largest sectors are food and automotive, occupying roughly half the retail landscape in terms of sales.The next chart (Figure 3) shows the basic market shares for the major categories of retail commodities.4

4 Not sales by trade group or industrial sector


10/125



Retail Commodity Sales 2004

by Commodity Grouping

All other goods and

services9.3%

Automotive fuels,

oils and additives(for automotive and

recreational

vehicles and farmequipment)

8.3%

Hardware, lawn andgarden products

6.7%

Sporting and leisure

goods3.5%

Motor vehicles,parts, service and

rental

22.0%

Furniture, home

furnishings andelectronics

9.1%

Housewares (non-

electric) andhousehold supplies

2.1%

Clothing, footwear

and accessories8.4%

Health and

personal care

products8.4%

Food and

beverages22.1%

Quarterly Retail CommoditySurvey

Figure 3 Retail Commodity Sales 2004

Originally, retail businesses specialized in particular markets or products. For example, years ago foodstores usually did not compete with auto parts stores, or general merchandise stores. Now, however, somegrocery stores sell simple auto parts while the latter sell home cleaning supplies. The next figure (Figure 4)displays retail commodities and market share for the most significant sub-sectors.

Market Shares of Major Commodity Groupings 2004Total Market Major Sector

Commodity GroupTotal Retail Value

($BN) NameValue$BN Share

Food and beverages 76,869 Food and Beverage Stores 66,935 87%

Health and personal care products 29,283Pharmacies and Personal CareStores 19,285 66%

Clothing, footwear and accessories 29,206 Clothing and Accessories Stores 19,247 66%Housewares (non-electric) and household supplies 7,287 General Merchandise Stores 3,059 42%

Furniture, home furnishings and electronics 31,605Furniture, Home Furnishings andElectronics Stores 20,331 64%

Hardware, lawn and garden products 23,189Building and Outdoor HomeSupplies Stores 17,325 75%

Sporting and leisure goods 12,292 Miscellaneous Retailers 6,383 52%Motor vehicles, parts, service and rental 76,599 Automotive 74,315 97%Automotive fuels, oils and additives (for automotive andrecreational vehicles and farm equipment) 29,016 Automotive 27,946 96%All other goods and services 32,357 Automotive 11,465 35%Source: Quarterly Retail Commodity Survey

Figure 4 Market Share of Major Commodity Groupings 2004

Only the automotive and food sectors occupy more than 80% of the market for their major commodityspecializations. A table (Table 4) covering both major and second tier sectors in the statistical appendixshows general merchandising is the major second sector in many commodity categories. At one point,department stores, a component of General Merchandise Stores, were the expected source for most


11/125



purchases of housewares. In 2004, however, the General Merchandise sector, which includes departmentstores and warehouse club chains, distributed only 42% of housewares. Even the Pharmacy and PersonalCare sector captures only 66% of the market for its dominant products.

Though the retail sector is characterized by many businesses in many locations, large retail chains dominatemany segments. Statistics Canada conducts a monthly survey of 80 large retailer businesses accounting forsome 35% of non-automotive retail sales. The next figure (Figure 5) summarizes market presence of theseretailers in the sale of specific commodities.


12/125



Market Share of Large Retailers - 2004

Selected Commodities ($BN)LargeRetailers

TotalMarket

LRShare

Total commodities 93,298 347,704 26.8%

Food 27,931 56,652 49.3%

Non-alcoholic beverages 1,899 4,488 42.3%

Alcoholic beverages 559 15,729 3.6%

Drugs (prescription and over-the-counter), vitamins and otherhealth supplements 4,653 18,848 24.7%

Women's clothing and accessories 7,535 12,371 60.9%

Men's clothing and accessories 4,061 6,574 61.8%

Footwear 1,623 4,090 39.7%

Indoor furniture 2,659 7,005 38.0%

Household appliances 2,707 4,812 56.3%

Home electronics, computers and cameras 5,737 8,389 68.4%

Home furnishings 2,899 11,399 25.4%

Housewares 4,152 7,287 57.0%

Hardware and home renovation products 1,842 18,370 10.0%

Lawn and garden products, equipment and plants 1,950 4,819 40.5%

Sporting goods 1,646 3,845 42.8%

Toys, games and hobby supplies 1,455 2,643 55.0%

Pre-recorded CDs, DVDs, and video and audio tapes 1,124 1,941 57.9%

Books, newspapers and other periodicals 437 2,740 15.9%

Automotive fuels, oils and additives 2,411 29,016 8.3%

Tobacco products and supplies 2,501 8,844 28.3%

Residual Commodities 13,518 117,843 11.5%

Source: CANSIM, Special Tabulations

Figure 5 Market Share of Large Retailers - 2004

This panel of large retailers has been defined by their relative dominance in market segments. In manycommodity segments, these retail businesses occupy more than 50% of the total market. In other words,most other retail businesses are smaller players, serving narrower markets defined spatially, in specific


13/125



commodities, or both. This definition of large retailers, essentially large chains, excludes significantbanners, or franchise groups, such as certain automotive parts and grocery brands.

4 Retail Revenues, Stores and Margins

4.1 Sectors

The next chart (Figure 6) highlights the distribution of operating revenue by trade group for 2003. As notedabove, stores in a specific sector or trade group occupy a major share of the commodity groups in whichthey specialize. However, many store formats in each trade group may also sell commodities traditionallyassociated with another trade group. Accordingly, the market share of the trade group shown in the nextchart (Figure 6), does not match the market share of the commodities shown in Figure 3.

Operating Revenue by Trade Group - 2003

Specialized BuildingMaterials and Garden

Stores1.4%

Supermarkets15.9%

Gasoline Stations9.0%

Pharmacies andPersonal Care Stores

6.5%

Beer, Wine and LiquorStores3.7%

Convenience andSpecialty Food Stores

3.6%

Clothing Stores4.4%

Shoe, J ewellery andLuggage Stores

1.4%

Sporting Goods, Hobby,Book and Music Stores

2.6%

Department Stores &Other General

Merchandise Stores11.4%

Home Electronics andAppliance Stores

2.5%

Home Centres andHardware Stores

4.4%

Computer and SoftwareStores0.7%

Home FurnishingsStores1.3%

Miscellaneous StoreRetailers

3.1%

New Car Dealers21.2%

Furniture stores2.4%

Used and RecreationalMotor Vehicle and Parts

Deal4.4%

Annual Retail Trade Survey

Figure 6 Operating Revenue by Trade Group 2003

The automotive and food sectors take in more than half the retail revenue by sector. After the food,automotive and general merchandise sectors, most retail sectors account for less than 5 per cent of total

sales. This reflects both the degree of product specialization and relative demand for their products.

4.2 Stores

All stores are not the same. Important differences exist among warehouse club stores, small discount orgeneral stores, or department stores. Yet, the requirements of statistical classification and the need topreserve confidentiality meant these sectors had to be combined for much of the subsequent analysiscontained in this report.


14/125



The amount of revenue generated in a specific location varies both with the physical store format, i.e., itssize, and what it sells. The next figure (Figure 7) displays average revenue per location for Canada. Asreported below in Figure 7, the clear winner in terms of revenue per location is probably a new cardealership. In 2003, the average location generated annual sales of $19 million. Supermarkets and GeneralMerchandise stores come next. If it were possible to report results for large general stores and warehouse

clubs separately from small general stores, large format stores in general merchandise might lead the pack,rather than car dealers. Store formats such as home furnishing specialist stores generated on average lessthan $700 thousand of revenue in 2003.

Operating Revenue Per Store by Trade Group

1,000 2,000 3,000 4,000 5,000 6,000

New Car DealersUsed & Recr. Vehicle & Parts

Furniture storesHome Furnishings Stores

Computer and Software StoresHome Electronics & Appliance

Home Centres and Hardware Stores

Spec. Building Mat. & GardenSupermarketsConvenience & Spec. Food Stores

Beer, Wine and Liquor StoresPharmacies and Personal Care

Gasoline StationsClothing Stores

Shoe, J ewellery & Luggage StoresSporting, Hobby, Book & Music

General Merchandise StoresMiscellaneous Store Retailers

Total

$(000) per store

2003

Annual Retail TradeSurvey

New Car Dealers - 19,171

Figure 7 Operating Revenue Per Store by Trade Group

Actual data underlying this chart are available in the statistical appendix. The data indicate several sectorshave store formats with annual average revenue under $800,000, including:

Home furnishing stores;

Computer and software stores;

Convenience and specialty food stores;

Clothing stores;

Shoe, jewellery and luggage stores;

Sporting goods, hobby, book and music stores;

Miscellaneous store retailers.

This perspective is reinforced when viewed in terms of revenue per square foot in Figure 8 below. Thedata on revenue per square foot are developed for chain stores only, excluding automotive and gasoline


15/125



stores.5 The general pattern of results indicates a high ratio in the alcoholic beverage sector. This might beexpected owing to the relatively high value of the product compared to the space required to display it.Data underlying this chart appear in Table 9 in the statistical appendix. High ratios for computer, homeelectronics and pharmacies reflect relative size and value of their products compared to the display spaceneeded.

Sales Per Square Foot for Chain Stores in Canada

0 200 400 600 800 1000 1200 1400

Furniture stores

Home Furnishings Stores

Computer and Software Stores

Home Electronics & Appliance Stores


Spec. Building Mat. & Garden Stores

Supermarkets

Convenience & Spec. Food Stores

Beer, Wine and Liquor Stores

Pharmacies and Personal Care Stores

Clothing Stores

Shoe, J ewellery & Luggage Stores

Sporting, Hobby, Book & Music Stores

General Merchandise Stores

Miscellaneous Store Retailers

Total

Revenue / Square Foot

2002

2003


$

Figure 8 Sales Per Square Foot For Chains

The relatively high value of sales per square foot for supermarkets probably reflects the extent of theirturnover relative to the size of their stores. The prior chart showing sales per location (Figure 7) indicatestheir high turnover compared to other sectors.

Retail stores can be classified into chain and non-chain stores. Chain stores are defined by StatisticsCanada as groups of more than 3 stores with common ownership. Statistics Canada attempts to determinethe extent of franchise activities in various sectors, but information is not uniformly, consistently reported.However, it is clear that the chain store format dominates many sectors by revenue. The next figure(Figure 9) shows the portion of sector revenue captured by the chain format.

5 Chain stores are explicitly defined by ownership of 4 or more locations. Chain store data will not include data on the franchiseor banner stores and thus not provide a complete picture of results for the trade group.


16/125



Operating Revenue by Trade Group and Store Type For 2003

0% 20% 40% 60% 80% 100%

New Car Dealers

Used & Recr. Vehicle & PartsFurniture storesHome Furnishings Stores


Home Centres and Hardware StoresSpec. Building Mat. & Garden

SupermarketsConvenience & Spec. Food Stores



Shoe, J ewellery & Luggage StoresSporting, Hobby, Book & Music


Total

Chains Non Chains

Figure 9 Operating Revenue by Trade Group and Store Type

Non-chain stores may be stores displaying common identity in a buying group, franchise or otherorganization. For example, in the chart above, formal chain penetration in the new car sector is shown tobe minimal, but dealerships, though independently owned, are always tied closely to a particular

automotive supplier. Similarly, some groups of building material stores may be independently owned butretail under a specific banner, with supplies purchased only from one wholesale group.

4.3 Margins

Margins present a different picture of store/sector performance than shown by simple revenue measures.Gross margin is the difference between the cost of goods sold, and the amount received for them. It isoften referred to as the return on sales. This margin must cover all expenses of the business includinglabour costs, taxes, building maintenance and other expenses as well as profit. As discussed above, themargin is the actual production of the sector. The next figure (Figure 10) highlights the patterns of storegross margins for 2003. These vary significantly by sector, and do not follow the pattern of measures such

as revenue per location. For example, although the new car sector had one of the highest ratios of revenueto location, it reported a gross margin rate of only 12.3% in 2003. This contrasts with the clothing sector.The average revenue per store was only $783,000 in 2003, but the sector produced margins equal to 44.6%of revenue. The margin rate for clothing is only slightly below that for the beer, wine and liquor sector.


17/125



Gross Margin by Trade Group

0% 10% 20% 30% 40% 50%

New Car DealersUsed & Recr. Vehicle & Parts

Furniture storesHome Furnishings Stores


Home Centres and Hardware StoresSpec. Building Mat. & Garden





Sporting, Hobby, Book & MusicGeneral Merchandise Stores

Miscellaneous Store RetailersTotal

2003

Annual Retail Trade

Figure 10 Gross Margin by Trade Group

Of course, profits, the residual after all input costs are paid, are really the target. It is not surprising that themost profitable sector, by far, is the alcoholic products distribution sector. Unlike sectors such as gasolinedistribution, in this sector, many of the government monopolies manage the sector to achieve a high profit

for the government, rather than simply to include significant taxes in the prices to extract government rents.Thus, the profit rate in the alcohol sector is almost three times the rate enjoyed by gasoline distribution, thenext best performer in the profit sweepstakes.

The next chart, Figure 11, showing profit margins by trade group for 2003, indicates that many tradegroups are unable to achieve average profit rates exceeding 5 per cent.6 Detail reported in the statisticalappendix (Table 13) shows profit rates are higher for the chain form of retail organization than for the non-chain stores. Notably, the new auto sector has one of the lowest profit rates in retail, yet it accounts for adisproportionately large part of the aggregate sales volume. One of the issues for the automotive retailsector may be relatively high labour costs compared to other retail sectors. This will be demonstrated insubsequent sections on labour costs and compensation.

6 Profit rates reported here are before-tax operating profits. Such rates are the only ones available from the Annual Retail TradeSurvey. After-tax profits are available only from taxation-based data sources. Resource limitations precluded their inclusion inthis report. The rate is defined as operating revenue less operating expenses.


18/125



Profit Margin Rate by Trade Group fo r Canada - 2003

0% 5% 10% 15% 20% 25% 30% 35% 40%

New Car Dealers

Used & Recr. Vehicle & Parts DealersFurniture stores

Home Furnishings StoresComputer and Software Stores

Home Electronics & Appliance StoresHome Centres and Hardware StoresSpec. Building Mat. & Garden Stores


Beer, Wine and Liquor StoresPharmacies and Personal Care Stores



Sporting, Hobby, Book & Music StoresGeneral Merchandise Stores

Miscellaneous Store RetailersTotal

Share of Operating Revenue

Chains

Non Chains

Annual RetailTrade Survey

Figure 11 Profit Margin Rate by Trade Group

Looking regionally, profit margins are generally wider in Ontario than in other parts of the country.Notably, the supermarket sector enjoyed substantially higher profit rates in Ontario (7%) than in other partsof the country (4.2% on average), in 2003.

Profit Margin by Trade Group for 2003

High LowCanada Average Province Value Province Value

New Car Dealers 1.5% NT 2.7% NL -2.0%Used and Recreational Motor Vehicle and Parts Deal 3.2% AB 6.2% MB 2.1%Furniture stores 5.6% NB 6.6% NU 0.0%Home Furnishings Stores 6.0% MB 7.4% NU 0.0%Computer and Software Stores 1.5% SK 3.7% NS -3.0%Home Electronics and Appliance Stores 3.1% QC 5.9% SK 1.0%Home Centres and Hardware Stores 9.9% ON 13.1% PE 0.9%Specialized Building Materials and Garden Stores 4.0% AB 5.0% NU 0.0%Supermarkets 4.2% ON 7.0% NL 0.4%Convenience and Specialty Food Stores 3.0% NU 16.9% AB 2.1%Beer, Wine and Liquor Stores 31.9% CA 31.9% AB 3.4%Pharmacies and Personal Care Stores 4.3% SK 6.6% PE 2.4%Gasoline Stations 11.6% ON 13.9% YT 2.8%

Clothing Stores 4.8% NS 6.5% NU 0.0%Shoe, J ewellery and Luggage Stores 6.4% AB 7.1% NL -0.4%Sporting Goods, Hobby, Book and Music Stores 4.5% PE 6.4% NS 2.3%Department Stores & Other General Merchandise Stores 4.7% NU 16.1% BC 3.3%Miscellaneous Store Retailers 6.2% NS 7.7% NB 2.9%

Total 5.7% NU 13.5% NL 4.2%Source: Annual Retail Trade Survey

Figure 12 Regional Profit Margin by Trade Group - 2003

Stronger performance in Ontario is apparent after 2000. Generally, Ontario is at or near the top of the heapin profit comparisons. Yet, data below will show sales growth has not been stronger in Ontario than in


19/125



other regions. Broadly speaking, retail sectors in the Atlantic Provinces appear to have the lowest profitmargins.

5 Investment

The next figure (Figure 13) illustrates capital investment (including repair) by the retail sector and instructures related to retail. Retail expansion resulting in new stores, plazas and power centres has beenreadily apparent in many parts of the country. Retail-related construction activity, defined by constructionof stores, plazas and power centres, increased in 2000 and continued afterward. Latest actual data for 2003compared to 1998 show average growth in construction expenditure on stores, malls, etc. (8.4% per year)exceeded growth in all-sector capital spending (7.5% per year). The data shown for 2004 are preliminaryactual estimates while those for 2005 represent estimates collected by Statistics Canada from the firmsinvolved.

When evaluating investment in the retail sector, it is important not to forget investment for rather thanbythe retail sector. Investment in stores, malls, etc. by other sectors, notably finance, is also significant. By2003, the retail-owned share of total store construction had reached 59% compared to 50% in 1998. Inother words, retailers were responsible for an increasing share of store construction. Retailers actuallyspend more money directly on machinery and equipment than actual stores.7

Capital Investment Activi ty

($C millions) 2001 2002 2003 2004 2005Total Retail 5,608.9 5,625.5 6,647.1 6,659.9 6,774.9Retail - Structures 2,325.8 2,340.4 2,894.4 2,700.6 2,792.0of which stores 1,878.2 1,811.1 2,320.6Retail - M&E 3,283.1 3,285.1 3,752.7 3,959.3 3,982.9Any Sector - Stores 3,281.8 3,074.3 3,947.7Retail Share of Stores 57.2% 58.9% 58.8%

Retail Investment/Total Economy 2.7% 2.6% 3.0% 2.7% 2.6%Source: Private and Public Investment

Figure 13 Capital Investment Activity

In sectoral terms illustrated below in Figure 14, food distribution and automotive (vehicle sales andgasoline) accounted for about half of capital expenditures in 2003. The General Merchandise stores sector,including department stores, warehouse clubs and other general stores, was the third most significantsector.

7 We do not have data on retail-specific equipment purchased by store owners other than retailers.


20/125



Capital Expenditur es - 2003

Food and Beverage

Stores30.0%

Health and Personal

Care Stores

3.1%

Gasoline Stations11.5%

Clothing and Clothing

Accessories Stores

7.4%

Sporting Goods, Hobby,

Book and Music

3.0%

General MerchandiseStores

14.0%

Non-Store Retailers

4.4%

Miscellaneous Store

Retailers3.2%

Motor Vehicle and Parts

Dealers

7.1%

Furniture and Home

Furnishings Stores

4.9%

Electronics and

Appliance Stores

4.8%

Building Material and

Garden Equipment and

Supplies Dealers

6.6%

Source: Public and Private

Figure 14 Capital Expenditures 2003

Details supporting this figure are found in Table 19 of the statistical appendix. In 2003, capital investmentin structures and machinery by the retail sector approached $6.7 billion. Of this total, food and beveragesaccounted for almost $2 billion. Investment by the next most significant sector, general merchandise,

totalled just under $1 billion.

The next chart (Figure 15) highlights the relative shares of capital (new) investment and repair by majorsector in retail trade in 2003. The addition of repair investment adds roughly another $1 billion toexpenditure on structures and equipment by the retail sector in 2003. One important point to note is thatmachinery and equipment investment is more significant than investment in retail-owned structures(construction) for most sectors. Food and beverage and furniture stores are the only sectors for whichM&E does not exceed structural activity.


21/125



Capital And Repair Investment i n Retail - 2003

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Retail Trade

Motor Vehicle and Parts Dealers

Furniture and Home Furnishings Stores

Electronics and Appliance Stores

Building Material and Garden Equipment and Supplies Dealers

Food and Beverage Stores

Health and Personal Care Stores

Gasoline Stations

Clothing and Clothing Accessories Stores

Sporting Goods, Hobby, Book and Music



Non-Store Retailers

Structures- Capital Structures Repair M&E Capital M&E RepairPrivate and Public Investment

Figure 15 Capital and Repair Investment 2003

6 Labour Costs

Labour is the most significant single input in the retail service sector. It is the key input to the distributionprocess. Generally speaking, labour costs represent between 50% and 60% of total expenses in most retailsectors, or consume between 10% and 17% of operating revenue. Analysis of the data indicates generalstability in these proportional relationships for individual sectors over time. However, for the periodavailable (1999-2003) (Table 22), there have been modest increases in the labour cost weight in sectorssuch as computer stores and home electronics.

The next chart (Figure 16) shows labour costs for 2003 relative to total operating revenue. In thispresentation, labour costs include wages and salaries of employees as well as the employer portion ofemployee benefits. Health and education payroll taxes are not included. The automotive-related sectors,auto sales and gasoline distribution, are noted for the relatively low role played by labour costs in relation

to their total sales. Supermarkets are at the lower end of the distribution of labour shares, reflecting thesomewhat more volume-oriented distribution model. The very low share for the alcoholic beveragedistribution sector is attributable to the very high margins associated with administered prices in the sector.


22/125



Labour Cost s as a Share of Operating Revenue by Trade Group - 2003

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

New Car Dealers

Used & Recr. Vehicle & Parts Dealers

Furniture stores






Supermarkets




Gasoline Stations

Clothing Stores





Total

% of Operating Revenue


Figure 16 Labour Costs as a Share of Operating Revenue

Over time (Figure 17), the general share of labour costs relative to operating expenses in the retail sectorhas remained relatively consistent.


23/125



Labour Costs as a s hare of Operating Expenses by Trade Group

0% 10% 20% 30% 40% 50% 60% 70%

New Car Dealers


Furniture stores






Supermarkets




Gasoline Stations

Clothing Stores




Total

1999 2001 2003Annual Retail Trade

Figure 17 Labour costs as a share of Operating Expenses

Modest changes up and down are likely attributable to firm or chain specific factors rather than broadindustry trends.

7 The Drivers of Retail Trade

The literature on factors impacting consumer spending is one of the deepest troves of analysis in the fieldof economics. Much of this analysis has developed around a model of consumption decisions made in ahousehold context, strongly influenced by factors such as disposable income, interest rates, relative pricesand expectations about changes in such factors. The next chart (Figure 18) highlights the broadrelationship between income and retail sales, tracking the average annual growth rate of sales and incomeover the period 1999-2004.


24/125



Growth Rates of Retail Sales and Income 1999-2004

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

CAN

NF

PE

NS

NB

QC

ON

MB

SK

AB

BC

YK

NT

NU

Per Capita Average Annual GR

Disposable Income

Retail Sales

Provincial Income and Expenditure Accounts, Table 18, May 2005

Figure 18 Growth Rates of Sales and Income

Generally, regions with above average growth in income display a similar pattern for retail sales. However,the detailed underlying influences are more complex than simply income. The demographic structure ofthe economy strongly influences the character of household expenditure. Consumption patterns areexpected to be different for older persons than younger ones, not just because of taste, but owing to the

impact of changing needs (life cycle) and past expenditure history. For example, households with olderpersons may often be considering replacement purchases of durables, rather than initial purchases.Households with a younger household head might possibly have children, emphasizing other differences inthe structure and frequency of purchases.

The Survey of Household Spending (SHS) summarizes the complete income and outlay patterns ofCanadian households. For this analysis, the data for respondents has been categorized into quintiles byincome. Simply put, the data for the households was ranked by income and divided into 5 equal-sizedgroups, or quintiles.

There are strong relationships between income and household structure. The next chart (Figure 19)exhibits some of the key demographic values for SHS 2003.


25/125



Selected Houshold Statistics by Income Quintile

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All LowestSecond Third FourthHighest

ShareofHouseholds

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

PersonsPerHousehold

Couple households

Lone-parent households

With no full-time earner

With husband employed fulltime

Household size

Survey of HouseholdSpending in 2003

Figure 19 Selected Household Statistics by Income Quintile - 2003

The solid line plotted on the right axis shows the number of persons in each household by quintile (20% ofthe sample, ordered by income). The left-most point is the all-households average. The bars plotted on theleft axis sets out the portions of each group having a specific demographic characteristic. Households atthe lower end of the spectrum are likely to look much different from those at the upper end.

Household size rises with income.

Probability of children increases with income.

Lowest income households are dominantly comprised of single earners, perhaps seniors.

More than half of households in the top quintile have two or more full-time wage earners.

Additional demographic details are presented in Table 26 of the statistical appendix.

The next chart (Figure 20) summarizes some key relations from the 2003 SHS. Two comparisons areillustrated. The top bar in the chart shows the values for key spending characteristics as a ratio between the

highest and lowest quintiles. The second bar indicates the ratio of the values for the top quintile and theaverage for all households.


26/125



Relationships in Household Spending - 2003

0 2 4 6 8 10 12

Household income before taxRetail Related Expenditure

Food purchased from stores

Household cleaning supplies

Household furnishings

Household appliances

Women's and Girls' wear (4 years and over)

Men's and Boys' wear (4 years and over)

Purchase of automobiles and trucks

Gasoline and other fuels

Personal care supplies and equipment

Recreation equipment and associated services

Home entertainment equipment and services

Reading materials and other printed matter

Ratio

Top Quintile / Bottom Top / AverageSurvey of Household Spending in 2003

Figure 20 Relationships in Household Spending - 2003

The chart demonstrates households in the top quintile enjoy income more than 8 times higher than thebottom group. However, the top group spends only slightly more than twice as much on food from stores.This is approximately similar to the difference in household size. A similar relationship exists forhousehold cleaning supplies.

Obviously, not all households buy all products. The average household spends more than $5,000 per yearon food but less than $400 on household appliances. The low value for appliances is attributable to the factthat everyone buys food but only a few households replace their appliances each year. Every householdbuys food. Statistically, this means that the incidence of food expenditure by households is more or less100 per cent. However, food expenditure does not rise proportionately with income. Average householdexpenditure for a broad range of goods and services is shown in a table in the appendix.

Not all households buy a car every year. In other words, the incidence of household expenditure on capitalitems is relatively low. However, it rises with income. The relative average value of expenditure on carsexceeds the similar ratio for household income. However, for most categories, the relationships betweenthe top and bottom for expenditure are not as high as the relationship for income. Details of expenditure

incidence are also provided for selected categories in the appendix.

Generally, as income rises, households are more likely to spend money on a specific category. The nextchart (Figure 21) deals with the incidence of expenditure for three categories: household furnishings,prescription medicine and entertainment electronics such as TVs. Presumably because of the availability ofhealth insurance and because you do not get a prescription unless you need it, the incidence of buying drugsis not strongly tied to income. This contrasts with the other two categories that exhibit the expectedrelationship.


27/125



Incidence of Purchases of Selected Goods in 2003 by Income Quintile

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Lowest Second Third Fourth Highest

Quintile

Household furnishings

Prescription Medicine

Televisions, VCRs, camcorders andother television/video components

Survey of HouseholdSpending in 2003

Figure 21 Incidence of Purchases

Because of its capital nature, not everyone buys a TV every year, the incidence for purchasing suchequipment being much lower than that for some other household goods.

Retail spending naturally rises with income, but it doesnt rise as quickly. As a result, the lower-incomequintiles spend a larger proportion of their income on retail goods than do the higher-income quartiles. Thiscan be seen in Figure 22. Expenditure data used in this figure are created by aggregating purchases of retailcommodities, essentially goods, for each quintile. The data are presented relative to several key measures:

Current expenditure approximately purchases of goods and services;

Total expenditure including tax payments and asset accumulation, almost income disposition, and

Income.

Note first that total expenditure as a share of income falls from the lower quintile to the upper quintile. Thisis because, as income rises, more of it is devoted to saving. Next, note that retail spending as a share of total

expenditure also declines with income. This reflects the fact that spending on services as opposed tospending on retail goods rises with income. Thus, retail spending not only fails to keep pace with incomebut falls as a share of overall spending, as income rises. At the lower quintile, this effect is compoundedbecause many low-income households are headed by retirees who are drawing down some of their lifetimesavings and so spending in excess of income.


28/125



Selected Houshold Expenditure Statistics by Incom e Quintile in 2003

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


Shares Retail Related Share of Current Exp.

Retail Related Share of Total Exp.

Retail Related Share of Income

Survey of Household Spending

in 2003

Figure 22 Household Statistics by Income Quintile

Retail-related expenditure is roughly proportionate to current expenditure for most of the upper quintilesbut falls in relation to income because more affluent households devote an increasing share of income tosavings and other asset purchases. Current expenditure, spending on goods and services excludingrenovations, exceeds household income in the bottom quintile because this group contains many seniors

and others who are spending their capital to finance their shelter requirements. This is shown in Table 26,in the statistical appendix, by the negative asset changes for the lower quintiles. Only the upper quintile isable to accumulate significant assets. Total expenditure includes tax payments and asset accumulation andhence approximates income. Essentially, this analysis shows that retail services support a bigger portion ofthe spending activities of lower-income households than of higher-income ones.

Home renovation activity is a very specific household purchase and is considered an investment under theSHS classification. Only 38 per cent of households in the bottom quintile were likely to own their ownhomes in 2003. In contrast, 93% of households in the top group owned their own dwellings. As might beexpected, the next chart shows both the incidence of expenditure and the average expenditure rise withincome, slightly more than proportionately.


29/125



Home Renovation by Income Quinti le in 2003

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%


Incidence

0

500

1000

1500

2000

2500

3000

3500

AverageExpenditure

Additions, renovations andalterations: contract, labour andmaterial cost

Incidence

Survey of Household Spendingin 2003

Figure 23 Home Renovation by Income Quintile

Incidence is plotted as a line on the left axis. The first data point represents the average for all households,showing almost 23% of households spent money on improvements to their homes. However, the averageexpenditure, plotted on the right axis, was only slightly more than $1,300. The lowest quintile spent onaverage roughly $340 per year with a very low incidence of only 8.2%. This can be interpreted to mean

average expenditure among the 8.2% of households in the lower quintile who actually carried outrenovations was over $4100.8 Similarly, at the high end, where only 37.8% of households reportedrenovation expenditure, the average expenditure of reporting households was actually slightly more than$8,000 per household. Note that the top group spent only slightly more than twice the outlay made by thelowest group, despite receiving 8 times the income.

The statistical appendix contains data for selected categories of expenditure showing average (Table 30)and median (Table 31) household expenditures. The distribution of household expenditure is slightlyskewed for most categories. The median expenditure is slightly lower than the average for mostexpenditure categories. One exception is renovation activity for which the gap between median andaverage is more significant. At the top end of the income spectrum, median reported expenditure was$3,400 but average reported expenditure was slightly more than $8,000. Essentially, this means more thanhalf the households in the top bracket who did any renovations spent less than half the average amount forall those in the class who undertook such expenditures.

8 This is calculated by dividing $340 by .082.


30/125



8 Product s from All Over the World

One of the principal functions of the retail sector is to provide Canadians with access to the broadestpossible palette of goods from all over the world. Increasingly, gains from trade and specialization

have led to greater import penetration in the consumer sector. One of the standard economic conceptsis the apparent domestic market. This is essentially an estimate of the total sales or disappearance ofa particular product or service within the domestic economy. The apparent domestic market is definedas:

Production less exports plus imports =Apparent Domestic Market (ADM)

Estimates of the domestic market for specific industries are developed by Statistics Canada andIndustry Canada using trade and production data. Production, exports and imports by commodity areattributed to the industry generally associated with their production. The domestic market is derivedfrom the identity shown above.9

The next chart (Figure 24) sets out the share of imports in the domestic market for products in specificmanufacturing sectors.

Import Shares for Key Retail-Type Manufacturing Domestic Market

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Textile Furnishings Mills

Clothing Knitting Mills

Cut and Sew Clothing Manuf.

Clothing Accessories and Other Clothing Manuf.

Footwear Manuf.

Other Leather and Allied Product Manuf.

Household Appliance Manuf.

Household and Institutional Furniture and Kitchen CabinetManuf.

Office Furniture (including Fixtures) Manuf.

Other Furniture-Related Product Manuf.

Share of Domestic Market

2003

2000

Statistics Canada, Strategis

Figure 24 Import Shares of Domestic Market

The statistical message is that import shares are significant for many sectors that produce goods sold byretailers. This chart highlights the challenges facing retailers in managing a very long supply chain

9 Necessarily, because of the impact of factors such as alternative sources of production (joint production in other sectors) andinventory movements, the identity is only an estimate. Thus, for very specific sectors, it is possible to develop anomalousestimates of the domestic market, such that the import share exceeds 100 per cent.


31/125



from the local store back to the supplier. Slightly more detail is provided in the statistical appendix.The statistical tables confirm that in certain categories, such as home electronics, imported productessentially dominates the market completely.

The next chart (Figure 25) portrays the challenges even more graphically by demonstrating the growingimportance of China as a supplier of retail goods. Generally, Chinese suppliers have been assuminggreater importance in most retail-related market segments. In the selected categories, Chinas share ofimports climbed 8-10 percentage points in the period 2000 to 2004.

Chinese Share of Imports For Selected Sectors

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Textile Furnishings Mills

Clothing Knitting Mills

Cut and Sew Clothing Manuf.

Clothing Accessories and Other Clothing Manuf.

Footwear Manuf.

Other Leather and Allied Product Manuf.

Household Appliance Manuf.

Household and Institutional Furniture and KitchenCabinet Manuf.

Office Furniture (including Fixtures) Manuf.

Other Furniture-Related Product Manuf.

2000

2004

Statistics Canada, Strategis

Figure 25 Chinese Share of Retail-related Imports

Additional detail is available in the appendix.


32/125



Chapter

2 Recent Trends

Retail Trends

A discussion of recent growth patterns in Retail

1 Introduction

This section of the report focuses on recent trends. Where appropriate, the analysis highlights recent trendsusing monthly or quarterly surveys to obtain the most recent perspective. In Canada, retail has clearly beenon a growth path for the past several years. This rapid expansion has been driven by strong growth in

urban development and household formation as well as a continued expansion of consumer demand.

2 Locations

As discussed above, retail focuses on location. In fact, having the right store in the right location is the keyto retail success. Retail locations mirror population. Population centres, urban, suburban or rural, aresupported by the existence of retail. The next chart (Figure 26) highlights recent aggregate growth in retaillocations.

Store Counts for Canada

-

50,000

100,000

150,000

200,000

250,000

Stores

Non Chains

Chains

Non Chains 144,463 149,722 152,968 159,155 158,454

Chains 40,091 42,134 40,765 41,681 41,498

1999 2000 2001 2002 2003

Annual Retail Store

Figure 26 Store Counts for Canada


33/125



The strongest growth occurs in the non-chain sector, averaging 1.9% per year from 1999 through 2003.This compares to an average growth rate of only 0.9% per year for the formally defined chain component.It is important to recognize that the concept of non-chain means simply that units are defined as separatebusinesses by ownership. Many non-chain locations are franchises or tied to buying groups or bannerprograms with tied suppliers or other forms of business arrangement. Statistics Canada attempts to

determine whether stores are occupied by franchisees. However, results from questions posed have provensomewhat unreliable over time. The statistical appendix includes a table with the available detail.However, the trends should be evaluated with caution. Data indicate franchise ownership has declinedrather quickly. However, an apparent shift has occurred to the unclassified category that declined toanswer the relevant questions.

The next chart (Figure 27) presents the same data by region in Canada. Excluding the northern territories,Ontario has enjoyed the strongest proportionate growth followed by Alberta and British Columbia.

Average Annual Percentage Change in Store Counts 1999-2003

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

CAN NL PE NS NB QC ON MB SK AB BC YK NW NUAnnual Retail Trade Survey

Figure 27 Growth in Store Counts by Province 1999-2003

Ontario, the province with the largest retail sector, led the pack with an average annual growth rate of3.2%, well above the national average of roughly 2%. Ontario accounted for almost 8,900 locations or

57.6% of the total increase since 1999. Alberta and B.C. are only slightly behind in proportionate terms at2.9% and 2.8% per year respectively over the period. However, together, the two provinces added onlyslightly more than 5,000 locations in this timeframe. In per capita terms, Ontario added slightly more storesthan Alberta, but fewer than B.C.

The next chart (Figure 28) shows the average growth rate in the number of store locations from 1999through 2003. The number of locations in the various trade group categories generally expanded over theperiod. The major exception is the sporting and hobby category. The significant expansion in home


34/125



furnishing stores, as well as speciality building materials stores, highlights importance of housing-relatedexpenditure to the retail sector.

Growth in Locations By Trade Group - 1999-2003

-1% 0% 1% 2% 3% 4% 5% 6%

New Car Dealers


Furniture stores






Supermarkets




Gasoline Stations

Clothing StoresShoe, J ewellery & Luggage Stores




Total

Avg . Ann ual Gr owth Rate

Annual Retail Store Survey

Figure 28 Growth in Locations by Trade Group - 1999-2003

Limited expansion in clothing locations as well as gas stations probably indicates saturation in thosecategories and possibly some consolidation forced by increased competition. Earlier, charts indicatedclothing was not a particularly high profit sector, which may also explain some of the apparently weakgrowth.

As noted above, there as been substantially faster expansion in non-chain locations than in chain locations.The Annual Retail Trade Survey provides small-area location data for the chain-store format. The nexttable (Figure 29) shows the largest urban markets.


35/125



Top 15 Markets by Chain Locations by Size

Market 2001 2003 %GrowthToronto 5445 5549 1.0%Montreal 4429 4569 1.6%Vancouver 2639 2663 0.5%Edmonton 1647 1691 1.3%

Calgary 1614 1636 0.7%Quebec 1308 1316 0.3%Ottawa (without Gatineau) 1261 1292 1.2%Winnipeg 1030 1038 0.4%Hamilton 947 954 0.4%London 729 725 -0.3%Halifax 680 719 2.8%St. Catharines - Niagara 643 627 -1.3%Kitchener 587 631 3.7%Victoria 526 521 -0.5%Windsor 399 419 2.5%Source: Annual Retail Store Survey

Figure 29 Top 15 Markets by Chain Locations

As would be expected, the absolute increase in number of chain locations rises with the size of the market.However, growth rates do not necessarily vary with market size. Proportionately, growth in Vancouver andQuebec City lagged noticeably behind the national average of 0.9% in chain location growth over theperiod 2001-03. In contrast, Halifax, Kitchener and Windsor substantially exceeded the average.

Ranking markets by proportionate growth rather than size brings another perspective to the analysis. Thenext figure indicates growth that was substantially above average in certain smaller urban markets.

Fastest Growing Urban Markets

Chain Locations2001 2003 %Growth

Abbotsford 178 192 3.9%Kitchener 587 631 3.7%Halifax 680 719 2.8%Windsor 399 419 2.5%Saint J ohn 193 202 2.3%St. J ohn's 326 341 2.3%Saskatoon 398 414 2.0%Montreal 4429 4569 1.6%Edmonton 1647 1691 1.3%Ottawa (without Gatineau) 1261 1292 1.2%

Toronto 5445 5549 1.0%Calgary 1614 1636 0.7%

Sherbrooke 273 276 0.5%Vancouver 2639 2663 0.5%Winnipeg 1030 1038 0.4%Source: Annual Retail Store Survey

Figure 30 Fastest Growing Urban Markets

Though numbers of locations were small, growth would be significant in these locations. The importantmessage is that retail is a critical element in the urban landscape everywhere.


36/125



3 Retail GDP

One way to evaluate performance of a sector is to look at its share of economic income produced.Economists define Gross Domestic Product as the value-added or the payments to the domestic factors of

production for producing their output. This measure represents the contribution of each industry to the totalvalue of production in the Canadian economy. The figure below (Figure 31) provides some summarystatistics based on industry GDP. Although the Retail sector produced only 5.7% of value-added, itsgrowth rate still exceeds the national average and was substantially above that for other key sectors. Thisindicates retail is increasing its contribution to the economy.

Industry Gross Domestic Product at Basic Prices

$ constant 1997 (millions) 2000 2004GrowthRate

Shareof Total

All industries 946,026 1,048,742 2.6% 100.0%Manufacturing 179,564 181,254 0.2% 17.3%

Transportation and warehousing 45,765 50,230 2.4% 4.8%

Information and cultural industries 36,356 42,974 4.3% 4.1%Wholesale trade 53,696 66,512 5.5% 6.3%Retail trade 50,291 59,971 4.5% 5.7%Finance and insurance, real estate andrenting and leasing and managementof companies and enterprises 181,064 209,916 3.8% 20.0%Professional, scientific and technicalservices 41,462 46,620 3.0% 4.4%Source: Statistics Canada, IMAD, J uly 2005

Figure 31 Industry Gross Domestic Product

4 Retail Sales

Retail sales are climbing. The many factors underpinning retail growth include growth in markets broughtabout by increased population, rising incomes and the formation of new households. Evaluated in sectorterms, the strong sales growth in sectors such as home furnishings and home centres suggests householdformation and home improvement may be key factors underlying some of this growth.

The next chart (Figure 32) depicts sales growth by trade groups using the Monthly Retail Trade Survey.The monthly data paint a picture through 2004. The pattern is generally consistent with the annual datapresented elsewhere in this report.10 Data underlying the chart are available in Table 40 of the statisticalappendix.

10 Data levels will not exactly match because of differences in survey design.


37/125



Average Annual Gro wth Rates of Ret ail Sal es 2000-04

-10% -5% 0% 5% 10% 15%

All retail trade groups

Total excluding vehicles and parts

New car dealers

Used and rec. motor veh. and parts dealersGasoline stations

Furniture stores

Home furnishings stores

Computer and software stores

Home electronics and appliance stores

Home centres and hardware stores

Spec. building mat. and garden stores

Supermarkets

Convenience and specialty food stores

Beer, wine and liquor stores

Pharmacies and personal care stores

Clothing stores

Shoe, clothing acc. and jewellery stores

Department stores

Other general merchandise stores

Sporting goods, hobby, music and book stores

Miscellaneous store retailers

Annual Growth Rate 2000-2004Monthly Retail Trade Survey

Figure 32 Average Annual Growth Rates of Retail Sales by Trade Group

In aggregate terms, sales in the home centres trade group are more than 10 times larger than those in thecomputer and software stores speciality group. Hence, home centre growth is a much bigger story in thebroad economic picture than the low growth experienced in the computer sector. On the other hand, salesin the new car sector are 4 times larger than those in the home centre group. Thus, weak growth in auto

retailing has proved a significant drag on statistics for the broader retail sector. Note that these data arereported in nominal terms. Price deflation is a common story for computers but not for other retail tradegroups.

The next chart (Figure 33) translates sales in per capita terms to evaluate sector performance by province.The chart indicates above average performance in Quebec, Newfoundland and Western Canada, and belowaverage in Ontario.


38/125



Per Capita Retail Sales - Average Annual Growth 2000-04

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

CAN

NL

PE

NS

NB

QU

ON

MB

SK

AB

BC

YK

NT

NU

Monthly Retail Sales

Figure 33 Per Capita Retail Sales by Province

The next chart (Figure 34) shows growth in key commodity categories carried by a panel of large retailers.The strong growth in dwelling-related items such as appliances is noteworthy.


39/125



Sales Of Commodit ies By L arge Retailers - Avg. Annual Grow th Rate 2000-04

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Total commodities

Food

Non-alcoholic beverages

Alcoholic beveragesDrugs & other health

Women's clothing and accessories

Men's clothing and accessories

Footwear

Indoor furniture

Household appliances

Home elect., computers and cameras

Home furnishings

Housewares

Hardware and home renovation products

Lawn and garden prod., equip. and plants

Sporting goods

Toys, games and hobby supplies

Pre-record.CDs, DVDs, and video and audio tapes

Books, newspapers etc.

Automotive fuels, oils and additivesTobacco products and supplies

Large Retail Commodity Survey

Figure 34 Sales of Commodities by Large Retailers

Note especially weak performance in the clothing sector. Retailers with a strong clothing focus have facedmajor challenges in recent years. In contrast, stores catering to dwelling-related purchases, such asfurnishings and appliances, have enjoyed relatively rosier conditions.

5 Employment Growt h

Expanded employment has kept pace with growth in locations. Since 2,000, employment in the retail sectorhas increased by an annual average of 165,000 in 2004. This means that retail has contributed 165,000 netnew jobs to the Canadian economy in 2004 relative to 2000. This expansion in employment mirrors stronggrowth seen above at locations in Ontario and Western Canada. Net retail employment gains in Quebecactually exceed those in Ontario. Data appear in Table 43 and Table 44.

The next chart compares proportionate employment growth in the manufacturing and retail sectors forCanada and the provinces covered by the Labour Force Survey. Quebec shows strong gains. NewBrunswick experienced modest declines in retail sector employment and a small increase among

manufacturing industries. Retail outpaced manufacturing in all other parts of the country.


40/125



Average Annual Growth Rate For Employment 2000 - 2004

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

Canada

Newfoundland and Labrador

Prince Edward Island

Nova Scotia

New Brunswick

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

British Columbia

Avg. Annual Growth Rate

Manufacturing

Retail

Labour Force

Figure 35 Employment Growth 2000-04

Actual gains are shown in the next chart (Figure 36) by province.

Net Employment Gains 2000 - 2004

-10 0 10 20 30 40 50 60 70

Newfoundland and Labrador

Prince Edward Island

Nova Scotia

New Brunswick

Quebec

Ontario

Manitoba

Saskatchewan

Alberta

British Columbia

Employment Increase (000)

Manufacturing

Retail

Labour Force

Figure 36 Net Employment Gains 2000-04


41/125



Employment growth in recent years has been relatively solid compared to modest gains earlier in the 1990s.Bulk of these gains occurs in full-time jobs. The next chart (Figure 37) shows more new jobs wereoccupied by female than male workers, but males still make up slightly more than half the full-time retailwork force.

Retail Employment

0

500

1000

1500

2000

2500

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

(000) Female-PT

Female-FT

Male-PT

Male-FT

Labour Force Survey

Figure 37 Retail Employment 1987-2004

One of the more interesting issues is the role of self-employment in retail. The next chart (Figure 38)distinguishes workers by class of employment, isolating self-employment. The latter has been aggregatedinto two classes -- self-employed workers with paid help, and others. The latter group includes soleproprietors of small retail businesses and those in the home without employees. The chart also highlightsthe strong growth in full-time employment.


42/125



Retail Employment by Class of Worker

0

500

1000

1500

2000

2500

1997 1998 1999 2000 2001 2002 2003 2004

(000)

Full-Time Employees Part-Time Employees

Self-Employed with Paid Help Other Self-Employed Source: LFS Special Tabulation

Figure 38 Retail Employment by Class of Worker

The next chart (Figure 39) focuses solely on employees to summarize recent growth in employment bysector.


43/125



Employed Workers in Retail

0% 1% 2% 3% 4% 5% 6% 7% 8%

Total Retail Employed

A-Automotive

B-Furniture, Home Furnishing & Electronics

C-Building And Outdoor Home Supplies Stores

D-Food And Beverage Stores

E-Pharmacies And Personal Care Stores

F-Clothing And Accessories

G-General Merchandise Stores

H-Miscellaneous Retailers

L-Non-Store Retailers

Average Annual Gro wth Rate 2000-04

Employed

Full-Time

Labour Force Survey

Figure 39 Employed Workers in Retail

Among employees, part-time employment has expanded more rapidly in recent years, but a larger baseresulted in creation of more full-time jobs. Strong expansion in non-store retailing bears mention.

Retail provides many job opportunities through turnover in part-time as well as full-time components of itslabour force. The next chart (Figure 40) breaks down by sector the number of persons who started a jobwith a new retail employer in an average quarter for two separate years.


44/125



Recent Retail Employees

0 5 10 15 20 25 30 35 40 45 50

A-Automotive

B-Furniture, Home Furnishing& Electronics

C-Building And Outdoor HomeSupplies Stores

D-Food And Beverage Stores

E-Pharmacies And PersonalCare Stores

F-Clothing And Accessories

G-General MerchandiseStores

H-Miscellaneous Retailers

L-Non-Store Retailers

(000)

2001 2004Labour Force

Figure 40 Recent Retail Employees by Sector

Relatively high turnover in the food and beverage sector probably reflects strong emphasis on student andpart-time employment. Reference to the data table (Table 54) in the statistical appendix indicates that onaverage at least 160,000 persons found jobs with new employers in the retail sector during any quarter inthe period 2001 through 2004. This equals 9 to 10 per cent of the employed retail labour force in most

provinces. Details by province are shown in Table 57 of the statistical appendix.

11

The final chart (Figure 41) in this chapter focuses on relative compensation. The Survey of Employment,Payroll and Hours (SEPH) supplies payroll data. The survey provides data separately on hourly-rated andother employees. The wage rate excludes benefits. The chart shows actual wage rates as bars plottedagainst the left axis. The ratio of the retail wage rate to the broad SEPH industrial aggregate is plotted as aline against the right axis. Though continually below the industrial average, the chart shows the wage gapbetween retail employees and other industrial workers has narrowed significantly in recent years.

11 The marginally higher rate of new hires in Prince Edward Island is possibly indicative of a smaller survey sample and asmaller market rather than any significant difference in the retail labour market.


45/125



Hourly Wages for Hourly-Rated Employees

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

$/hour

72.0%

74.0%

76.0%

78.0%

80.0%

82.0%

84.0%

RatiotoInd.Aggregate

44-45 Retail Trade RatioSource: SEPH

Figure 41 Hourly Wages


46/125



Chapter

3 Work Force

Retails Labour Force

A discussion of the structure and characteristics of the Retail Labour Force

1 Introduction

The staff members of a store are one of the most visible attributes of the retail experience for consumers.From the stores perspective, labour costs are one of the most important input costs, receiving significantmanagement attention. Quality and depth of the labour force are essential factors in the quality of retail

output. In this section, we will examine key attributes of this workforce and identify potential issues.

2 Employment Struc ture

The next chart (Figure 42) sets out composition of the retail labour force by broad 3-digit NAICS sector.As might be expected, the food and beverage and general merchandising sectors are the largest employersin retail trade, based on data compiled in the 2001 Census.

Sectoral Composition of Retail Employment 2001

451 Sporting goods,hobby, book and music

stores4.7%

448 Clothing andclothing accessories

stores10.9%

447 Gasolinestations4.4%

446 Health andpersonal care stores

7.8%

445 Food andbeverage stores

24.9%

44

structure of retail in canada

Documents