Retailers Competing for Market Share: 2007 Retail Sales in Review

by Abdulelah Mohammed
Distributive Trades Division

Analysis in Brief

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Summary
Automotive fuels, oils and additives led growth in 2007
General merchandise stores lost to other competitors on most fronts
Another year of lost market share in clothing, footwear and accessories for general merchandisers
General merchandisers continued to lose market share in furniture, home furnishings and electronics
Pharmacies regain lost ground in sales of health and personal care products for a second year in a row
General merchandisers lost a sizeable market share of tobacco products
Sales of sporting and leisure goods posted their strongest performance in 2007
Slowest sales increase of hardware, lawn and garden products in seven years
General merchandisers fed Canadians more than ever in 2007
Automotive fuels, oils and additives returned to double-digit growth rates
The value of new truck sales rose in 2007

Summary

This report is the third in a series of annual reviews on the retail trade sector. It looks closely at the sources of growth in specific retail sectors, focusing on the commodities sold by retailers in Canada.

Market share analysis highlights the changing shopping patterns of consumers in terms of the type of store they visit to purchase their goods and services. For example, food can now be bought in pharmacies and general merchandisers. Prescription drugs are not solely found in pharmacies anymore. This cross-channel selling is creating competition among the different store types. Monitoring such changes sheds light on how competition across all channels is affecting retail trade.

Recently released annual reviews have already highlighted interesting aspects of retail trade such as:^{1, 2, 3}

• Consumer spending was the leading contributor to economic growth in Canada in 2007. A sizeable proportion of consumer spending takes place in retail stores. For the second year in a row, the retail trade sector was a major contributor to growth in the economy, advancing 5.6% in 2007, as measured by value added.
• Provincially, Saskatchewan led all the provinces in growth of retail sales in 2007. Nova Scotia posted one of the weakest growth rates among all ten provinces while in Ontario and Quebec retail sales growth ended the year below the national average.

Some highlights from this third and most recent review, based on data from the Quarterly Retail Commodity Survey⁴ are:

• In 2007, retail sales rose by 5.8% in Canada, reaching $413.1 billion. On a per capita basis, each Canadian spent $12,529 in retail stores, up 4.7% from 2006.
• More than half of spending in retail stores last year was on transportation, food and beverages. Proportionately, of every $100 spent in retail stores in 2007, consumers and businesses spent about $22 on food and beverages, $21 on motor vehicles, parts and services and $10 on automotive fuels, oils and additives.
• Rising gasoline prices combined with an increase in the number of vehicles registered on the road and an increase in the distance travelled led consumers and businesses to spend more on automotive fuels, oils and additives in 2007. Retailers’ sales of automotive fuels, oils and additives increased 12.0% since 2006, reaching $41.8 billion in 2007. On a per capita basis, this means that each Canadian spent $124 more in 2007 for these products compared to the previous year.
• In 2007, most specialized retail stores regained market share for their major product categories from non-specialized stores. For example, general merchandisers lost market share in six of ten major commodity groupings while their market share went up in two commodity groups.
• Sales in general merchandise stores, the third largest retail trade sector, rose 4.5% in 2007, below the average growth rate for total retail trade.
• Sales of food and beverages were the fastest-growing sales category in general merchandise stores in 2007, increasing 11.0% since 2006. For the first time since 1998 food and beverages became the largest sales category for general merchandisers.
• Pharmacies and personal care stores regained market share of health and personal care products in 2006 and 2007 after declines since 1999. General merchandisers and food and beverage stores lost 0.7 percentage points in the share of this market in 2007.

Automotive fuels, oils and additives led growth in 2007

In 2007, retail sales rose 5.8% in Canada, reaching $413.1 billion. From 2000 to 2007, retail sales increased at an average annual rate of over 5.3%.

On a per capita basis, on average, each Canadian spent $12,529 in retail stores, up $567 or 4.7% from 2006.

Retail sales represents a sizeable proportion of consumer spending, which experienced its largest gain since 1985 and was a driving force in the Canadian economy in 2007. Strong employment and income growth, along with low inflation and low interest rates kept conditions favourable for consumers.⁵ In particular, total employment rose in all provinces for the first time since 2004, a factor that helped strengthen the retail market.⁶

More than half of the spending in retail stores last year was on transportation and food and beverages. On average, of every $100 spent in retail stores in 2007, consumers and businesses spent about $22 on food and beverages, $21 on motor vehicles, parts and services and $10 on automotive fuels, oils and additives.

Chart 1
More than half of spending in retail stores was on transportation and food and beverages in 2007

The two most important commodity groups in terms of volume of sales, namely food and beverages and motor vehicles, parts and services, experienced a growth rate below the overall average.

The growth in 2007 was led by automotive fuels, oils and additives, which was up 12.0% from 2006. While higher than in 2006, this growth rate is still lower than the 14.6% and the 18.2% increases experienced in 2004 and 2005. Rising gasoline prices combined with an increase in the number of registered vehicles on the road and an increase in distances travelled led consumers and businesses to spend more on these products in 2007.

Pushed by increased sales of prescriptions drugs, sales of health and personal care products increased 8.3% in 2007. The only other commodity group to show overall above-average growth was furniture, home furnishings and electronics, with the home furnishings subgroup showing the highest increase of 10.5%.

Chart 2
Automotive fuels, oils and additives led all retail commodity groups in 2007 in terms of growth rate

For a second year in a row, the retail trade sector was a major contributor to growth in the economy, advancing 5.6% in 2007 as measured by value added. Consumers continued to purchase furniture and computers at a substantial rate. Growth was once again widespread with other notable contributors being sales of used cars and home electronics.

General merchandise stores lost to other competitors on most fronts

Whether they are looking for an item of clothing, a piece of jewellery, home electronics, food or prescription drugs, shoppers can find it at a general merchandiser. These department stores, warehouse clubs or home and auto supplies stores can be visited to purchase or to compare selections and prices with other retail outlets.

Of the eight retail trade sectors, general merchandisers registered the second lowest year-over-year sales increase this year, just ahead of food and beverage stores. General merchandise stores sold $49.7 billion of goods and services in 2007, up 4.5% over 2006. This increase is more than one percentage point below the performance of retail stores as a whole, unlike in 2006, when the increase in sales at general merchandise stores was similar to the overall increase in retail sales.

General merchandisers faced major competition from other store types on most of their major product lines in 2007. Globally, their contribution to retail trade went down 0.2 percentage point to 12.0%. If they had kept the same market share as 2006, their sales would have been $618 million higher.

Table 1
General merchandisers’ sales by commodity group, Canada, 2007

In 2007, general merchandisers continued to face competition in their traditional home turf. They lost market share in six out of ten major commodity groupings. Together, commodities from these six groups represented more than two-thirds of the sales by general merchandise stores in 2007.

The food and beverages commodity group was the only major commodity group where general merchandisers advanced significantly both in market share and sales. Housewares, a commodity group contributing to less than 2% of overall retail sales, was the only other group where general merchandisers gained market share.

From a longer-term point of view, general merchandisers’ share of total retail sales has been generally declining since 1999 when its share peaked at 12.6%.

The study will now look at all commodity groupings where general merchandisers lost market share by their importance in terms of sales, and then it will describe the results for commodity groupings where market share was gained.

Another year of lost market share in clothing, footwear and accessories for general merchandisers

In 2007, general merchandisers’ market share of clothing, footwear and accessories continued a downward trend which started in 1999. Overall, sales of clothing, footwear and accessories advanced 4.1% in 2007 to $33.8 billion, while they increased only 0.2% for general merchandisers.

General merchandise stores accounted for 23.9% of overall retail sales of clothing, footwear and accessories in 2007, down one percentage point from 2006. In 1999, general merchandisers controlled 30.7% of this market.

Clothing and accessories stores saw their market share of clothing, footwear and accessories rise from 66.5% in 2006 to 67.3% in 2007. Gaining or losing a fraction of a point in a market known for high profit margins relative to the rest of retail trade could impact the financial results of retailers.

The overall rise in the value of clothing sales in 2007 took place despite a 0.8% decline in clothing prices according to the Consumer Price Index. A strong Canadian dollar and a growing presence of imported clothing and footwear items from emerging Asian economies helped to contain price increases for these items.⁷

Table 2
Market share distribution of clothing, footwear and accessories by selected sectors, Canada, 1998, 2006 and 2007

General merchandisers continued to lose market share in furniture, home furnishings and electronics

While overall retail sales of furniture, home furnishings and electronics continued to rise faster than overall retail trade sales, general merchandisers lost market share for a sixth year in a row. Overall retail sales of these products rose 7.4% in 2007, higher than the overall increase in retail sales.

Shoppers spent $7.1 billion on furniture, home furnishings and electronics in general merchandise stores in 2007, up 5.7% since 2006. Consequently, general merchandise stores lost 0.3 percentage points of their market share in 2007, continuing a trend that started in 2002.

Table 3
Market share of furniture, home furnishings and electronics by selected sectors, Canada, 1998, 2006 and 2007

Furniture, home furnishings and electronics stores which dominate this category of product, maintained their market share in 2007 while building and outdoor home supplies stores and miscellaneous retailers gained in market share.

Within this commodity grouping, sales of home furnishings, which include items such as floor coverings, tiles, draperies, linens and bathroom accessories, increased the most in 2007 up 10.5% from 2006. General merchandisers lost market share in this commodity in 2007, even though consumers and businesses spent $2.5 billion on home furnishings in general merchandise stores in 2007, up 6.1% from 2006.

Pharmacies regain lost ground in sales of health and personal care products for a second year in a row

Sales of health and personal care products continued to have robust growth rates in 2007. Retailers sold $35.7 billion of health and personal care products—consisting of prescription and over-the-counter drugs, cosmetics and fragrances, toiletries and eyewear—in 2007, an increase of 8.3%. This was the products’ highest growth rate since 2002.

Sales of prescription drugs, which represented over one-half of sales in this category, grew by 10.5% while over-the-counter drug sales were up 7.9%.

In the meantime, pharmacies and personal care product stores, which dominated sales of this commodity grouping, had the highest growth rate among the eight retail store types (sectors) in 2007, their sales of all commodities rising 8.4%.

According to IMS Health (Canada), Canadians filled close to 423 million prescriptions in 2007,⁸ up 6.2% in 2007.⁹ This was an average of about 12.8 prescriptions for every Canadian in 2007, compared with 11.6 prescriptions in 2005.¹⁰

General merchandise stores and food and beverage stores lost market share in the sale of health and personal care products to pharmacies and personal care stores in 2007.

Pharmacies and personal care stores picked up 2.6 percentage points of market share from their major competitors in the last three years, closing 2007 with 68.6% of the health and personal care products market. In contrast, from 1999 to 2004, general merchandise and food and beverage stores gained market share as they added prescription counters and pharmacists to their stores.¹¹

In dollar value, the market for health and personal care products increased substantially in the last few years. Even the sectors losing market share improved their sales significantly.

Table 4
Market share of health and personal care products by selected sectors, Canada, 1998, 2006 and 2007

General merchandisers lost a sizeable market share of tobacco products

The commodity group "All other goods and services" consists of a wide array of commodities such as giftware, pet food, pet supplies, tobacco products and supplies, to name a few. Together, they contributed 9.7% to total sales of general merchandise stores in 2007.

Sales of other goods and services in general merchandise stores declined 2.9% in 2007. This was the only major commodity category to actually experience a decline in sales in the general merchandise stores sector.

General merchandisers’ market share of tobacco products, the largest component of this commodity grouping, dropped to 18.9% in 2007, a three percentage point drop from 2006. General merchandisers’ market share of tobacco products had steadily increased until 2005 when it peaked at 23.4%.

The automotive sector, which includes gasoline stations with convenience stores, has been increasing its market share of tobacco, gaining almost two percentage points. Food and beverage stores, which also include convenience stores that are not affiliated with gasoline stations, also gained 0.7 percentage points of the retail tobacco market.

Table 5
Market share of tobacco products and supplies by selected sectors, Canada, 1998, 2006, and 2007

Sales of sporting and leisure goods posted their strongest performance in 2007

Sales of sporting and leisure goods at retail stores rose 5.8% in 2007, the highest annual increase on record since the statistical series began in 1998. This was powered mainly by a 17.8% increase in sales of toys, games and hobby supplies (including electronic games and game systems).

Sales growth of most sporting and leisure goods categories was weaker in general merchandise stores than for overall retail trade. Sales of sporting and leisure goods contributed $4.5 billion to total sales in general merchandise outlets in 2007, an increase of 4.9% since 2006. Sales of toys, games and hobby supplies, the largest component of this commodity group, reached $1.7 billion in 2007, an increase of 7.4% for general merchandisers.

Sales of sporting goods in general merchandisers dropped 0.5% in 2007, while increasing by 5.5% for overall retail stores. This was the second consecutive year that sales of sporting goods declined in general merchandise stores.

General merchandisers gained market share in the sale of pre-recorded CDs, DVDs, video and audio tapes, and their sales grew by 9.6% in 2007, while overall retail sales of these products declined 3.9%. Sales by general merchandisers accounted for 44.0% of total sales of pre-recorded CDs, DVDs, video and audio tapes in 2007, up from 38.6% in 2006.

Table 6
Market share of sporting and leisure goods by selected sectors, Canada, 1998, 2006, and 2007

Slowest sales increase of hardware, lawn and garden products in seven years

Retail sales of hardware, lawn and garden products were up 5.8% in 2007, the lowest annual growth rate since 2001. Likewise, sales of lumber and other building products experienced their lowest annual increase since 2001.

General merchandisers sold a total of $4.1 billion of hardware, lawn and garden products, up 2.8% from 2006 and also the lowest yearly growth rate on record for this commodity group for general merchandisers. Their market share dropped 0.4 percentage points to 14.3% in 2007.

General merchandisers’ market share of hardware and home renovation products dropped to 10.2%, continuing a downward trend that started in 1998 when it stood at 12.2%. A similar situation has taken place with the sales of lawn and garden products, where the 29.7% market share in 2007 was down from 32.9% in 1998.

On the other hand, the building and outdoor home suppliers, the more specialized type of store for hardware, lawn and garden products, increased their market share by 0.7 percentage points in 2007.

Table 7
Market share of hardware, lawn and garden products by selected sectors, Canada, 1998, 2006, and 2007

General merchandisers fed Canadians more than ever in 2007

Food and beverages became the dominant category for sales by general merchandisers in 2007. Of every $100 spent in general merchandise stores in 2007, $18 was spent on food and beverages while $16 was spent on clothing, footwear and accessories.

Until 2006, clothing, footwear and accessories used to be the main commodity sold in general merchandise stores. However, at the same time as they were losing market share in clothing, footwear and accessories, general merchandisers expanded their food and beverage offerings and gained significant market share in this commodity grouping.

Shoppers spent $9.0 billion on food and beverages in general merchandise stores in 2007, up 11.0% from 2006. This is by far the highest increase among commodity groupings for this type of store and more than twice the overall retail sales increase of 5.2% for these products.

Table 8
Market share of food and beverages by selected trade groups, Canada, 1998, 2006, and 2007

General merchandisers increased their market share of food and beverages to 10.1% in 2007, an increase of 2.7 percentage points since 1998. During the same time period, food and beverage stores’ market share for food and beverages dropped 2.3 percentage points to 85.4%.

Excluding sales of alcoholic beverages from the total sales of food and beverages reveals the same trend in market share. In 2007, general merchandise stores market share of food and beverage sales excluding sales of alcoholic beverages was 12.4%, an increase of 3.4 percentage points since 1998. At the same time, food and beverage stores’ market share excluding alcoholic beverages was 82.4% in 2007, a drop of 3.3% percentage points since 1998.

The sub-category with the highest market share held by general merchandisers is candy, confectionery and snack foods. General merchandise stores accounted for 31.3% of overall sales of this commodity in 2007.

General merchandisers continue to dominate housewares sales

Retail sales of housewares and household supplies rose a modest 0.8% in 2007. Among all major commodity groupings, this group represents the smallest proportion of total retail sales.

General merchandisers are the leading retailer of such products, holding almost one-half (45.2%) of the market in 2007. Food and beverage stores are the next big player with just over one-quarter of the market (27.1%), losing almost one percentage point in 2007. General merchandisers have been increasing their market share of this commodity since 1998, mainly at the expense of pharmacies and personal care stores.

Automotive fuels, oils and additives returned to double-digit growth rates

Automotive fuels, oils and additives posted the fastest growth rate among the commodity groupings for 2007 and was the only group to post a double digit growth rate. This was the third time in four years that sales increases in this category led sales of other retail commodity groupings. Retailers sold $41.8 billion of automotive fuels, oils and additives in 2007, an increase of 12.0%. The growth rate was higher than the 9.0% growth posted in 2006, but was still below the large hikes observed in 2004 and 2005, when the price of gasoline increased significantly.

On a per capita basis, each Canadian spent $1,269 on automotive fuels, oils and additives, compared to $1,144 in 2006, an increase of $125 in only one year.

In 2007, the national weighted average price for unleaded regular gasoline at self-service stations surpassed the one dollar threshold for the first time and went to 101.8 cents a litre, up 4.2% from 97.7 cents a litre in 2006, according to figures compiled by M.J. Ervin Associates of Calgary¹².

Chart 3
Average self service retail gasoline prices in Canada surpassed the $1.00 per litre threshold for the first time in 2007

Gasoline prices are only one of the factors contributing to the growth of sales of automotive fuels, oils and additives. According to the Canadian Vehicle Survey, the number of vehicle-kilometers traveled in 2007 increased 1.9%, the second highest annual growth rate since 2000.¹³ On average, 20.6 million road motor vehicles were registered in Canada in 2007, up 2.6% from 2006,¹⁴ also the second highest annual growth rate since 2000.

Noticeably, sales of automotive oils and additives edged up slightly (+2.9%) in 2007, compared to the 12.2% increase in 2006.

The value of new truck sales rose in 2007

Shoppers spent $87.3 billion on motor vehicles, parts and services in 2007, up 3.7% from 2006.

The commodity group of motor vehicles, parts and services includes new cars; new trucks, vans and mini-vans; used cars; and used trucks, vans and mini-vans; automotive parts and accessories which include tires, and labour receipts from auto repairs.

According to the Quarterly Retail Commodity Survey, the total value of new car sales declined 0.2% in 2007 while sales of new trucks increased 5.7%. According to the New Motor Vehicle Survey, the number of passenger cars sold slipped slightly while the number of trucks reached a record high.¹⁵

Used car sales increased 4.1%, the highest growth rate since 2001. Most used cars are sold by new car dealers as opposed to used car dealers.

Table 9
Total retail sales by trade sector, Canada, 2006 and 2007

Table 10
Total retail sales by commodity groups, Canada, 2006 and 2007

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Footnotes

1. See Franklin Assoumou Ndong and Lucy Chung, "Retail Trade: How the Provinces Fared in 2007", Analysis in Brief, May 2008, Statistics Canada catalogue no. 11-621-M2008070 (accessed June 13, 2008).
2. See Joseph Patrick Dunlavy, "New Motor Vehicle Sales: 2007 in Review", Analysis in Brief, April 2008, Statistics Canada catalogue no. 11-621-M2008069 (accessed June 13, 2008).
3. See Canadian Economic Accounts Quarterly Review, Statistics Canada catalogue no. 13-010-X, Fourth quarter 2007 (accessed April 15, 2008).
4. The Quarterly Retail Commodity Survey (QRCS) total sales are benchmarked at the trade sector level to the Monthly Retail Trade Survey (MRTS) sales estimates. An exception to this is the general merchandise stores sector as QRCS includes the sales of department store concessions while MRTS does not. This situation explains the difference in the total sales estimates published previously with those in this paper.
5. See Canadian Economic Accounts Quarterly Review, April 2008, Statistics Canada catalogue no. 13-010-X, (accessed April 15, 2008).
6. See Franklin Assoumou Ndong and Lucy Chung, "Retail Trade: How the Provinces Fared in 2007", Analysis in Brief, May 2008, Statistics Canada catalogue no. 11-621-M2008070 (accessed June 13, 2008).
7. See Alan Chaffe, "Consumer Prices: The Year 2007 in Review", Analysis in Brief, June 2008, Statistics Canada catalogue no. 11-621-M2008074 (accessed June 31, 2008).
8. Note that IMS Health (Canada) is a private provider of market information to pharmaceutical and health care industries.
9. See Madeline Gareau Lagden, Canadian Prescription Drug Sales Experience Slowest Growth in a Decade with 6.3 Percent Increase, IMS Health (Canada), (accessed July 20, 2008).
10. See Guillaume Dubé, "Competing for the retail drug market", Analysis in Brief, September 2006, Statistics Canada catalogue no. 11-621-M2006048 (accessed January 28, 2008).
11. Under Quebec law, a pharmacy in Quebec must be owned by an accredited pharmacist. In this province, pharmacies in food and beverage stores and those in the general merchandise stores are operated as concessions and their sales are reported in the pharmacies included in the pharmacies and personal care stores. In other provinces, the sales of pharmacies located in another store are included in the host store’s sales. As a result, the drug sales of food and general merchandise stores are underestimated at the national level.
12. See M.J. Ervin & Associates of Calgary (accessed June 30, 2008).
13. Source: Statistics Canada, CANSIM table 405-0011.
14. Source: Statistics Canada, CANSIM table 405-0004.
15. See Joseph Patrick Dunlavy, "New Motor Vehicle Sales: 2007 in Review", Analysis in Brief, April 2008, Statistics Canada catalogue no. 11-621-M2008069 (accessed June 13, 2008).