Annual Retail Trade 2008

Canadian retailers’ operating profits as a share of operating revenue narrowed slightly to 5.0% in 2008 from 5.2% in 2007. Retailers were affected by changing economic conditions during 2008, especially late in the year. According to the Monthly Retail Trade Survey, retail stores’ monthly sales followed an upward trend in the first three quarters of 2008 before falling 3.9% in the last quarter, reflecting the economic downturn and a drop in gasoline prices.

Store and non-store retailers reported $468.5 billion in annual operating revenue for 2008, a 4.5% increase. Total expenses rose 4.6% to $444.9 billion.

Cost of goods sold, which accounted for just over three-quarters of total expenses, rose 4.4% to $341.4 billion in 2008. Other operating expenses, which include labour remuneration, increased 5.6% in 2008 to $103.5 billion.

Gross margins for all retailers (the difference between total operating revenues less cost of goods sold) as a share of operating revenue edged up slightly to 27.1% in 2008, from 27.0%.

Revenue gains for most retailers

Operating revenues rose in 16 out of the 19 trade groups (including non-store retailers) in 2008 over the previous year, representing 77% of the total revenue. Gasoline stations reported the largest revenue increase and accounted for more than a third of the total revenue growth.

Gasoline prices followed the swings in world crude oil prices in 2008, rising for a large portion of the year before declining sharply in the last few months. Consumers paid on average, 12.7% more for gasoline in 2008 compared to the previous year according to the Consumer Price Index (CPI). This price increase was reflected in a 15.6% rise in total operating revenue for this trade group ($54.2 billion). For every $100 consumers spent at a retailer in 2008, $11.60 was spent at a gasoline station, up from $10.50 in 2007.

Pharmacies and personal care stores reported the second largest increase in operating revenue, up 9.5% to $31.5 billion in 2008. These stores represented just over 13% of the total growth in revenue.

Unlike the gasoline stations, the strength in sales at pharmacies and personal care stores was less about price increases. According to IMS Canada, the volume of retail prescriptions rose by 7.1% in 2008. Prices for health care goods were up 0.5% while those of personal care supplies and equipment were flat at +0.1%. These two commodity groups accounted for approximately 87% of total revenue at pharmacies and personal care stores in 2008, according to the Quarterly Retail Commodity Survey.

Supermarkets increased their revenue by 4.9% in 2008. Reflected in this increase is a 3.9% increase in the price of food purchased from stores. Consumers spent 15.4% of all their retail dollars at supermarkets.

Revenue declines in three trade groups

Not all retail industries increased their revenue in 2008 compared to the previous year. New car dealers, clothing stores and home furnishing stores all recorded declining revenue. Reflected in some of these revenue declines is a decrease in the prices for goods sold.

New car dealers’ revenues were down 2.0% to $81.2 billion in 2008. This decrease reflects a drop of 6.9% in prices to purchase passenger vehicles (as per the purchase of passenger vehicles index). Consumers spend more of their retail dollars at new car dealerships than at any other type of retail store. In 2008, consumers spent 17.3% of their retail dollars at new car dealerships, down 1.1 percentage points from 2007.

Clothing stores also recorded a 1.1% decline in revenue to $18.7 billion in 2008. Clothing prices were down 3.3% in 2008. Consumers spent 4.0% of their total retail dollars at clothing stores.

Operating revenue at home furnishing stores were down 0.4% from 2007 to $5.9 billion. This store type accounts for 1.3% of total retail spending.

Chain stores continue to gain market share

Store retailers, excluding non-store retailers, are divided into chain stores and non-chain stores. A chain store is an organization operating four or more locations within the same industry group under the same legal ownership. Chains recorded operating revenues of $213.8 billion, up 5.8% over 2007.

Chain stores have been gradually increasing their share of total operating revenue at the expense of non-chain stores. In 2004, chain stores represented 43.1% of the total operating revenue; by 2008, their share had risen to 47.0%. Non-chain stores posted a 3.3% increase in revenue to $240.9 billion in 2008.

Certain trade groups tend to be dominated by chain stores such as beer, wine and liquor stores, where 90% of the recorded revenue for this trade group was from a chain store in 2008.

Chain clothing stores have gradually increased their dominance in the clothing sector. In 2008, chain stores represented 79% of operating revenue in this trade group, up from 72% in 2004.

In contrast, other groups such as new car dealers, tend to be dominated by non-chains. New car dealers with less than 4 locations accounted for 96% of all the revenue in this trade group in 2008. As well, used and recreational motor vehicle and parts dealers with one to three locations (non-chain) accounted for 89% of all the revenue for this industry.

Operating expenses increasing

Operating expenses (excluding cost of goods sold) for store and non-store retailers rose to $103.5 billion, up 5.6% over the previous year. Expenses were up in all industries, except for beer, wine and liquor stores and non-store retailers.

Labour costs accounted for almost half of these operating expenses in 2008. The highest labour costs as a share of operating expenses were reported for new car dealers (58.3%) and beer, wine and liquor stores (55.9%).

In contrast, gasoline stations recorded the lowest labour costs as a share of total expenses at 32.8%. This was followed by non-store retailers with a share of 33.4%.

In 2008, operating expenses as a share of operating revenue represented 22%, similar to previous years. Clothing stores had the highest ratio of expenses to revenue (43%), followed by shoe, jewellery and luggage stores (41%) and home furnishing stores (40%). Gasoline stations had the lowest operating expenses as a share of operating revenue (10%), followed by new car dealers (13%) and beer, wine and liquor stores (14%).

Operating profits up for pharmacies and personal care stores and new car dealers

Operating profits for store and non-store retailers as a ratio of operating revenue was 5.0% in 2008.

Of all the trade groups, beer, wine and liquor stores recorded the largest share of operating profits as a percentage of operating revenue at 29.5%, the same as the previous year. Shoe, jewellery and luggage stores posted the second highest share of profits to revenue at 9.5%, also unchanged from last year.

Pharmacies and personal care stores had the largest gain in operating

profits, a 30.9% increase to $1.6 billion in 2008. The ratio of operating profits to operating revenue was 5.2% in 2008, up from 4.3% in 2007. This growth reflects revenues increasing at a faster pace than the cost of goods sold and other expenses.

New car dealerships had the second highest growth rate in operating profits in 2008, up 15.3% to $2.0 billion. Expressed as a ratio of operating revenue, it rose 0.4 percentage points to 2.5%, from 2.1% in 2007. This profit increase was driven by the large decrease in the cost of goods sold (-3.4%).

Computer and software stores registered the smallest profit to revenue ratio (1.4%). The total profits for computer and software stores also reported the largest year-over-year decline, down 33.4% to $30.7 million. (These stores primarily sell computers and related equipment and software rather than a diverse range of electronic products).

Prices for computer equipment and supplies fell 13.3% in 2008. Even with this price decline, total operating revenue for computer stores edged up 0.2%, while the cost of goods sold declined 1.0%.

Sporting goods, hobby, book and music stores recorded the second largest decrease in operating profits, down 27.0% compared to 2007, to $441.3 million. The ratio of profits to revenue fell to 3.7% in 2008 from 5.3% in 2007. Within this trade group, sporting good stores and hobby, toy and game stores together represented 86% of the net change in profits.

However, not all retailers within this trade group had lower profits. Musical instrument and supplies stores (+ 28.0%) and book stores (+ 22.5%) reported higher profits in 2008. Book stores increased their profits and total operating revenue (up 1.7%) while consumers paid 9.4% less for the books they bought in 2008 compared to 2007.

Inventories down slightly

Inventory levels were down slightly for store based retailers in 2008. Retailers reported levels of 65.8 days of stock-on-hand in 2008 down from 67.4 days in 2007.

Of all retailers, furniture stores reported the largest downward change, where the number of days of stock-on-hand fell from 101.6 to 90.0. Specialized building materials and garden centers had the largest increase in the number of days of stock-on-hand rising from 87.9 to 100.1.

On average, store retailers turned over their merchandise 5.5 times in 2008, which was comparable to 2007. Most retail store sectors maintained similar merchandise turnover rates compared to 2007.

Saskatchewan posts largest gains

Store and non-store retailers in Saskatchewan benefited from the resource boom with the largest provincial operating revenue increase in 2008, up 11.4% from 2007, to $16.0 billion. The cost of goods sold rose 11.0% and other expenses were up 12.0% from the previous year. Other expenses as a share of operating revenue was 19.5%, well below the 22.1% for all provinces. Gross margins as a share of revenue was 25.5%, below the national average of 27.1%. Operating profits as a share of revenue was the highest of all provinces (+6.0%) and above the provincial average (+5.0%).

Among the Atlantic provinces, Newfoundland and Labrador retailers reported the strongest revenue gains, up 7.3% to $7.7 billion. As well, operating profits as a share of revenue was 5.3% in 2008, up from 4.9% in 2007, the largest positive gain in percentage points of all the provinces. Newfoundland and Labrador retailers also maintained the lowest expenses as a share of their operating revenue (19.1%) compared to the national average (22.1%).

Retailers in Manitoba reported a 7.0% increase in operating revenues in 2008 to $16.3 billion. Cost of goods sold rose 7.7%, the second highest of all the provinces. Operating profits as a share of revenue was 5.3%, above the Canadian average.

In 2008, Quebec retailers increased their revenue by 5.6% to $103.0 billion. Quebec retailers accounted for 22.0% of all Canadian retail revenue. As a share of revenue, both gross margins (26.3%) and operating profits (4.6%) were stable and below the national average in 2008.

Retailers in Ontario, who account for 36.0% of the share of total operating revenue in Canada, posted revenue growth rates of 4.9% in 2008 to $168.5 billion. Operating profits as a share of revenue matched the change at the national average of 5.0% in 2008, narrowing from 5.2% in 2007.

While revenue in Alberta increased 3.3% in 2008, it was below the national average. This province represented 14.4% of the national share of operating revenue. As a share of revenue, both gross margins (25.9%) and operating profits (4.6%) were stable and below the national average in 2008.

British Columbia was the only province to register flat year-over-year revenue growth (+0.2%). In 2008 this province represented 13.2% of total operating revenue. As a share of revenue, both gross margins (29.2%) and operating profits (5.9%) were above the national average in 2008, however, both declined slightly in comparison to 2007. Expenses represented 23.3% of the operating revenue, which was the largest ratio of all the provinces and above the national average of 22.1%.

The territories (Yukon, Northwest Territories and Nunavut) posted a 8.1% gain in operating revenue in 2008. Gross margins (29.8%) and operating profits (6.8%), both as shares of revenue were up over the previous year, and well above the Canadian average.