Business Brief: A revamp in retail

Inflation is cooling around the world. But as central banks mark milestones in their fight to tame the rising cost of living, you could be forgiven if it felt like you just paid $10 for three blueberries the other day. And you wouldn’t be alone: Prices might be cooling, but Dollarama’s earnings show consumers are still seeking relief.

In today’s edition

• Discount shopping: Dollarama grows as shoppers seek relief
• At the G7 summit: In search of world peace, and the Pope’s take on AI
• The hold steady: The Fed plays it slow

RETAIL

Dollarama and the new discount reality

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Dollarama Inc.’s profits jumped by 20 per cent in its first quarter as Canadians turn to discount stores looking for relief. This follows a slate of recent retail news that point to the different ways consumers and companies are reacting to a new inflation environment. I asked veteran retailing reporter Susan Krashinsky Robertson to walk us through the aisles of a shifting consumer landscape:

What do Dollarama’s earnings say about consumer spending?

No surprise here: Canadian consumers are in pain, and they’re looking for ways to cut back wherever they can. The declining rate of inflation is good news, but it doesn’t feel that good – because it just means that prices aren’t rising as fast as they have been over the past two years. People are still faced with a new reality where their dollars don’t go as far. And discount retailers have seen more traffic to their stores as a result.

Is Dollarama’s success unique, and have larger competitors taken notice?

As ubiquitous as Dollarama stores can seem to be in some neighbourhoods, the company clearly believes it has more room to grow. It currently has 1,551 locations in Canada, and is planning to open 60 to 70 new stores this year – roughly in line with the pace of expansion in recent years. They’re not the only discount retailer making these kinds of moves: The CEO of Walmart Canada recently told me that the company wants to open more stores in this country, for example. Our largest grocer, Loblaw Cos. Ltd., is converting dozens of stores to its discount formats such as No Frills and Maxi, and opening new discount locations too. Loblaw recently began testing out smaller-format No Frills stores, to try to reach shoppers in urban centres.

How is the slowing pace of inflation playing out across the retail space?

If a store sells the kind of products people have no choice but to buy – like groceries, pet food, soap – they’re probably doing okay. But retailers that sell “discretionary” products have noticed shoppers holding on to their wallets more tightly. Canadian Tire (which sells a bit of both) has reported declines in its discretionary categories for months now. Liquidators – which help clear product for stores going out of business or those in need of moving product – are busy. Before its owners took the company private recently, Indigo reported its sales were way down, even during the holiday season that is usually its bread and butter.

So, how do we square a mass tightening of wallets with recent news of some retailers growing?

There are still people out there shopping, and not just for things they strictly need. Harry Rosen executives say they had record revenues last year, approaching $350-million, and the company is investing in updating its stores. (If you have the money for an Armani sport jacket, you’re maybe not as price-sensitive.) But it’s not only luxury retailers that are seeing growth. Quebec retailer Simons also had record sales last year, and that company is spending $75-million to build new stores in two of the highest-profile malls in the country.

ECONOMY

On the menu at the G7 summit

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Against a global backdrop of unhappy electorates and economic uncertainty, Italy is welcoming Group of Seven leaders into the Borgo Egnazia – a swish southern resort featuring a Michelin-starred restaurant and a prestigious golf course overlooking the Adriatic sea.

~Primo~

Italian Prime Minister Giorgia Meloni’s challenge as host, The Globe’s Eric Reguly writes from Bari, is to find broad support – and constructive criticism – for the pressing issues of her mandate: Ukraine, Gaza, climate and migration.

• “Speed is essential. The war is going badly for Ukraine, whose military is running severely short of all types of weapons. The G7 is also aware that Donald Trump could win the U.S. election in November and stop sending weapons to Kyiv while he tries to impose a Russia-friendly peace deal on Ukraine.”

~Secondo~

To be sure, Gaza and Ukraine will carry most of the agenda. But climate change and AI will also be at the forefront of the three-day summit.

Coal’s notes: In April, the G7 climate, energy and environment ministers announced an ambitious goal to kill off coal by 2035. Met with skepticism, their messaging coming out of this summit will be worth following.

Pontificating on AI: Pope Francis, the first pontiff to attend a G7 summit, will take part in a discussion about artificial intelligence. He has broader concerns about AI, but comes from a place of personal experience.

• An AI-generated image of him wearing full-body puffer coat went viral last year.
• And in his annual New Year’s Day message, he warned of the risks posed by the “immense expansion” of AI technology.
• “Freedom and peaceful coexistence are threatened whenever human beings yield to the temptation to selfishness, self-interest, the desire for profit and the thirst for power,” he wrote. “We thus have a duty to broaden our gaze and to direct techno-scientific research towards the pursuit of peace and the common good, in the service of the integral development of individuals and communities.”
• And to ban fake coats on popes, presumably.

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~Dolce~

The debate comes as an artificial intelligence arms race intensifies – and attracts more scrutiny from markets and regulators. The pace of the news and the innovations are such that we don’t get to ask fundamental questions, such as: Why do companies keep releasing AI-powered apps that tell people to, say, search out and enjoy wild mushrooms that might prove deadly? They know the hype will die as errors are spotted and elevated to worldwide meme status.

So, why risk the negative attention? Big Tech is fine with launching unreliable AI apps, Joe Castaldo reports.

• The concept of a minimum viable product, in which a company releases a barebones product to sort out customer needs before moving to a full version, is being pushed to the limit by generative AI companies.
• “Depending on whom you ask, the approach is either reckless or a sign that we need to reset our expectations of generative AI,” he writes.

Inflation fight

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In the United States: The U.S. Federal Reserve held interest rates steady and pushed out the start of rate cuts to perhaps as late as December.

The decision was itself expected. But Fed Chair Jerome Powell said a report showing that the consumer price index eased last month more than expected isn’t enough to instill “greater confidence” in the broader direction.

“It’s only one reading,” he said.

In Canada: A week after the Bank of Canada cut its key interest rate for the first time in more than four years, Governor Tiff Macklem said the bank needs to restore public trust.

Speaking on a panel in Montreal, Macklem said the bank needs to find ways to explain its policies to a wide range of audiences, including families trying to navigate uncertain times.

“We need to meet people where they are and ensure they understand what we’re doing and why we’re doing it,” he said.

At home: Literally, my house. We’d like to know whether and when more cuts might come, no matter how much money we’re likely to save. Every dollar counts. (See: Dollarama, above.)

ON OUR RADAR

Out of bounds: Toronto’s Anson Funds has reached a settlement with a U.S. regulator over short-selling practices.

Out West: In the wake of National Bank’s deal for CWB, Alberta’s premier hopes its HQ (and corporate income tax) stays where it is.

Out of office: U.S. investment bank Stifel Financial Corp. is closing its office in Calgary, a major symbolic loss to the city and province.

Morning markets

World markets were mostly lower after the U.S. Federal Reserve forecast just one interest rate cut this year, fewer than previously projected, even as inflation cooled in May.

Overseas, the pan-European STOXX 600 was down 0.89 per cent in morning trading. Britain’s FTSE 100 slid 0.51 per cent, Germany’s DAX fell1.16 per cent and France’s CAC 40 dropped 1.31 per cent.

In Asia, Japan’s Nikkei closed 0.4 per cent lower at 38,720.47, while Hong Kong’s Hang Seng rose 0.97 per cent to 18,112.63.

The Canadian dollar traded at 72.75 U.S. cents.