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The deflation dilemma

From the HGO Merchandiser

 20 April 2021     Michael J. Knell 

OTTAWA – A mattress retailing in Canada for $1,000 in 2002 sold for $821 in 2020. Similarly, a piece of upholstery also selling for $1,000 in 2002 sported a price tag of $938 last year. An analysis of the Consumer Price Index (CPI) from Statistics Canada shows every major category of furniture and major appliances suffered significant price erosion over that time. But almost everything else bought by the Canadian consumer cost a lot more last year than it did 19 years previously – and sometimes by a significant amount.

A good example is the family grocery bill, which Statistics Canada says was just under $154 in 2020 for every $100 spent in 2002. Another is what the CPI refers to as the ‘all items’ basket (basically every product the consumer buys on a regular basis) which went from 100 in 2002 to 134 in 2020.

As the chart accompanying this report shows, major appliances haven’t been immune from this downtrend trend in pricing. For example, a washing machine or dishwasher priced at $1,000 in 2002 was tagged at $844 last year. A similarly priced refrigerator sold for $865 last year. Many experts, both inside and outside the white goods industry, have cited improvements in technology and greater efficiencies in manufacturing – not to mention tougher competitive pressures – as the primary drivers for the deflation when it comes to both the core group of major appliances and most categories of consumer electronics, especially televisions and audio-visual equipment such as DVD players.

But when it comes to furniture and mattresses industry veterans as well as outside observers note there are other factors in play, particularly when the inflationary pressures on many of their components are considered. For example, foam used for upholstery seating and mattresses as well fabric for both seat covers and ticking have seen prices increase at a relatively alarming rate, particularly in recent years.

Anna Feng, an economist at the Conference Board of Canada – a private think tank based in Ottawa – notes the overall inflation rate in Canada has averaged 2.0% annually over the past two decades, prompting her to believe “this deflation in furniture price was caused by muted consumer demand for furniture and an increase in options available – challenging pricing power.”

Ed Strapagiel, the Toronto-based retail consultant and analyst, said demographics has also played a role, pointing out “population growth has slowed down and so has the rate of new household formation which, in turn, means less robust aggregate demand for furniture and appliances.”

For Edward Leon, chief executive officer of the Toronto-based Leon’s Furniture Limited (LFL) – parent of both Leon’s and The Brick as well as this country’s largest full-line furniture, mattress and appliance (FMA) retailer – the drivers are closer to home.

“The fact that our industry’s pricing hasn’t kept up with the increase in CPI is due to a couple main reasons,” he believes, “First, the incredibly competitive nature of our industry (at both wholesale and retail) and secondly, the fact a large portion of our goods are sourced internationally and often come from countries and marketplaces that do not necessarily follow the economics of our domestic market.”

Kim Yost, president and CEO of Mega Group, the member-owned buying group based in Saskatoon, concurs with these sentiments and expands on them noting an examination of the CPI says quite a lot about the state of FMA retailing in Canada.

“First of all, we have lost share of wallet – that is, of disposable income – over that period,” he told Home Goods Online in an interview. “There are also new categories of goods which didn’t exist 20 years ago that are now competing for those same dollars – think cell phones and digital subscription services.” 

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This HGO article was written by:
Michael J. Knell
Michael J. Knell

Michael is the publisher and editor of Home Goods Online. A seasoned business journalist, he has researched and written about the furniture, mattress and major appliance industries in both Canada and the United States for the past three decades.

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Home Goods and its accompanying newsletter - HGO This Week - covers the furniture, bedding, appliances, consumer electronics, accessories, lamps and lighting and floor coverings product sectors of the big ticket home goods market in Canada. HGO is also a forum for the dissemination of market research and hard-hitting articles on best practices for Canadian retailers.

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