Retail sales growth in Canada is continuing to outperform much of the world so far this year, a sign of the ongoing resiliency of Canadian shoppers despite higher inflation and recession predictions, a new report has found. The Colliers 2023 Retail Outlook said consumers are still spending, even though retail sales have cooled slightly from 2022 when prices spiked and interest rates began their meteoric ascent.
Canadian retail sales climbed 2.4% in March compared with the same month in 2022, outperforming most developed markets around the world, the Colliers report noted. In comparison, U.S. retail sales edged up only 1.6% while dropping in the U.K., France and Germany, the report said.
Still, new retail sales figures to be released by Statistics Canada could show signs of softening consumer spending and demand as borrowing costs rise and the labour market weakens, economists predict.
“Consumer spending was surprisingly resilient early in 2023, with a 5.7% annualized increase in the first quarter,” Royal Bank of Canada assistant chief economist Nathan Janzen and economist Carrie Freestone said in a client note.
Yet much of that boost came from strong spending in January, and more recent monthly readings have been softer, they said. “We continue to expect spending to flag over the second half of this year, even with surprising resilience year-to-date,” they said.
Within Canada, retail sales have been strongest in regions with a lower cost of living, the Colliers report said. Sales have been highest in provinces that recorded a significant influx of Canadians from other parts of the country during the pandemic, it said.
“The tremendous growth in Alberta and muted performance of Ontario reflects significant interprovincial migration, with a record high level of leavers from Ontario, and a record high level of arrivals in Alberta,” the report said. “The least affordable regions saw the smallest gains (or losses) in retail sales, while the most affordable regions saw growth.”
Overall, Canada’s strong population growth compared to other developed countries has continued to act as a tailwind for retail sales in Canada, the report said.
Meanwhile, demand for travel, hospitality and entertainment has been a key driver of sales, the Colliers report noted. “The appetite for experience is still very strong,” said Adam Jacobs, senior national director of research with Colliers Canada. “We were all locked down for years and there’s absolutely still record-high demand for bars, sports, entertainment, travel, hotel rooms and plane tickets.”
Retail rents have reached all-time highs as renewed leasing demand, low vacancy rates and a lack of new developments has funnelled demand to existing shopping centres, the report found.
Despite the high-profile shuttering of U.S. retailers such as Bed Bath and Beyond and Nordstrom, the vacant space has been rapidly absorbed in most markets, it said. “Retail has nine lives,” Jacobs said. “There’s a lot of focus on some big store closures in Canada, but if we zoom out and look at the overall nationwide trends, those are positive.”
The Conference Board of Canada said in a recent report that its index of consumer spending showed a spending pullback in the first week of April, but steady growth for the rest of the month. “Every region’s consumer spending index increased from last month’s scores,” the report said. “Alberta led the pack with an increase of 4.3 points in its monthly average. The lowest increase was in Quebec, at 0.5 points.”
The Conference Board added: “The general increase could indicate that people believe influences on financial burdens such as interest rate hikes have peaked, allowing them to commit more toward purchasing rather than saving.”
Indeed, that resilience was cited by the Bank of Canada in raising its benchmark interest rate to 4.75% earlier in June, RBC economists say.