Retailers are facing a challenging environment right now. While prices have been climbing for the past two years, the effect is cumulative. So is the effect of the Bank of Canada’s 10 interest-rate hikes since 2022, which trickle through the economy as people renew mortgages and other loans. Feeling the mounting financial stress, customers are watching their budgets more closely than ever.

Consulting firm Deloitte Canada expects Canadians will spend 11% less this holiday season than last year, amid concerns about a recession and their personal finances. That total decrease is offset by higher expected spending on travel during the holidays; spending on gifts will actually decline more sharply, by 18%, according to Deloitte. In a survey of more than 1,000 Canadians, 77% reported that they will be shopping around, visiting more stores and e-commerce sites than they did last year, to search for better deals.

“We had a bit of a soft back-to-school season as well. So that’s another indicator of what’s to come for the holidays,” said Marty Weintraub, national retail consulting leader at Deloitte Canada.

Softening consumer demand is one piece of the puzzle. Another is supply. Some retailers, and the manufacturers that make the products they sell, are still working through a glut of inventory.

“There’s a ton of it, because everybody ordered for the old supply-chain challenges – knowing you had to order 130 to get 80%,” said Peter Hlynsky, who was recently promoted to the role of CEO at outdoor recreation retailer MEC. As factories caught up, “all of a sudden, you’re flooded with inventory.”

MEC has been negotiating – both with the brands it sells, and with the suppliers that make its own store-brand products – for lower wholesale prices, to offer better deals on the floor and clear out excess stock.

“The consumer is very conscious of how they spend their money,” Mr. Hlynsky said. Retailers will be responding. “We know that the feeling in the market, and what we’re hearing in retail, is that all those Black Friday deals are going to start earlier in November,” he said.

Deals will be important to spur on shoppers who are paying more for the types of purchases they can’t avoid. Canadians are now spending almost 10% more on essentials compared with a year ago, according to recent data from Royal Bank of Canada. As a consequence, people are cutting back where they can. RBC noted declines in both nominal retail sales and inflation-adjusted retail spending excluding auto, in September. 

One early sales event may provide a barometer for a tricky holiday retail season. Amazon’s Prime Big Deal Days event in October offered up discounts – but Canadians still held back. According to data from software and analytics firm Salesforce, online sales declined by 12% in Canada over the two-day event, compared with a 1% decline in the U.S.

“Consumers are waiting. They are taking control of their finances,” said Rob Garf, vice-president and general manager of retail at Salesforce. “We’re always concerned, as retailers, that it’s a race to the bottom. But the reality is, there’s such a direct correlation between discount rates and sales. And consumers have gotten really smart, they’ve gotten really patient.”

Each year, Hudson’s Bay kicks off its holiday season early with the autumn Bay Days sale, which just wrapped up at the end of October. This year, knowing shoppers are reticent, the retailer is also planning to advertise two-day sales throughout the season, putting individual items on deep discount for a limited time. “This holiday shopping season is under particularly aggressive pressures, and consumers need their dollars to go further,” Kevin Parry, senior vice-president of marketing at Hudson’s Bay, said in a statement. 

It’s not just about discounts. Retailers are also mindful that they need to more prominently display some of their lower-priced products to appeal to shoppers looking for a range of gift options.

One thing is clear: Retailers will have to work to appeal to cash-strapped customers, and those efforts will not end once the holidays are done.

“It takes time to go through the system,” Deloitte’s Mr. Weintraub said. “You’ve got millions of mortgages; they don’t all flip at the same time. So we’re not done. The pressure on the consumer is probably going to get worse before it gets better.”

To read the full report, visit the Deloitte website. 

Source: Globe and Mail