In Canada, retail sales fell 28% from February to April, sending store chains reeling with little cash on hand to cushion the blow. The pandemic has dealt a shuddering blow to the global economy, which has shaken up normal patterns of consumer behaviour. Sales of makeup and pants are way down; we are investing instead in computers, headphones and cooking supplies.

Retail sales over all have sharply bounced back from a big drop earlier this year, but industry observers warn that some of the recovery is temporary. Government support programs will eventually be phased out, and an initial rush of pent-up buying is bound to settle down. Looming above all this is the continuing risk of COVID-19 and the potential of further waves of lockdowns. And Canadians have entered this crisis with higher household debt levels than at the beginning of the downturn in 2008, said Cliff Grevler, senior partner and managing director of the Boston Consulting Group in Canada.

How have Canadian spending habits changed?
“Growth drivers continue to be products that help us work and learn at home, or make us more comfortable,” said Armin Begic, executive director of the retail business group at market research firm The NPD Group Inc. In the categories it tracks, 30% of all retail sales growth in June was in work-from-home electronics, such as computers and monitors. Small appliances, especially dishwashers and room air conditioners and fans, grew significantly in June, as did products to keep kids entertained, such as video games. Canadians also spent money to improve their homes through renovations, upgraded appliances, and furnishings. 

Even as stores have reopened, more people are continuing to shop from home. In May, online sales more than doubled compared with last year, to $3.9-billion. That still represents just one-tenth of the retail market in Canada, but is a significant boost from the past: In 2019 online sales were 4% of the market. Canadian e-commerce giant Shopify Inc. saw a 71% increase in new stores created on its platform in the second quarter compared with the first.

When Canadians do head to stores, they are on a mission. Many retailers have noticed fewer trips to the store, with increased basket sizes. Larger stores that offer a one-stop shopping experience have been benefitting from this trend.

It is important to note that “COVID-19 has amplified the trend of de-globalization,” said Manulife’s Ms. Donald. “There has been an emphasis on one’s duty to buy local.” However, as discretionary spending continues at a lower pace, those smaller local businesses will need continued spending to stay afloat through a second wave of the pandemic. 

What does the future hold for retailers?
A recent Statistics Canada survey found that Canadians are planning to cut back most on discretionary spending as the economy reopens.“The segment of Canadians that are hardest-hit by the COVID-19 recession are also those least capable of saving,” Ms. Donald said. Persistently low interest rates also mean that borrowing is cheap – which could encourage some Canadians to take on even more debt. “I suspect we’re going to see evidence of a shift in the saving-spending mix, but also a further widening of that behaviour between high-income and low-income Canadians.”

Canadians are also more pessimistic about the future than many of their global peers. In BCG’s survey, 19% of people said their spending will not return to pre-COVID levels for a year or more; another 22% said their spending may never recover. When the dust settles, Canada will be left with a deeply shaken retail environment studded with more vacant storefronts than before the crisis, and a more muted consumer.

Source: Globe & Mail