The retail industry is undergoing financial stress, according to Equifax Canada’s Q2 Business Credit Trends Report, which reveals an uptick in businesses missing credit payments.
The report said the retail sector is experiencing a rise in payment arrears especially in financial trade delinquencies, where the 60+ day delinquency rate has risen from 3.7 per cent in Q2 2023 to 4.2 per cent in Q2 2024.
“The slowdown in consumer credit card spending and increased missed credit payments may have a direct impact on retail businesses as we enter the holiday season. Meanwhile, businesses in the retail sector are pushing holiday promotions even earlier in the year, potentially reflecting a growing reliance on the holiday season to boost revenues. However, the retail sector could continue to face high delinquency rates as inflation and unemployment impact household budgets,” added Equifax.
According to the data from Equifax, over 56,000 businesses missed at least one financial trade in Q2 2024, up 10.2 per cent from the same period in 2023.
At a trade level, the 60+ day (volume) financial trade delinquency rate went up from 2.8 per cent to 3.1 per cent in the last 12 months, driven largely by installment loans. Businesses that rushed to take installment loans to pay off their Canada Emergency Business Account loans before the deadline, coupled with elevated interest rates, may be contributing to this rise in loan arrears. The delinquency rate for industrial trades saw a similar rise from 5.1 per cent in Q2 2023 to 5.7 per cent in Q2 2024. Data also indicates that businesses that opened in the last 24 months are starting to miss more payments, though still at lower levels than the national average, said the report.
“As we analyze the current landscape, while business insolvencies are stabilizing, delinquency rates continue to rise across the board. Sectors like retail and construction could be feeling the pressure as consumer spending weakens and uncertainty remains high for many Canadian businesses,” said Jeff Brown, Head of Commercial Solutions for Equifax Canada. “The economic impact of natural disasters, inflation, and fluctuating interest rates have created a challenging environment for businesses to navigate.
“As we head into the holiday season, businesses are preparing for one of the most crucial periods of the year, but many are entering it from a weakened position. There is still a lot of uncertainty in the market, and businesses are being very prudent with their financial planning.”
The report said the gradual lowering of interest rates may provide the economic boost many businesses have been hoping for. While interest rates have been lowered in response to the lull in economic activity, the conservative pace of these reductions may have left businesses and consumers hesitant to make significant investments.
