Craig and Lee dive into the current state of the Canadian retail industry, discussing recent consumer trends and challenges. They explore topics such as the impact of inflation, consumer spending habits, strengths in lower-cost regions, the struggle of small businesses, the shift between online and in-store retail, and the inventory and supply chain issues faced by retailers.
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Transcript
Announcer 0:00
This is a Retail Insider PodCast. You’re listening to “The Weekly”.
Lee Rivett 0:08
Welcome to this week’s episode of “The Weekly” by Retail Insider. I’m Lee Rivett. And I’m joined with the owner and publisher of Retail Insider Media, Craig Patterson, to discuss this week’s most read articles on retail-insider.com. So thanks for joining me, Craig.
Craig Patterson 0:22
Hello, everyone.
Lee Rivett 0:23
Now, Craig, you were invited to delve into the Canadian retail landscape and present some of the key points to business group in mid June. Now, I looked through the presentation and the key discussion points were perfect for sharing. So I wanted to do that during this podcast. But before we do, could you give a little bit of context to our listeners on the presentation itself and the group that you’re sharing with?
Craig Patterson 0:43
So I recently did a talk for the Sports Industry Credit Association about the Canadian retail industry. It was a little bit of a ‘State of the Union’. And so what I’m going to do is just go through a little bit of that here, because I think that it’s an interesting conversation. Some of this won’t be news to people, but at the same time, it’s a bit of a summary of where the consumer is, and where I think retail is going in the Canadian market at the moment as well as even beyond so we can dive into this right now here.
Lee Rivett 1:07
Well and to start with, could you give us an overview of how Canadian retail is doing?
Craig Patterson 1:12
It depends who you ask, I mean, some retails doing better than others. Consumers generally – I’ll talk about the consumer generally – is spending less on non necessities. This has been a situation for a little while here, as we’ve seen inflation going up. The cost of housing, the cost of food, the cost of will be the luxury goods going up in price because some people have been saving up or were in the past buy expensive things and are now not doing that. I’ve spoken to people in expensive stores that have said this. We’re seeing a situation where you know, even though retail sales have declined 2.4% in March – this was a statistic that we had – in Canada is outperforming most developed markets. I think Canadians are just stretched more than anything. This is according to a report by Colliers.
Lee Rivett 1:56
And were there any strengths that came out of that report, because a lot of times (especially post COVID) a lot of these retail reports are quite doom and gloom.
Craig Patterson 2:05
What they found though, at the same time, as within Canada, retail sales have been the strongest and regions with a lower cost of living. And that really shouldn’t be a shock to anyone. I mean, you look at say retail sales in a place like Texas where the cost of living is lower. People there have a lot of money, discretionary, I would say income overall on average than most Canadians would, but in markets like Toronto and Vancouver here in Canada, versus say, you know, Regina, Saskatoon, Edmonton and Calgary, the recovery has been faster in the places with the lower real estate prices, which are not Vancouver and Toronto, for those for those who know the country obviously. And I knew that real estate prices, were going to come and bite us in the ass for retail, because even though there are rich people in these cities, there’s a lot of people that don’t have a lot of money. And I think that with that discretionary and even just any disposable income drying up, that’s going to impact retail sales on non to set on non essentials. And I think that there is going to be a little bit of a reckoning here in the retail industry just because money is being siphoned off to things like rent and mortgage payments and shopping at Loblaws and getting gouged on food prices. Altogether, this is not a good time for a lot of Canadian consumers. And we get a lot of comments. I’ve said this before in our articles at retail insider, from people that are saying they’re desperate. I mean, I’m blown away. So people are saying that they’re, you know, cutting back on food and are trying intermittent fasting, and they’re not doing it for health. I mean, it is a healthy thing. But it’s out of desperation because they don’t have to pay for food all the time. And I don’t think that’s a good place for people to be in.
Lee Rivett 3:35
How do you think Canadians are dealing with these inflationary pressures? You mentioned like intermittent fasting, but how are people in Canada dealing with it?
Craig Patterson 3:45
Consumers are definitely cutting back. There was a study by EY I thought was really interesting saying that almost the majority of consumers now are saying they’re not brand loyal, and that they’re going to be looking for discounted pricing or looking for the better price, I should say. That’s a huge concern. Because if you think about a lot of brands out there, there, they spent an absolute fortune, trying to get in front of the consumer build loyalty, you know, get known and have people shop at their brands. So because prices are going up and consumers don’t have as much money to spend. That’s going to have an impact on brands. I think was the same study said that 58% of consumers in Canada are trying to save money or economizing they’re cutting back depending what word you want to use. A 73% of consumers plan to repair or repair items over replacing them. It’s good first day sustainability. People aren’t gonna be buying new stuff but you know what the consumer economy is based on people spending more money on buying new things as opposed to repairing them so this is going to have an impact I think on the economy as well. Especially, I don’t know fast fashion.
Lee Rivett 4:48
And you mentioned food purchases….?
Craig Patterson 4:51
Food purchases at grocery stores are down. Like I said some people are interested in fasting at the same time and it’s people will either with more money or they’re just by going out and spending it regardless on experiences. Restaurant spending is up, which is almost counterintuitive, but a lot of people are still going to restaurants to eat. Also experiences – some people are still taking trips to places if they can afford them, or they’re just maybe they can’t afford it, or they’re going somewhere else. But I do know that even with the pandemic, and following that… people are reevaluating reevaluating their priorities or just realizing they want to have maybe have more fun or have experiences. So they’re buying less stuff.
Lee Rivett 5:33
And how are people stretched?
Craig Patterson 5:35
I talked about this a bit before, certainly around the housing costs, whether or not a person owns a home and has a mortgage, or has just bought a new home and probably spent over a million dollars on it. Or is spending money on rent, I saw a report what was it in Toronto, the average one bedroom apartment is over $2,500 a month. In Vancouver, I can’t believe it, it’s over $2,800 which is just mind blowing because the average income in Vancouver is not that high compared to other parts of Canada, even though it’s a very expensive place. But housing costs have certainly stretched consumers. Taxes: Canadian consumers are taxed to you know, higher than Americans were paying taxes left, right and centre, whether or not it’s income taxes are on our alcohol or on our food or restaurants. I mean, we are just tax, tax, tax, tax. That’ll all add up. Stock market gains on wealth if people have anything at all has has been variable over the course of the pandemic and into now. Salaries haven’t met inflation. So people may actually not be able to find jobs. That hasn’t been as big of an issue here. We’ve got pretty decent employment in Canada, but it’s not perfect. With the pandemic, some people are having to pay back some support that they got some businesses are having to pay back some support. There’s been lost savings. And one thing as well, grants that some businesses got it earlier during the pandemic are coming due at the end of this year (of end of 2023). And we’re predicting a catastrophic implosion of smaller businesses in this country. Because of that I’ve spoken to various people, I’ve signed a petition with this Canadian Federation of Independent Business. It’s a bit of an aside, but that’s probably another conversation we should be having here. Because we’re going to see a collapse in small businesses by the end of the year here. A lot of them can’t afford to pay this back. And it’s going to be a tough time.
Lee Rivett 7:16
Yeah. Well, and what about the difference in the Canadian retail for Ecommerce (shopping online) or in store (or brick and mortar) retail?
Craig Patterson 7:24
Yeah. In the in the talk that I did, I talked a little bit about online versus in store. I was saying that we’re seeing we saw ecommerce growth absolutely explode during the pandemic, partly out of necessity. I mean, you know, literally, we couldn’t go into a lot of stores that were during the lockdown. So we saw ecommerce growth, growth of the roof it it created some habits that I think people have kept, but it has kind of plateaued or it’s not growing nearly as much as it was during the pandemic. I mean, it was exponential. They say we moved into the future significantly, but we still saw when when lockdowns ended, a lot of people went back into the stores. So that habit of shopping in a physical store is still there, I think it’s here to stay, at least for a lot of categories, say trying on clothing or something, at least for the first time. And people sometimes just want to see stuff. So I mean, at the same time, ecommerce is still growing, Amazon is still doing well, in terms of getting sales in Canada and elsewhere. So, I think that stores are here to stay. And also I was saying in this lecture that physical stores, even if you’ve just got one creates a sense of legitimacy for retailers say that’s doing a lot of sales online. Because I know for myself there was I forget what it was what shape I don’t want to say what the retailer was, but it was something I was shopping on. It was, you know, an online website. And I was like, Oh, they have a store. They’re real! They’re a real retailer. Yeah, they’ve got one store but they’ve got one like they’re not just
Lee Rivett 7:24
Some random, in the ether store…
Craig Patterson 7:52
Virtual world online. So anyways, I you know, maybe I’m just old fashion but that did get my attention for this retailer, even though it was just one store location for this national retailer.
Lee Rivett 9:09
And what about direct to consumer versus wholesale in Canada?
Craig Patterson 9:13
Yeah, did a little bit of a talk about direct to consumer versus wholesale. Brands like Nike and Canada Goose were certainly dropping their wholesale accounts and opening their own stores who have reported on Nike opening lots of stores. Canada Goose is actually doubling down on its retail store expansion plans while pulling back on wholesale. Nike surprised surprised us a little bit recently because it actually reestablished some wholesale agreements with DSW, the footwear retailer as well as Macy’s in the United States. So we may see wholesale coming back a little bit with Nike with certain select retailers, but I’m sure there’s some agreements and rules and all kinds of other stuff. With direct to consumer, I mean, brands like it if they have their own store, to put it simply to control the environment, it’s it’s kind of a brand ecosystem, there’s different margins, you can sometimes make more money in retail. If people are coming into your store. You’ve got staff you you’ve got you can, you know, decorate it, you want the way that you want. We see the same thing with concessions and stores like Holt Renfrew, or otherwise, these brands have stores within a store, but they’re still being run by that brand. So I was in the royal I did a tour of royal mount a few weeks ago at Montreal. And what I thought was really interesting is the team there was saying, Well, we are targeting brands to have stores in our mall, we’re not looking for the multi brand retailers. It’s not that there aren’t any there. But the really, the focus was because of the increased sales growth of individual brands versus multi brand retailers. They said, Well, we see the future success of the centre being with actual brands having stores in here and not having a, I don’t want to throw any retailers under the bus but or not even that but you know, Hudson Bay store or Harry Rosen or something which has different brands in it, instead, they would actually have the brand rather have the brands that are contained within those stores, but have their own stores in that mall. So they’re really smart people, they’re at Royal mount in terms of what they’re doing, they’ve been around the world they’ve thought this through. And I think that’s to me, that was that was a little bit profound to to hear that, you know, it’s all about the brands, it’s not about, you know, a retailer that’s carrying a bunch of brands within it. So but at the same time, some brands are not gonna be able to stand out on their own and open stores. They’re gonna be in multi brand retailers. And that’s totally fine. And I don’t want to see multi brand retailers closed at the same time. I’ve got some favorites, I think we all do. And I we still wish them success. But retail is changing. It always does.
Lee Rivett 11:36
And what about the inventory and supply chain issues that we’re seeing during the pandemic, now that we’re kind of more post-pandemic, if you were.
Craig Patterson 11:44
in a certain I think certain categories of retail, I don’t know from from bicycles and sporting goods, a few other areas, there was an increase in demand, like I don’t know, you couldn’t get a bike to ride around in during parts of the pandemic, because everybody bought them because they’re all wanting to ride around. Now there’s too many. So mountains of inventory, I think was a headline I saw on the news. Now retailers are having to deal with that. So what that means is right, you know, sometimes things go on sale, say a bike, you might get a better price now. So you’ll be able to actually find one on top of that. But I think that with that too much supply and discounting, it’s going to be a little bit of an issue here. You know, the supply chain? Well, you know, that’s being attempted to be dealt with. I mean, Canada’s a big country, it’s low density, it’s got a large geography, we’re contained to a few major cities for the most part. But at the same time, the Port of Vancouver had a very low ranking and its efficiency. And that’s a concern, because a lot of products for retailers come into the Port of Vancouver, if they’re coming in from Asia and other parts of the world. So hopefully that can be dealt with because we need as many as much in the way of efficiencies as we can in the retail industry here in Canada, just given the cost of doing business. It’s expensive to do business here. Like I said, it’s a big country with a low population density. We’ve got incomes versus expenses going up. Getting stuff to consumers is critical in and it’s also critical to be able to do it in a costly fashion, whether or not it’s a physical store or shopping or shipping online. So, you know, inventory is something which is having to be dealt with. And I think that that’s been quite a challenge as well.
Lee Rivett 13:19
Well, it sounds like it was great presentation. And thanks for going through the key points. When I was looking at the actual presentation itself, it sounded amazing to share with our listeners. So again, thank you for going through it and talk to you next week.
Craig Patterson 13:31
Thank you so much, Lee, and thank you so much everyone for listening. I’ll be doing some more talks out there. I do a little bit of public speaking and both the retail industry and otherwise even perhaps cities in urban planning. Reach out if you ever need anything like I’m having fun doing it. So thank you so much everyone for listening. Take care and bye for now.
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Background Music Credit: Hard Boiled Kevin MacLeod (incompetech.com). Licensed under Creative Commons: By Attribution 3.0 License. http://creativecommons.org/licenses/by/3.0/
