The following is an analysis by Toronto-based retail consultant Ed Strapagiel, who publishes a monthly report with his perspective on the state of the Canadian retail industry. Mr. Strapagiel’s discussion appears to be a concerning news story as retail sales numbers are revealed for the beginning of 2019.
By Ed Strapagiel
New retail sales data released by Statistics Canada for January 2019 show no change from the downward momentum carried over from last year. The trend lines going into 2019 look particularly bad.
Per the above chart, the 3 month trend (orange line) is at a low point, which in turn is driving down the underlying 12 month trend (green line). And things are still getting softer. Total retail sales increased only 0.4% year-over-year for the 3 months ending January 2019, the weakest consecutive 3 month performance in 6 years.
Food & Drug
There is however a glimmer of hope in the Food & Drug sector. While retail sales growth did decline for much of last year, the 3 month trend (orange line in the chart) has strengthened somewhat in recent months. The underlying 12 month trend (green line) has steadied and may be poised for a recovery.
For the 3 months ending January 2019, Food & Drug retail sales gained 2.4% year-over-year. While this is quite modest by historical standards, it was the highest such gain of all the major retail sectors.
Sales gains at supermarkets & other grocery stores appear to be leading the way. Their retail sales were up 3.0% year-over-year for the 3 months ending January 2019, the highest such gain in 15 months. Some of this however is likely due to retailers passing on supply price increases to consumers.
Health & personal care stores however continue to report slow sales. For the 3 months ending January 2019, their retail sales gained only 0.1% year-over-year.
Convenience stores and specialty food stores continue to enjoy higher than average retail sales gains, but these are small players in the overall Food & Drug sector.
Retail sales growth in the Store Merchandise sector has been cooling off for about a year up to this point. For the 3 months ending January 2019, sales were up only 1.2% year-over-year. The underlying 12 month trend (green line in the chart) is on a prolonged decline, which is likely to continue because the 3 month trend (orange line) is performing even worse.
A number of retailer types appear to be having a difficult time going into the new year. This includes electronics & appliance stores (sales down 8.8% year-over-year for the 3 months ending January 2019), sporting goods, hobby, book & music stores (down 3.5%), jewellery, luggage & leather goods stores (down 2.2%), and home furnishings stores (down 1.7%).
Only the miscellaneous store retailers group is doing well, with retail sales up 9.7% for the 3 months ending January 2019. A good part of this is due to the addition of cannabis stores, which increased segment sales by 4.0% during the period.
Note that Statistics Canada is now suppressing the breakdown of general merchandise stores for confidentiality reasons. The figures in the table below are estimates based on previous trends.
Automotive & Related
The Automotive & Related sector appears to be collapsing. On the other hand, we’ve seen this before. The current plunge is mostly due to a combination of lower gasoline prices and almost no sales growth at new car dealers.
For the 3 months ending January 2019, new car dealers’ retail sales were up just 0.4% year-over-year. This is a far cry from the near double digit sales growth rates from a year and a half ago.
In the same period, gas station retail sales were down 9.0%, which led to a retail sales decline of 2.2% for the overall Automotive & Related sector. This has happened before too, 4 years ago at the start of 2015. Volatile pump prices are likely to keep things hopping. The current outlook is that gasoline prices should increase in spring 2019.
By The Numbers
Special Note: Statistics Canada has made updates to 2017 numbers, and has also moved retail storefronts of telecom companies out of electronics & appliance stores and into a non-retail category, Telecommunications (NAICS 513). Retail trade statistics have been revised back to January 2012.
Canadian E-Commerce Sales
StatsCan started providing ecommerce retail sales data in January 2016. While the amount of data is limited, some trends appear to be emerging. Here are some results.
Overall, e-commerce represented about 2.9% of total Canadian retail sales for the 3 months ending January 2019, including both pure play operators as well as the online operations of brick & mortar stores. Canadian consumers however also buy online from foreign websites which is not captured in these numbers.
Canadian e-commerce sales were up 11.6% year-over-year for the 3 months ending January 2019.This is the lowest 3 month year-over-year gain on record, although it is still significantly higher than for location based retail.
Note that location based retail is the same as that in the preceding large “By The Numbers” table. It’s what’s normally reported as Canadian retail sales. Except that it isn’t. Location based retail excludes another section called Non-Store Retailers (NAICS code 454), which includes electronic shopping and mail-order houses, which in turn is where (mostly) pure play e-commerce businesses are. For the 12 months ending January 2019, electronic shopping and mail-order houses had an estimated $10.8 billion in e-commerce sales.
But that’s not the only source of e-commerce, as (mostly) bricks & mortar location-based retailers also sell online. For the 12 months ending January 2019, this group had an estimated $7.3 billion in e-commerce sales. With electronic shopping and mail-order houses, there’s a grand total of $18.1 billion in e-commerce sales by Canadian operators over the year. Note that this does not include foreign e-commerce purchases made by Canadian consumers, but it does include e-commerce purchases made by foreigners at Canadian businesses.
For electronic shopping and mail-order houses, an estimated 85.2% of their sales are allocated to e-commerce. For (mostly) bricks & mortar retailers, it can be estimated that just 1.2% of their total sales are attributable to e-commerce.
In the final section of the above table, (mostly) pure play operators (namely, under electronic shopping and mail-order houses) generated an estimated 59.5% of all e-commerce sales in Canada, while (mostly) bricks & mortar location-based retailers’ share of e-commerce is 40.5%.
For more explanation on the e-commerce numbers, see Statistics Canada: Retail
This analysis is updated monthly as new numbers are published by Statistics Canada. If you would like notification of when an update becomes available (and you’ve read this far), please connect with Ed Strapagiel on LinkedIn.