Canadian Consumers Spending Despite Inflation Pinch, with Challenges to Come [Expert Comments]

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While Canadians continue to feel the harsh pinch to their pocketbooks with rising costs across the board, that’s not impacting their appetite to spend money at retail stores, restaurants and bars in the country.

Recently, Statistics Canada reported that consumer inflation rose 7.7 per cent year over year in May, which was the largest yearly increase since January 1983. The federal agency also noted that the Labour Force Survey found that average hourly wages rose 3.9 per cent year over year in May, meaning that, on average, prices rose faster than wages in the previous 12 months.

Yet consumers are spending more today than before the pandemic.

StatsCan data indicates that retail sales in April 2019 were $51.429 billion, rising to $60.721 billion in April of this year. Sales at food and drinking establishments rose from $6.087 billion in April 2019 to $6.921 billion in April of this year.

So what gives?

CF Toronto Eaton Centre (Image: Dustin Fuhs)

Michael Kehoe, a commercial real estate broker with Fairfield Commercial Real Estate in Calgary and a spokesperson for Consumer Real Estate Canada, said retail sales and consumer footfall at Canadian shopping, dining and entertainment venues are robust across the country to date in 2022. 

Michael Kehoe

“Many regional shopping centres are enjoying double-digit sales increases as consumers are back with a vengeance as things have normalized after the COVID-related restrictions over the past two years,” he said. “This past Spring was a period of optimism, and we are likely headed into a summer of continued free spending and indulgence for many Canadian consumers. 

“Moderate levels of consumer confidence and optimism are likely to continue during 2022 as world events, high energy prices, inflation and other concerns may be top-of-mind in the media, but it seems that these factors appear to not be affecting consumer behaviour in a negative way at this time.

“It is the best of times in the worst of times and retailers, restaurateurs and other entrepreneurs have adapted their business models in these post-pandemic days to suit ever-changing market conditions and Canadian consumer preferences.”

George Minakakis, CEO, Inception Retail Group, and author of The New Bricks & Mortar: Future Proofing Retail, said consumers are still in what he referred to in his recent book as the euphoric stage. 

“After being unable to enjoy life with the pandemic, going out it’s no surprise it was going to take some consumers longer to adjust to some normal routines. But these routines cost more today than they did a year ago and even before the pandemic,” he said. “I would like to see the data on the consumers that are out spending. I would not be surprised that credit card debt and especially fast credit granting and almost free money with buy now pay later are likely fueling spending as well. A number of people I know had their credit card limits increased without asking for more credit. 

George Minakakis

“There is no question in my mind that most consumers under 40 are not thinking about the implications of high inflation, after all they were not born yet since the last inflationary period like this one. And they have no context on how this can hurt financially and psychologically.  And when I hear higher revenue numbers versus a year ago, I want to know what their sales were last year and how much has inflation impacted that sales growth and their costs. I am not convinced that all growth is as profitable as it used to be. Growth in restaurants should be double-digit as many were restricted in their operations last year. If you back out inflation it could be single digits. That’s not healthy.

“Is there a day of reckoning coming? Absolutely! If you can’t make those credit card payments it will be a problem. I also believe that buy now pay later will come back to haunt retailers as that could shrink up as things get tougher in the coming months. One of the problems is that a younger generation of consumers and retailers are too optimistic. They may think that inflation is their grandparents’ or parents’ problem from a generation gone by. However, all it will take is two to three purchases with buy now pay later plans to break the most inexperienced and optimistic consumers from spending further. Couple that with 50-60 per cent of Canadians saying they are a couple of paychecks away from not being able to pay their bill. I expect plenty of pain to come.”

Yorkdale Shopping Centre in Toronto on July 3, 2022. (Image: Craig Patterson)

Bruce Winder, author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said we are at an unusual time from an economic and consumer behaviour standpoint. A period not seen for a few decades if ever. 

Bruce Winder

“Inflation has roared through the world’s economies due to several factors including rising commodity and raw material costs – war in Ukraine, etc.- , rising freight costs – although I hear these are starting to level off- , wage increases and other input costs. At the same time economic growth has been muted and we find ourselves in a state of stagflation. Yet we are seeing consumer spending take flight in a few categories. Why?,” he said.

“I think a number of factors are contributing to this dynamic. After being restricted for two years, consumers can finally travel again, and they are making up for lost time. Also, with several white-collar workers being asked to return to the office, at least part of the time, they are spending on a refreshed wardrobe.  Although one can argue that government stimulus supports have been spent, Canada’s unemployment rate is extremely low and supply and demand effects within the labour market have increased wages – but not enough to keep up with inflation as we are seeing more in the way of unionization and labour unrest. From a restaurant perspective, I think a number of people are sick of eating at home and want to get back out and socialize like they used too. Also, as interest rates rise, some consumers have given up on home ownership and are living it up in the short term. 

“There are significant differences between customer segments within retail also. If you are a low-income consumer, you are limiting spending and buying more private label where possible. You are also deferring discretionary spending until things pick up again. If you are a more affluent customer, you are still able to enjoy many of the luxuries you had before the pandemic and although real estate and equity assets have lost some value, your disposable income remains high.’

When you take into consideration our current inflation rate nearing eight per cent, any sales increase numbers we are seeing need to be adjusted for rising prices and should be also viewed from a unit perspective, he added. 

“From a retailer perspective I think we will see a contraction in retail unit sales but not necessarily a contraction from a retail dollar perspective. Most retailers have passed on input cost increases to retail prices, and then some in some cases, to protect margins/make up for lower unit volume.  Value retailers within the dollar segment and the discount grocery segment will continue to thrive while middle retail will take a dive. Luxury retail will remain strong. Look for discounts on excess inventory within middle retail as chains mark down product overbought during the supply chain crisis felt during 2021. We will also see more retailers close doors as government commercial supports have stopped and small to medium sized retailers quietly shut down, with or without formal bankruptcy proceedings. New retailers will emerge to cater to the new post pandemic normal,” said Winder.

“E-commerce has taken a bit of a holiday from the growth enjoyed during the pandemic as customers rekindle their love affair with in-store shopping for a little while. This will reverse a little in 2023 when e-commerce begins to slowly start to grow again but not as fast as during the pandemic.”

Article Author

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He is the Senior News Editor with Retail Insider in addition to working as a freelance writer and consultant in communications and media relations/training.

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