The Best of Times and the Worst of Times: Canadian Retail Wrap-up for 2022 [Interviews]

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Describing the retail sector in Canada in 2022 isn’t an easy task as so many factors played into the evolution of the industry in another tumultuous year.

Michael Kehoe

“The Canadian retail sector in 2022 was a page out of Charles Dickens where we had the best of times with new retail brands entering the Canadian market, sales surges in the lux sector along with travel-related and experiential retailing strong, but the worst of times with retailers facing labour shortages, wages and salaries increasing, a mild fall in some parts of the country and for many, underwhelming and lacklustre sales performance,” said Michael Kehoe, broker of record with Fairfield Commercial Real Estate.

He said sales were up in some sectors but disappointing in others. 

“I was surprised that the anticipated post-pandemic sales surge did not materialize and for many, any momentum had stalled over a disappointing back to school period,” he said.

Back to School at Williams-Sonoma in CF Toronto Eaton Centre (Image: Dustin Fuhs)

Bruce Winder,  author of RETAIL Before, During & After COVID-19 and President of Bruce Winder Retail, said 2022 has been a tough year for some retailers and a great year for others. 

Bruce Winder

“Overall, I think we all expected 2022 to be a breakout year as the pandemic was finally under control and Canadians had money to spend but as numerous challenges developed, our dreams of prosperity became nightmares to many,” he said.

“I think the initial freedom from the pandemic helped sales in some categories as consumers celebrated the re-opening but as inflation became more widespread it ratcheted up retail prices which drove retail sales dollars as customers paid more for the same items year over year.”

Shoppers Drug Mart, Winnipeg, Manitoba (Image: Field Agent Canada)

George Minakakis, CEO, Inception Retail Group, and author of The New Bricks & Mortar: Future Proofing Retail, said you can’t just stop a global economy for over two years and restart it expecting a back to normal. 

George Minakakis

“Retailing in 2022 started with both hope and hype and then shifted to price shock and chaos for both consumers and retailers. The challenges went from not getting inventory on time to now pushing back on inventory.  

We also have the household impact. We know that food shot up by 11 per cent, on top of managing shelter, transportation and servicing debt. Shocks and chaos as retailers scrambled globally to respond, some did not fast enough,” he said.   

Minakakis said he is not surprised that sales have been up this year. They have increased about 2.2 per cent between January and September 2022 versus 2021, with year-to-date inflation at 6.85 per cent for this year.

“On top of 3.4 per cent in 2021, therefore, consumers are paying over 10 per cent  more than they did two years ago. That’s not good news for retailers. That tells me that either retail transactions are down or the average sale is down. I will go with transactions.  In the third quarter in 2022 (July-September) retail sales were down by one per cent with a 7.2 per cent inflation rate.  This has been a shock to consumers and difficult for retailers to avoid passing down higher costs and trying to squeeze a profit,” he added.

Household Appliances at Canadian Tire (Image: Dustin Fuhs)

David Ian Gray, Founder/Strategist with DIG360 Consulting, said a level of chaos still exists in the retail industry.

David Ian Gray

“The destabilization of the pandemic means high susceptibility to ripple effects or aftershocks. Actions and reactions are continuing to take a toll on the retail ecosystem. Chaos is not universally bad; there are many stronger retailers emerging intact in 2022 – the big are getting bigger (e.g., Loblaw, Lululemon, Best Buy). Retail leaders are learning to lead in a non-linear world.”

Any nominal sales gains across retail categories are largely negated by price inflation. Units sold and real sales growth was flat, added Gray.

“However, prices did not rise equally across all categories – some electronics are actually cheaper this year. What surprised me was that it could have been worse. I think the return to in-store shopping played a very important role. Wary consumers facing economic uncertainty and constant media negativity did not completely turtle. Let’s say I’m being “glass half full.”

TVs at Best Buy Canada on Black Friday 2022 (Image: Dustin Fuhs)

Kehoe said many retailers were challenged with controlling their overhead, particularly the cost of wages, rents and now rising theft and shrinkage in 2022.

Overall, this was a tough year for the retail sector, explained Winder. 

“Having finally passed through the worst of the pandemic, several headwinds developed in 2022 including: inflation not seen in 40 years, unpredictable consumer demand shifts that retailers could not prepare for, labour shortages, excess inventory and interest rate increases, the war in Ukraine and with it energy increases and supply chain disruptions, job losses in the tech sector, deflation of stock markets and real estate markets, higher consumer debt levels and the wind down of government business supports. With these challenges it is no wonder we are seeing a softening fourth quarter for the sector and a very challenging retail operating environment,” he said.

Minakakis said this was supposed to be the big retail recovery year.  Bank governors were telling us in 2021 that inflation was transitory not to worry about it. 

“Retailers were contending with supply chains and now we seem to have a decline in demand. China’s tough stand on COVID right up to the beginning of this month impacted the flow of supplies and manufacturing.  We also had environmental issues related to produce.  Increased prices on grain and fertilizer along with inflation and higher interest rates have all made it a challenge. Retailers went from demand shock to margin and price shocks,” he said.

Hiring Signage at Telus in CF Toronto Eaton Centre (Image: Dustin Fuhs)

Gray said the accelerated pressure on executives to create adaptive, resilient cultures and new ways of strategic planning was hindered by the WFH (work from home) movement.

“Worker shortages continued to be a big concern in 2022. Supply chain also continued to be a challenge. For many, heavy triage efforts on filling shortfalls in late 2021 led to overstock situations in 2022. Monetary inflation was added to the price inflation that began in Q4 2021. This impacted retailers in their buying, but also in their costs of transportation of goods,” he said.

“As important was the hit to consumer confidence and buying power. 2022 shone a light on the high level of product returns, especially given online shopping hit a new plateau. For some scaling bigger, particularly online brands, access to capital dried up and there are shortages of good, affordable physical space, as the landlord and developer subsector deals with its own disruption. Specific categories had their own challenges; for example, big grocers faced exceptional scrutiny in the public eye around their pricing practices.”

Loblaws (Image: Dustin Fuhs)

Kehoe said the Canadian retail sector is in a critical period where everyone is competing for a ‘share of wallet’ in these inflationary times that include the possibility of a mild recession. 

“The market could experience a period of store closures in the new year, and I am not anticipating a lot of new store openings over the next 12 -18 months,” he said. 

“The major challenge in 2023 will be catching the consumers’ attention amid the noise of doom and gloom recessionary talk in the media. Consumer confidence is critical. This, combined with retailers controlling overhead and the quest for affordable rents that will be paramount.”

Winder said 2023 will be another tough year for retail. Many of the challenges we faced in the back half of 2022 will continue on into 2023. 

“The rapid interest rate increases that the Bank of Canada implemented in 2022 will be felt mostly through 2023 as inflation decreases but with it, economic growth drops off and we officially enter a recession. Sadly, I think several small to medium sized retailers will shut down in 2023 due to the combination of headwinds . . . There will be some consolidation in the industry as bigger, well capitalized retailers pick up distressed companies at a discount. The thrift market will expand as over-leveraged consumers buy more used products to stretch dollars,” he said.

“Some of the challenges for 2023 will include continued softening of the economy . . .  as well as increased shrink/theft and the tightening of return policies for e-commerce. Also, as inflation slows while economic growth stalls, retailers will be challenged to comp retail sales dollars as inflation helped 2022 top line numbers. Many retailers will spend the first half of 2023 drawing down inventory which will impact gross margins negatively. I think we will start to see better days in late 2024. The key will be to make it through until then.”

Image: StyList on shopsquareone.com

Minakakis said retailers need to have their digital houses in order and that means leveraging talent and data to capture share. 

“I expect a tough first half to 2023. Consumers will be looking for ways to save as are higher end consumers as well.  Expect a very robust competitive landscape in 2023. Relevance with consumers means the right price value equation. Retailers need to leverage all strategies to close sales including BNPL (buy now pay later ) options. More retailers will develop their own programs.  I expect e-commerce to continue to grow. Product, price and convenience are key,” he said.

“Retailers with stores need to make some tough calls on how they operate their businesses operationally and from a marketing perspective. Experienced retailers also know that service and customer experience are two different animals to create and effectively deliver them as one. Now would be the time for malls to transform, four walls with stores is not a long-term strategy for success.    

“If we’ve learned anything over the last three years, we must dismiss nothing.  The biggest challenge for retailers will be “What is our stay in business strategy?” With a recession.  All brands have their own complexities, cut and paste strategies don’t work. I believe that the consumer has been in a psychological recession for the last six months.  

The Bank of Canada is not done, if they go too far it can be damaging to consumers and retailers. Even with a drop in inflation next year, prices will still be too high for a consumer recovery putting downward pressure on demand. Therefore, overseas suppliers could struggle and slow down production creating delivery lag times and even higher prices. China and Russia are still wildcards in my book; their geopolitical policies can impact on supply chains and natural resources creating more shocks.”

Gray also said inflation will continue, and the effects will become more real for consumers in 2023. 

“We are starting to see an uptick in mortgage defaults, for example. This will impact demand, down for discretionary items and up for lower quality goods and second hand stores and platforms. It will also drive upward pressure on wages so they can keep pace.” he said. 

“The Gods of Disruption will be seen as false. The online players who created new platforms have lost their investor support. They will now have to compete just like traditional retailers on old fashioned business math: net profit matters. Wayfair would be an example.

“Geopolitics will continue to colour local impacts. While consumers will continue to grab cheap stuff from China, there is a growing dissonance in doing so. Brands with the price ability to move sourcing to other countries, even if domestic production is elusive, will start to see wins.”

Within retail organizations, there are several things we are looking for in 2023, starting a focus on turning pandemic innovations, which were substantive, into ongoing improvements. There will be a theme of “cut the crap” – literally in terms of waste elimination but also in terms of beliefs with poor foundations, he said.

“For example, the promise of online shopping, fueled by a pursuit of unfettered customer acquisition is now shown to be very incomplete, with errors and omissions becoming more pronounced at scale. 2023 will focus on fixes and improvements with more focus on retention and reducing unprofitable behaviours such as buying three sizes of shoe to send two back,” said Gray.

“Like shoppers, business leaders will be discerning about their spending, as cash position is critical to managing uncertainty. Two related areas are in technology and in data. The ROI (return on investment) in both is already drawing attention in 2022, but will be more pronounced next year. The metaverse can be left for those with deep pockets and play money.”

Atrium at Holt Renfrew in CF Pacific Centre in downtown Vancouver on December 19, 2022. Photo: Lee Rivett

Gray said data is interesting to him, as “data led” has become more a wishful slogan than a value proposition. Tools are not the root issue; rather, how they are improperly used. We will see more stories of new decision processes and improved data literacy. By the way, data should inform, not lead, he added.

“Saying that the supply chain issue is over is likewise wrong . . .  Cuts in 2022 to consumer and B2B service support will become big issues in 2023. A great example is the friction created by tech support moving to frustrating chatbots or automated call centre scripts. While automation makes 80 per cent of our activities cheaper and faster, the ability to handle exceptions is at an all time low, in my opinion.

“A corollary to this is that the assumed demise of independent stores will turn into an opportunity to local energetic, imaginative problem solvers and story-telling entrepreneurs.”

Adeptly dealing with the next unpredictable jolt is the one predictable for 2023, added Gray.

“There is one thing I will focus on. The need to admit (finally) that the customer is not King. Passengers in air travel know all too well they are units of production in a model, not customers to be served. Retail plays in various shades further back from this. I call BS when I hear leaders say “we put the customer at the centre”. 

“Of course, they are important, but so are investors, especially now. And workers. How many times have you seen restaurants closed early because of staffing issues? Customers are part of a triumvirate of masters. Resetting respectful expectations will be a must but one that will be hard for leaders to take on,” he said.

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. Mario was named as a RETHINK Retail Top Retail Expert in 2024.

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