Canadian retailers face a bleak holiday season unless they can tempt shoppers with price cuts and incentives, according to a new survey by KPMG in Canada.
The survey found that more than eight in 10 consumers plan to tighten their belts as retailers face pressure to improve loyalty programs and customer experience.
“Our survey shows that this holiday season will be more challenging for retailers,” said Kostya Polyakov, Partner and National Leader for Consumer and Retail, KPMG in Canada. “With so many Canadians navigating a financial tightrope and frustrated by their shopping experience, retailers need to sweeten their offers and provide a better environment. It’s the only way that they will be able to stand out from their competitors and drive sales during what’s typically a make-or-break period for them.”
Key findings from the survey include:
- 83 per cent of Canadians are more cautious about what they are spending money on this year compared to last year, given high inflation, interest rates and mortgage costs;
- 62 per cent are frustrated by their online shopping experience with over two-thirds wanting to see retailers think outside the box to replicate online that in-store shopping experience;
- 70 per cent of Canadians say they don’t plan on spending as much on discretionary items as they did in previous years; and
- 66 per cent indicated they plan to only spend on essential goods this year.
Polyakov said financial pressures have significantly shifted spending patterns, with most Canadians opting to economize and really prioritize any discretionary purchases to what matters the most to them.
The survey also shows Canadians are frustrated with both their in-store and online shopping experiences. As many as 68 per cent of Canadians say they prefer to shop in-person but find the in-store selection and merchandise “just doesn’t compare” to what they can find online. And 62 per cent are “frustrated by the online shopping experience”, saying either “the product is not what was advertised or returning the merchandise is inconvenient or costs too much.”
“Retailers are increasingly trying to offer the best of both worlds to consumers,” said Polyakov. “They are creating phygital shopping experiences that seamlessly merge the physical and digital realms. While it’s clear Canadians love to go shopping, they expect a superior, personalized online customer experience from their retailer’s website. Retailers need to stay a step ahead through data and technology to improve sales and encourage brand loyalty to keep customers coming back.”
Other key findings include:
- 78 per cent of Canadians are opting to shop at retailers that offer loyalty rewards programs, with 55 per cent saying that they are worth giving up their personal information;
- 70 per cent are not worried about their information being compromised when signing up for rewards programs;
- 93 per cent think retailers should be more transparent in how they protect and store personal data;
- 67 per cent prefer to shop in-person, but the in-store selection and merchandise just doesn’t compare to what is available online;
- 62 per cent are frustrated by the online shopping experience, e.g., either the product is not what was advertised or returning merchandise is inconvenient or costs too much; and
- 67 per cent think retailers need to think outside the box to replicate online that in-store experience (e.g, virtual reality dressing rooms with augmented reality and artificial intelligence (AI) to see what an outfit looks likes without physically trying it on.
“Holiday shopping season in 2021 was the one where none of us could get anything. That was the one where retailers were coming out of COVID, supply chain issues, demand was high, disposable income was high, nothing was available,” said Polyakov.
“In 2022, retailers worked very hard to get inventory levels up and make sure they had all the things that we wanted for the holiday season. And by then some of the trepidation, the word recession was in the news, potential recession, demand had come off so the sales growth in 2022, Black Friday, Cyber Monday, all of that, was lower than 2021.
“Now we’re in 2023 and things aren’t getting any better. The supply chain issues are in the past. Mostly you can get what you want. But now all the recession talk has turned into we saw interest rates rise, we saw inflation, disposable incomes, all those things that weren’t spent in 2020 and 2021 have now basically been spent. Now we’re seeing retail sales down. E-commerce is growing slower than before. So when I look at this poll, to me the ultimate finding is that 83 per cent of Canadians say they’re more careful about what they spend their money on this year. That is very much in vogue and not surprising.”
Polyakov said the other key point from the survey is that 66 per cent of Canadians say they will only be spending on essential goods this holiday season.
“If I’m a retailer, that’s a pretty scary stat,” he said. “That makes me worry if I’m not the one selling those essential things. So the go forward look is scary.”
Polyakov said when you look at the history of retail in difficult economic environments the suggestion is that consumers tend to switch down in purchases.
“But at the same time, the counter act to that is that during difficult times there are two interesting trends. One is that all of those premium retailers tend to go to new weapons in their arsenal such as loyalty programs and deeper discounts, and things that are meant to keep people going back and maybe buying that nicer T-shirt because it’s now on sale and they view that as value,” he said.
“The second thing . . . if you go back to any times of economic difficulty, people’s emotions actually make them spend more. The really interesting stat on this is if you look at any recession that’s ever happened, cosmetic sales always go up during recessions. It’s just kind of a weird stat because people tend to want to feel better about themselves in difficult financial times and cosmetics is one way to do that.”
Polyakov said e-commerce sales are slowing down. They’re still growing but not at the same pace as they were in recent years. Also in-store sales are coming back after being off during COVID.
“From an in-store perspective, a retailer has to have the right product in-store at the right time. That takes predictive supply chain. You need to know your customer well enough to know what your customer will want ahead of time,” he said.
“Creating a shopping experience (is important) whatever that looks like. It might be as simple as serving coffee at bookstores or having tents to climb in at camping stores. Something that can’t be replicated online, is the key. That will attract consumers back.
“For online, it’s increasing trust. There’s an issue with folks trusting online shopping. Are you going to get the thing that you wanted? Is it going to look the same as it did online? If you can, whether it’s through advertising or celebrity endorsements or whatever you’re going to do, increase the level of trust online, you will attract customers. You will be the safe place to go.”