The North West Company is seeing increased consumer spending in parts of Northern Canada as compensation payments from the $23.34-billion First Nations Child and Family Services and Jordan’s Principle settlement reach more communities.
Canadian same-store food sales increased 7.4% in the retailer’s second quarter, while general merchandise sales rose 7.5%. Higher prices related to fuel and freight costs contributed to the gains, along with government benefit payments and increased spending associated with First Nations settlement payments.
The Winnipeg-based retailer said individuals in 54 of the 63 affected communities it serves have now received settlement funds. Payment activity increased in late July and into August, although the number of payments remains relatively low in many communities. North West expects distributions to increase through the second half of 2026 and remain a factor in its Canadian business for several years.
Settlement Payments Reach More Northern Communities
The Federal Court approved the $23.34-billion settlement in 2023 to compensate First Nations children and families harmed by discriminatory federal funding of First Nations child and family services and the federal government’s approach to Jordan’s Principle.
More than $1.2 billion had been distributed to over 30,000 eligible claimants by August 17, according to the Assembly of First Nations. As of August 31, the settlement administrator had received 124,409 Removed Child Class claims and 72,661 Removed Child Family Class claims.
Eligible Removed Child Class claimants can receive up to approximately $40,000 in compensation, with additional payments possible depending on individual circumstances. Seven additional settlement classes have yet to open their claims periods, while some eligible recipients who are minors will generally have to reach the age of majority before receiving compensation.
North West has been tracking settlement activity across its Canadian store network for several quarters. President and CEO Dan McConnell told analysts that the pace of payments picked up late in the second quarter.
“We’re pleased with the capture rate for sure. It’s in line with our expectations,” McConnell said on the earnings call. He added that spending was occurring in categories the company had expected to benefit, with activity increasing from late July into August.
North West has been cautious about forecasting the timing of payments. McConnell acknowledged that management has had limited success predicting their cadence and stopped short of providing a sales forecast tied to the settlement. The company nevertheless expects payment activity to increase, pointing to the large number of submitted applications compared with the relatively small number of payments it has observed in many of the communities it serves.
General Merchandise Sales Strengthen
Canadian general merchandise same-store sales increased 7.5% during the quarter, slightly exceeding the 7.4% increase in food. North West also reported strength in motorized merchandise, with McConnell confirming when questioned by an analyst that Canadian stores were participating in those gains.
The company did not say settlement recipients were responsible for the increase in motorized sales, nor did it disclose how much Canadian sales growth could be directly attributed to settlement payments. It did, however, say spending among recipients was developing broadly in line with expectations.
North West has significant exposure to changes in consumer spending across remote Canadian markets. Its Northern banner operates 118 food and general merchandise stores, while NorthMart operates five larger stores serving northern regional centres. Many of these communities have small populations, limited retail competition and high transportation costs, meaning changes in household purchasing power can have a noticeable effect on local retail activity.
Higher Fuel Costs Push Up Prices
The increase in sales is occurring as North West deals with higher costs to supply its northern stores. Fuel-related freight expenses increased during the quarter, with Northern Canada particularly affected because of the distance and complexity involved in moving merchandise into remote communities.
North West has passed through much of the inflation to consumers. The company said higher fuel-related freight costs were passed through without additional markup, while targeted price investments were made on certain essential food items. That approach contributed to pressure on Canadian gross margins.
Consumers are noticing the increases. “The consumer reaction is negative,” McConnell said when asked about pricing during the call. “The people are certainly not pleased, as any of the Canadians are not pleased with the inflation that we’ve experienced recently.”
McConnell said much of the inflation has been passed through in Canada, with exceptions for some essential categories. Settlement payments are increasing purchasing power for some households at the same time fuel, freight, wages and other operating expenses are increasing the cost of serving those communities.
North West has not indicated that settlement payments themselves are contributing to higher retail prices. Management has instead identified fuel and freight costs as key sources of current pricing pressure, particularly in northern markets where transportation networks are longer and more complex.
North West Looks to Reduce Operating Costs
North West is working to offset some of those increases through its Next 100 operating program. Changes to merchandise assortment and procurement, expansion of private-label products and other operational improvements contributed positively to gross profit during the quarter. The company is also targeting further staff productivity improvements after labour costs increased.
Transportation is another focus. North West purchased a Basler BT-67 aircraft for its North Star Air operation during the quarter and expects to make additional aircraft purchases as part of its fleet renewal.
Management said owning additional aircraft will reduce the use of higher-cost leased planes while improving reliability, maintenance efficiency and capacity. The purchases contributed to a $40-million increase in planned capital expenditures for the year, although North West said the spending is opportunity-driven and does not represent a new normal level of annual capital investment.
Payments Could Affect Retail Spending for Years
The settlement is expected to remain a factor in North West’s Canadian business beyond 2026. Management expects distributions to increase during the second half of the year as more applications are processed. Additional settlement classes have yet to begin accepting claims, while payments to some younger recipients will occur after they reach the age of majority.
The timing remains difficult to forecast, and North West has not quantified the expected impact on future sales. Its second-quarter results nevertheless show that settlement distributions are becoming visible in consumer spending across its northern Canadian store network.
Billions of dollars in compensation remain to be distributed, giving North West a potential multi-year source of additional consumer demand across many of its Canadian markets. The retailer will be managing that demand against the high freight, fuel and operating costs that continue to define the economics of retailing in Northern Canada.
