RCC input, Retail Conditions, (March-May)
Retail Council of Canada (RCC) and Moneris® Data Services have teamed up to provide the retail industry with Canadian credit and debit spending data and consumer insights that will help the industry more easily identify consumer behaviour and spending trends at the national and provincial level.
Each quarter, Retail Council of Canada surveys executive members from mid-large sized retailers from coast to coast to obtain an insider’s perspective on retail performance for the past quarter. RCC does not present the results as a statistically representative analysis but rather a retail pulse to help provide context around trends impacting the industry. Respondents from the gas, motor vehicles or grocery sectors are not included in the survey.
The following commentary is an excerpt of the report covering the period of March-May 2024)
Overview:
Consumers have pulled back into what one retailer has described publicly as a "discretionary recession." This is little surprise to the retailers we spoke with, almost all whose sales (70%) March-May MTD are down to varying degrees from 2023. Retailers expected a soft first half of the year but were a bit surprised at the rapid deceleration of spending and trading-down behaviours.
All are hoping that the pressures on consumers will decrease for the all-important last two quarters. There is some sign of this, with food inflation slowing and some commodities beginning to reverse. All eyes will be on the June Bank of Canada interest rate announcement, which may signal some relief and a walk-back from the higher interest rates. This doesn't mean consumers are not getting on with their lives or have completely ceased shopping—but they are certainly "measuring twice, cutting once," particularly when it comes to discretionary (and importantly, their definition of what is "discretionary") purchases. They sometimes defer the purchase to next season or " do with" their existing pair of boots or somewhat beat-up luggage. Retailers reported a solid May long weekend in terms of sales and traffic.
Retailers are adjusting to the operating environment in several ways, from their merchandise mix, moderating price points, inventories, marketing messages and tactics, and tight control of their inventories. One bright spot in the report is, notwithstanding a couple of "hot spots," CFOs almost uniformly are happy with retail inventories, both in quantity and quality. While there are certainly adjustments and accommodations to capital investments and their organizations, retailers are holding steady, not contemplating any drastic changes.
Respondent insights for March 2024 to May 2024 MTD
• 70% of respondents reported sales down vs 2023
• Margin dollars were down for 58% of retailers we surveyed
• In-store customer traffic down for 61% and in-store sales for 68%
• Both web traffic and sales down for 47% of respondents
• Tickets (avg $/transaction) down for 53% of respondents
• Inventory levels up for 41% and turns for 61%
Sales:
The Retail Conditions report is akin to a roundtable of retailers outside grocery, gas and auto, done via one-on-one conversations to preserve confidentiality. While sales were not down for all, they were down for 70% of respondents across March-May MTD vs. 2023. That said, 65% of them had a strong May long weekend.
We saw this softness in the most recent Statistics Canada retail sales numbers, for March 2024, reported year over year national sales declines for several retail subsectors included in Retail Conditions, e.g. clothing down -3.5%, electronics and appliances down -2.2%, furniture retailers down -0.2% (seasonally adjusted, StatCan table).
In Store Customer Behaviour
Retailers report that traffic into their stores and sales are soft year-over-year, even more so than planned. While they were expecting a soft first-half of the year, consumers have exceeded their expectations in their reluctance to visit and purchase, primarily (but not solely) discretionary goods. Several retailers pointed to employees working from home some or part of their week, traffic congestion in the major cities, and shopping mall landlords’ inability to generate high-potential retail traffic, particularly in the B & C shopping malls.
Retailers Adjust to their Operating Environment
We wanted to survey how retailers responded to the current retail environment, as they predicted it would be, as they are experiencing it today and anticipate the environment for tomorrow. What is clear is that average consumers are shopping for what they consider essential rather than discretionary or "nice to have" purchases, and they are prioritizing experiences over discretionary purchases as well.
We heard almost uniformly from retailers that for 2024, the mantra is efficiency. In how they buy, spend and allocate scarce resources. The bottom has not fallen out of consumer spending. Still, the numbers are generally consistently weak, so retailers have yet to pull back in all areas. However, they measure twice and cut once regarding their expenditures. Overall, the cost of doing business is going up, not down, between a more expensive U.S. dollar, ocean freight and the cost of labour. We should also note that bifurcation is real—at the luxury end of the retail market, sales remain solid, positing single-digit gains. However, starting with the accessible luxury through to mid- and department store-type merchandise, positive results become more challenging. At the value end of the market through to the mass and dollar store categories, the aggressive search for value and "cash-flow shopping" that we have described in prior reports flourishes.
While there are forecasts that the interest rate will start declining, the BOC has made it clear this will happen slowly so that this story will continue through 2026, the year with the most significant negative impact for mortgage holders.
Retailers are focussing on value messaging more than ever before, whether that is value pricing or the value of purchasing an item that has durability and lasting value (which also connects to a practical sustainability message). They observe China-direct models taking considerable share amongst specific customer segments, so they carefully calibrate their messages for fun and style but mainly price to these segments. A sustainability message is not seen as a clear decision driver for most consumers, perhaps moving from being a differentiator to table stakes.
Every line item is under scrutiny. There are many moving parts between changes in flyer distribution networks, online measurement, and the changing nature of media and how consumers consume it. There is a sense that more marketing spending isn't driving sales volume: if consumers don't have the discretionary funds to spend, more messages aren't generating incremental results.
For retailers doing well, store expansions, moves, and renovations will continue as planned. Retailers posting weaker results are taking a second look at their fleet, perhaps deferring a move or renovation but, overall, not making dramatic changes to the 2024 plan. The one area of scrutiny is Alberta, where a dramatic population shift is leading some to focus more on their new store activity in that province (and rewarded those that moved early pre-COVID and secured both locations and advantageous rents. Several retailers are also unhappy with their choice of real estate options and shopping mall partnerships, telling us that pickleball courts, fitness clubs, and doctor and dentist offices don't drive footfall near or around their stores.
Most retailers are continuing their capital plans without significant changes, knowing that cutting corners today on ERP and Cyber security projects is just kicking the can down the road or even causing trouble in the near term.
Several retailers have reviewed their rosters and recalibrated their head office or store support resources, either reducing or sometimes centralizing. Staffing on the front lines remains challenging, so continued efforts to find the right team in the stores are a top priority.
With such a drive for value from consumers, retailers report a focus on more private labels, smaller pack sizes, and merchandising more opening price point models than premium features or assortments.
In a year of focusing on efficiency, corporate travel domestically and internationally has primarily been curtailed. For many enterprises, that means taking advantage of local free thought leadership events and dinners hosted by their vendors or prospective vendors or offers from conferences that trade off their time and attention 1:1 with vendors for free travel and accommodation.
About Retail Council of Canada
Retail is Canada’s largest private-sector employer with over 2,3 million Canadians working in our industry. The sector annually generates over $91 billion in total compensation. Core retail sales (excluding vehicles and gasoline) were over $501B in 2023. Retail Council of Canada (RCC) members represent more than two-thirds of core retail sales in the country. RCC is a not-for-profit industry-funded association that represents small, medium, and large retail businesses in every community across the country. As the Voice of Retail™ in Canada, we proudly represent more than 54,000 storefronts in all retail formats, including department, grocery, specialty, discount, quick service, independent retailers, and online merchants. www.retailcouncil.org.
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