Franchises operating in the retail sector know all-too-well the difficulties consumers have faced over the past few years and how they’ve impacted their spending habits. Here, Moneris and the Retail Council of Canada walk us through what we can glean from Q3 of 2024—both positive and negative
By Santo Ligotti, Vice President, Marketing and Member Services at the Retail Council of Canada
Article provided by Moneris (Published November 8, 2024)
Each quarter, the Retail Council of Canada (RCC) surveys executive members from mid-to-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 Retail Council of Canada and Moneris® Data Services report covering the period of June-September 2024.
The song remains the same: financially stretched consumers continued their focus on what they deemed essentials over the summer, and with a few exceptions, the flight to value that retailers reported during the first half of the year turned into a stampede. Retailers that relentlessly focused on a strong customer value proposition, either expressed in an economic value position or a remarkable unique value proposition, did better than others.
Several consecutive Bank of Canada minor interest rate cuts have not impacted the trajectory of customer discretionary spending. Retailers report the back-to-school retail season was more of a non-event in terms of year-over-year gains. Retailers report that driving traffic to their stores or websites is challenging, with several telling the RCC that even with aggressive sales events, they are hardly making a dent in traffic. The good news is that margins are in pretty good shape, as are inventories, as retailers expected a soft summer and had planned accordingly. It also seems that when customers are in the store, they buy, so conversion is good.
Supply chain disruptions were the focus at the executive table all summer. We are nowhere near the level of disruption as in the COVID era. Still, between threatened rail labour disputes starting in the spring, the fall’s Vancouver and Montreal port strikes (which both ended in November with imposed binding arbitration), and (now averted) Air Canada labour stoppages, these interferences pose a threat to Canada’s business economy.
Respondent insights for June to September month-to-date
- For the whole summer, 83 per cent reported sales down from last year
- Sixty-nine per cent forecasting 2024 will be down to last year
- Margin percentage up for 50 per cent, margin dollars down for 67 per cent (August)
- Web sales down for 76 per cent (August)
Sales
A sizable majority of respondents, 83 per cent, reported their summer sales were down year-over-year. Most, 69 per cent, anticipated ending 2024 below last year in sales. For most of those reporting a year-over-year decrease in sales, the bottom is not dropping out of the market—growth is just very hard to come by.
The Retail Conditions Report captures respondents’ views and experiences across diverse categories (excluding grocery, gas, and auto).
RBC reported that the appetite for discretionary goods remains limited, and that July saw a broad-based spending decline, including decreases in spending on clothing, groceries, and gasoline. On gasoline, average prices across the country are equal to or even favourable compared to last year, which should be positive for retail spending, but is not translating into any discretionary spending lifts, or incremental recreational travel.
Most retailers see little upside for the back half of 2024 and, in fact, weakness into 2025. They expect consumers to continue to shop, spend, and celebrate the seasons, but not come anywhere near making up for any shortcomings with a super strong holiday retail season.
When asked about Black Friday/Cyber Monday plans for 2024 prior to the holiday season, most retailers stated it was business as usual and that there were no major deviations from prior years. This perspective comes with experience: for many, sales and promotions did not drive the expected traffic or sales life, so while they were more than ready to compete for Black Friday, there were few incremental plans or strategies.
Customer behaviour
Retailers continue to report that traffic and sales within their stores are soft year-over-year, with 65 per cent of retailers telling us traffic was down versus last year. They also said that traditional promotional activities to drive incremental traffic (sales or discounts) are not very effective. Unconventional promotional activities can break through the clutter, but not necessarily the reluctance to shop and buy once they cross the lease line.
Most report the back-to-school retail season was flat to down, but on the positive side, the Labour Day long weekend had a bit of “pop” to it. An interesting paradox mentioned by several retailers was that when interest rate increases were happening regularly, they witnessed an almost immediate impact on sales the next day and the remaining week.
Unfortunately, the same has not been valid for interest rate decreases. Perhaps the interest rate cuts are too small to break through the consumer value psyche. Still, the cumulative effect of more decreases may break through. For those renewing their mortgage this year or in 2025, the rates are still significantly higher, resulting in higher monthly payments. Record high rents are not impacted by interest rate cuts, at least in the short term—only an increase in rental apartment stock will impact rents. Overall, as one retailer told us, this has become a change management exercise—consumers will need a lot of incentives to break out of their value-conscious shopping ways.
Web sales were down for 76 per cent of respondents, compared to 47 per cent of respondents in April. Traffic was also down significantly, with conversion being up for only 33 per cent of retailers. For those with increased sales and traffic, we heard of the benefits of new, better integrated e-commerce platforms.
Retailers and AI—one year later
A year ago, when we asked retailers about their thoughts on the impact of AI on their business, there was a broad spectrum of responses, from somewhat skeptical (“we’ve heard this before with many technologies that have come and gone”) to really engaged and actively using AI already.
When asked if they were more, less, or equally excited about the opportunity for AI to impact their business versus a year ago, the majority were as excited today as they were a year ago.
From an organizational perspective, most retailers have their existing teams learn and use AI, with a few having dedicated AI subject matter experts, analysts, or technologists. There is a positive work culture impact, with teams getting to do exciting things with new and exciting technologies. It also helps manage the concerns over people being replaced by AI.