Ottawa, November 24, 2017—With Black Friday and holiday spending upon us, the Canadian retail sector as a whole can expect to see strong sales growth this year, according to The Conference Board of Canada’s Canadian Industrial Profile: Autumn 2017. Robust employment gains across the country and the 'wealth effect' created by elevated house prices have provided a boost to consumer spending in Canada this year. Sales are expected to rise by as much as 11 per cent in home improvement stores in 2017, while grocery stores will see more muted growth of close to 3 per cent.
“While the closure of Sears in Canada has dominated news, Canadian retailers are actually having a good year. Consumer confidence has surged throughout the year, prompting Canadians to open up their wallets and boosting the performance of most retail sectors,” said Michael Burt, Director, Industrial Economic Trends, The Conference Board of Canada. “Starting next year, however, record levels of household debt will weigh on consumer budgets and limit their spending and temper growth in retail.”
Home Improvement Stores
Elevated housing prices are deterring some consumers from purchasing new homes—instead they are choosing to renovate. After expanding by an average of 4.5 per cent in the last two years, sales in home improvement stores are set to grow 11.2 per cent in 2017. Looking ahead, industry prospects will be tempered by slow disposable income growth and record levels of household debt, which will serve to tighten budgets on home improvement spending.
Furniture and Appliance Stores
Furniture and appliance retailers are benefitting from rising consumer confidence, as consumers who previously delayed purchases on new furniture, appliances, and electronics are finally ramping up their spending amid more stable economic times, particularly in some regions of the country. Industry growth is expected to be strong in 2017 with sales expected to rise by 8 per cent. However, starting in 2018, industry growth will moderate as the housing market—a key driver of the industry’s performance—continues to cool. Moreover, high consumer debt levels will also eventually start to weigh on sales potential.
Clothing and Department Stores
Clothing and departments stores operate in a highly competitive environment characterized by sluggish price growth and low margins. Firms are also challenged in keeping up with continually evolving consumer tastes, which make survival even more difficult. This year, good news is in store for clothing and department firms thanks to rising confidence among consumers and increased discretionary spending. Sector output is set to increase 5.6 per cent in 2017. The industry’s capital and labour costs will be kept in check thanks to the continued growth of e-commerce and technology like self-service checkouts.
After a lacklustre 2015 and 2016, grocery store output is on track to expand by 2.9 per cent in 2017. However, record levels of household debt will weigh on consumer budgets and hurt their spending at supermarkets, limiting industry growth going forward. On a positive note, firms will further attempt to offset tightening budgets and razor-thin food margins by continuing to expand offerings on higher markup products, such as pharmaceuticals and financial services.
With retail sales rising steadily since the beginning of 2016 and trickling down to stronger demand for wholesaling services, the wholesale industry is poised to expand by 7.3 per cent in 2017. Starting next year, however, growth is expected to slow, as tighter household budgets will limit purchases of big-ticket items like furniture and autos—sectors that are major users of wholesale trade. Moreover, a slightly stronger Canadian dollar will dampen export prospects of the manufacturing sector, affecting wholesalers.