Canada Economy: Consumers look for value in holiday shopping

Toronto –

Santa hears Christmas greetings from children at malls decked out in holiday decorations, stores overflow with eggnog and gingerbread treats and marketing campaigns promise the perfect gift with the swipe of a credit card.

But among the usual trappings that come with the holidays, there are new factors that could shake up the busiest shopping season of the year: inflation and the high interest rates Canada has imposed to combat it.

Prices have risen significantly over the past few years and the combined pressures on the policy rate at five per cent threaten to weigh on shoppers’ spending prowess and retailers’ profits.

„This will be a very challenging holiday shopping season for retailers because consumers are worried,” said Kostya Polyakov, national head of consumer and retail at KPMG in Canada.

„The consumer feels that everything is too expensive, and the consumer feels that they don’t have enough money for discretionary spending.”

An online survey by consulting firm KPMG, conducted between Oct. 20 and Nov. 2, found that 83 percent of the 1,507 Canadians questioned are more cautious about what they spend this year than last year.

Seventy percent of those surveyed said they do not plan to spend more on things like travel, clothing, electronics, entertainment, toys and restaurants. Spend this year on essentials like groceries, personal care products and prescriptions.

Procurement time will decrease as they find deals, Polyakov said.

„Consumers will wait until they think it’s the lowest price of the season,” he said.

Nick Muriella, vice president of merchandising and supply chain for Toys „R” Us Canada, said toy companies’ customers are increasingly value-conscious and selective when making purchases.

„We’re definitely looking at more, 'Let me get the deal, I’ll go home, rethink my budget, and then if it’s another big deal, I’ll go back and get it,'” he said.

Some of the chain’s most budget-conscious shoppers finished their holiday shopping in September or October, he said.

Another group is attracted when they see a retailer offering more offers, and the final segment is expected to make impulse purchases in the 10 days before Christmas.

During the holiday season, Deloitte predicts the average Canadian shopper will spend $1,347 this year, down 11 percent from last year. It attributed the decline to shoppers holding off on splurging and focusing more on buying.

Forty-eight per cent of more than 1,000 Canadians surveyed by the consultancy plan to buy only what their family needs. Seventy-one percent will seek out items on sale, and 29 percent will favor low-cost retailers.

Shoppers typically experience a „feast or famine” situation around the hottest toy of the year, and while supply chain issues have reduced inventory in the past, „that shortage is no longer there,” Muriella said.

One of this year’s most popular toys, Bitsy, a digital pet made by Spin Master Corp. — is „very strong,” he said.

Easing supply chain issues and focusing on value is similarly seen in the luxury market, said Carolyn Wright, Holt Renfrew’s senior vice president of product.

„(Canadian consumers) will be more cautious this holiday season, given the economic climate,” he said.

„However, we expect them to make choices driven by thought and purpose and value.”

Wright sees many customers looking for more unique gifts, which the company often calls the „can’t-buy” experience. Sometimes the store has a chance to have a cocktail with the owner of a big brand or get a book signed by its famous author.

In an earnings call in early November, executives at Spin Master, the Toronto toymaker behind Paw Patrol, Bakugan and Hatchimals, said they expected consumers to buy more late in the season. They observed that October store sales across the industry were „disappointing” and „below retailers’ projections”.

At Walmart, Chief Financial Officer John Rainey told analysts on its earnings call that sales had picked up through November as „unseasonal” weather eased.

However, he felt that the sales trends playing out throughout the season were „somewhat inconsistent”, giving the company „reason to think a bit more cautiously about consumers”.

That sentiment appears to be baked into Costco Wholesale Corp.’s holiday strategy as well.

Costco plans to introduce some new toys in the last two weeks before Christmas, Chief Financial Officer Richard Galanti told analysts on the company’s recent earnings call.

„If they don’t sell, we don’t risk having to mark them down dramatically because they’re not unique to just Christmas.”

This report by The Canadian Press was originally published on December 5, 2023.