Canada Surpassing Many Countries in Retail Sales
Retail sales growth in Canada remains strong, surpassing global performance despite concerns over inflation and potential recession. The Colliers 2023 Retail Outlook report highlights that Canadian consumers continue to spend, although retail sales have slightly cooled compared to the previous year, marked by price spikes and rising interest rates. In March, Canadian retail sales increased by 2.4% year-on-year, outperforming most developed markets worldwide. In contrast, the United States experienced a modest 1.6% growth, while the UK, France, and Germany saw a decline in retail sales.
However, as borrowing costs rise and the labour market weakens, economists predict that the upcoming retail sales figures from Statistics Canada may indicate a slowdown in consumer spending and demand. While consumer spending demonstrated unexpected resilience in early 2023, with a 5.7% annualized increase in the first quarter, more recent monthly data suggests a softer trend. Economists from the Royal Bank of Canada expect spending to weaken in the second half of the year, despite the surprising resilience seen thus far.
The Colliers report reveals that retail sales have been strongest in regions with a lower cost of living. Provinces that experienced significant interprovincial migration during the pandemic, such as Alberta, have seen the highest sales growth, while regions with high affordability witnessed smaller gains or losses. Canada’s strong population growth compared to other developed countries has also played a favorable role in supporting retail sales.
Furthermore, the demand for travel, hospitality, and entertainment has been a key driver of sales. As the desire for experiences remains strong, consumers have displayed high demand for bars, sports events, entertainment venues, travel accommodations, and plane tickets. Retail rents have reached all-time highs, driven by renewed leasing demand, low vacancy rates, and a lack of new developments, resulting in heightened demand for existing shopping centers.
Despite the closure of prominent US retailers like Bed Bath and Beyond and Nordstrom, the report suggests that vacant retail spaces have been quickly absorbed in most markets. Adam Jacobs, Senior National Director of Research at Colliers Canada, emphasizes that retail has proven resilient, with positive nationwide trends outweighing the focus on specific store closures.
The Bank of Canada cited this resilience as a reason for raising its benchmark interest rate to 4.75% earlier in the month, according to RBC economists. They believe that the overall increase in consumer spending indices, as observed by the Conference Board of Canada, indicates a belief among consumers that the influence of financial burdens, such as interest rate hikes, has peaked. Consequently, consumers feel more confident committing to purchases rather than prioritizing savings.
As the latest retail trade data for April is set to be released by Statistics Canada, ongoing observations of consumer spending patterns will provide further insights.
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