Understanding evolving consumer sentiment and behaviour

Courage, creativity and persistence will be critical in ensuring continued growth and success for small businesses in 2023

// By Andreea Bourgeois, Director of Economics, Canadian Federation of Independent Business

With the new year now in full swing, many businesses are planning for 2023. Retailers are already looking into ordering stock for the late spring and summer months. They have many hardto-answer questions. Will consumer behaviour involve more window shopping than in-store spending due to high inflation? Will show-rooming continue? Will store hours remain limited due to staff shortages?

The changes in consumer behaviour since the pandemic have resulted in a significant impact on retail optimism which is, even now, very low over the short-term and lagging behind all sectors. CFIB’s November Business Barometer® results indicated that the three-month retail optimism was at 36.6 per cent, which was just about the same level during January 2022 when many restrictions were still in place.

All businesses are affected by the high inflation, higher input costs, increased fuel and energy costs and higher wages. While some businesses can claim input tax credits or pass through these additional expenses, those in consumer-facing industries, such as retail, have little room left but to increase prices. Higher prices, in turn, can deter some customers, which mean lower revenues.

We’ve been hearing from our members about just how tough it is for them to do business. It’s been a “good year but I’m very concerned about sales for the next year,” one business owner commented in a recent CFIB survey.

“Everything is going up, but if we raise prices, we get less business. If we don’t raise prices, we don’t know if we will make it,” said another.

Insufficient domestic demand

While most businesses indicate that the main inhibitor preventing sales and production is the shortage of skilled workers, retailers report weak domestic demand as the top limitation.

When the economy was halted due to the pandemic, the domestic demand has almost vanished for many products but food and other necessities. The lifting of restrictions overheated the economy, like lifting a dam too fast which can create the exact flooding it meant to prevent. When the Bank of Canada started to increase interest rates in early 2022 to tame inflation, the demand started to slow down, but at various paces. The interest rate hikes that followed has significantly tampered the demand for many products. CFIB’s November Business Barometer® shows that insufficient domestic demand has been limiting business growth for a quarter (25%) of small businesses across Canada, but it has impacted retailers more as indicated by 40 per cent of them.

With rising costs across the board, the purchasing power of the Canadian consumer has stalled. Heading into the shopping holiday season, the retail sector had one of the lowest optimism levels over the short- and long-term. While the former might be in part due to seasonality as business owners project themselves past the holiday season, the latter is a level not seen for that sector since the 2020 recession.

What’s next?

As we head deeper into 2023, what can Canadian consumers do to satisfy their needs but also support small Canadian retailers?

They should look for local first. For products that one can find made or sold locally, they can skip the online order and purchase it in-person. The consumer gains by seeing the product directly and avoiding shipping delays. Buying local also creates revenues for businesses in their community and creates job opportunities close to home.

Keeping clientele and attracting new clients

It’s time they reinvent products and services to adapt to consumer needs. The creativity shown during the pandemic with curbside pick-up and online auctions will also serve them well now.

In addition, retailers should re-evaluate which payment methods they accept from customers. While some were already offering incentives for cash payments, from now on, they can also charge an extra fee on certain credit card transactions to help offset their credit card processing fees. Learn more at cfib.ca/surcharging.

With a new year upon us, we hope retail owners will continue to show courage to try new things, creativity to expand their markets, and persistence in keeping their stores open.

-------

Andreea Bourgeois is the Director of Economics at the Canadian Federation of Independent Business (CFIB), Canada’s largest association of small and medium-sized businesses with 95,000 members across every industry and region, 22,000 of whom are operating in retail.