The state of the Canadian consumer

Increased anxiety concerning current and future financial standing impacting Canadian consumer sentiment // By Sean Tarry

There’s no denying the fact that circumstances over the past few years have culminated in a bit of a helter skelter period for the retail industry, posing impacts that have been felt across entire organizations, inhibiting retailers’ ability to effectively source and transport product, limiting the experiences they offer their customers, and blighting operational efficiencies at just about all points in between. From supply chain disruptions to a distinct shortage of required talent, there is a range of concerns that retailers need to address. However, what’s perhaps more worrisome with respect to the future health and success of retail operations, and the continued growth of the country’s retail industry, is the current state of the Canadian consumer and the trajectory of their collective sentiment. And, according to Ryan Robinson, Consumer Research Leader at Deloitte, it’s a trajectory that’s being driven predominantly by anxiety among consumers related to financial uncertainty.

“It’s an understatement to suggest that Canadian consumers are worried about their forward financial capacity,” he asserts. “Looking back two-anda-half years ago, the primary drivers of anxiety among consumers across the country were health concerns related to the pandemic and the financial fallout that would occur. Until recently, these two concerns had been trending fairly closely in the Canadian context. Today, it seems concerns around the pandemic are on the decline. However, those related to the consumers’ financial capacity on a go forward basis have not been alleviated, threatening the extent to which they can stay engaged with the Canadian retail market.”

Behavioural shifts

Robinson goes on to explain that there are a number of pressures being placed on today’s consumer as a result of the current pervading inflationary period, pointing to data generated within Deloitte’s State of the Consumer Tracker as evidence. According to the Tracker, the average Canadian is currently spending significantly more on housing costs on a year-over-year basis. This, in combination with inflation that’s comprehensive in its scope, says Robinson, is causing consumers across the country to rethink and reassess their purchasing decisions, resulting in ramifications for some categories and verticals within the industry.

“When you consider the fact that wage growth has not kept pace with the inflationary market that we find ourselves in, as well as the fact that the inflationary pressures being felt by Canadians are so broad-based, impacting just about every aspect of their lives, the results on sentiment are profound,” he says. “It’s starting to result in some tough decisions being made by consumers that are showing up in shifts in their spending and the share of wallet that different aspects of their life represent. And, because the percentage that housing represents continues to increase, consumers are starting to compensate by pulling back on spending related to things like electronics, home furnishings and clothing.”

Waning confidence

Data provided by the Deloitte State of the Consumer Tracker are generated through monthly global surveys that began back in April 2020, with the intention of presenting a current, consistent and comprehensive pulse of consumers all over the world, while also developing a better understanding of the ways in which people everywhere are navigating through the challenges they face. Current Canadian highlights indicate that over half (52%) of Canadians are concerned about the amount of money they have saved. And, 4 in 10 believe their financial situation has deteriorated in the last year, with only 31 per cent expecting their financial situations to improve over the course of the next 12 months. This sentiment cascades into planned discretionary spending, which amounts to just 21 per cent for the average Canadian.

Despite this data, which reflects a significant and worrying amount of concern related to the strength of the overall economy, sentiment among Canadians ranks somewhere near the middle of the pack of countries surveyed worldwide. However, Robinson is quick to recognize regional extenuating circumstances elsewhere that are perhaps masking just how dire sentiment among Canadian consumers actually is.

“If you look at the data around global consumer sentiment, consumers in Canada are found right in the middle of the survey responses with respect to nearly every question asked about current and future spending,” he explains. “And it might not seem so bad if it weren’t for the fact that this data is all relative. Countries like Germany, Poland, Belgium, Netherlands, Denmark and others have all experienced ranging impacts connected to the war in the Ukraine, skewing their responses when it comes to their current levels of anxiety and optimism concerning their financial future. As a result of some of these recent developments overseas, Canada’s positioning probably appears better than it should.”

Focus on meaningful engagement

Deloitte’s Consumer Tracker data also reveals a handful of interconnected and equally impactful trends with respect to spending intentions. As a result of recent pressures, anxiety among consumers in Canada related to their own personal finances continues to rise and are reflected in some of their top concerns, which include their ability to make upcoming payments (18%) as well as the amount of credit card debt that they’re currently carrying (22%). They are concerns that are resulting in a significant curtailing of the movement of big-ticket items, with 48 per cent of Canadian consumers planning to delay large purchases. All told, says Robinson, the data suggests that a continued softening of the industry is expected over the near-term, adding that it’s a situation that creates a landscape that’s extremely restrictive for retailers that are looking to stand out among their competitors.

“Under these current conditions, it’s becoming increasingly difficult, particularly for mass-market retailers, to differentiate themselves based on factors other than price,” he says. “As a result, it’s becoming challenging for them to deepen relationships with their customers and build value into their products and services in order to keep consumers engaged with their brands. What retailers need to do going forward in order to overcome these challenges is make sure that they take every available opportunity to communicate with their customer-base to keep their brand and services top-of-mind. And, as part of this communication, they’ve got to be providing the right information to their consumers, emphasizing a value proposition while helping them plan and make better decisions. It’s an incredibly challenging time when it comes to capturing and retaining the loyalty of today’s consumer. Providing meaningful customer experiences and engagement that makes the lives of consumers easier and more convenient could prove to go a long way toward building greater trust and confidence in the brand.”

Informing the future

The critical nature of the data that’s generated through the Deloitte State of the Consumer Tracker global surveys is not lost on Robinson. He refers to it as “an incredibly important tool” that retailers and others can leverage in order to gain a more holistic and accurate perspective of current sentiment, as well as to help inform prognostications concerning the future and aid in strategy and planning. And, although current highlights from the data don’t form a very flattering illustration of the current retail market and the consumer sentiment surrounding it, Deloitte’s Robinson says that it arms retailers with a much better understanding of the dynamic trends occurring in the consumer landscape.

“There are some things going forward that we can’t ignore, including macroeconomic pressures that are impacting consumer spending behaviour. However, what this data helps us identify earlier are some of the impacts that have still yet to be determined or felt within the market. Factors like the successive increases to interest rates that have recently taken place may bear a significant influence on spending going forward, further impacting the consumers’ share of wallet and how they allocate their money going forward. The sooner retailers can account for these trends and potential impacts, the better prepared they can be to address the challenges and realize opportunities for further growth and success.”