Shopping local to support contributions made by small businesses

It’s time for Canadian consumers to act on good intentions by engaging and shopping with their local small businesses

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

The retail industry is of significant importance for the economy. It contributes approximately 5 per cent to the Canadian GDP, and it employs 12 per cent of the total workforce. The vast majority of businesses (99.9%) operating in retail are small or mid-sized firms (1 to 499 employees).

How is it going?

Optimism in the retail sector has been running at abysmal levels. It has been on an overall downward trend for the past year with a minor uptick mid-year. Retail businesses are lagging all other businesses in optimism. This gap started mid2021 and has been widening gradually.

Not all retailers are affected to the same degree by this lack of confidence. For example, businesses selling essential items, such as grocery stores, specialty food stores, and health and personal care stores are reporting somewhat better optimism. And, it’s not surprising, since their products are essential, and consumers tend to substitute rather than give them up altogether.

On the other hand, retailers that are selling big-ticket items such as automobile and other motor vehicle dealers, furniture stores, building materials dealers, and electronics and appliance stores are the ones suffering from the lowest optimism.

Why do retailers feel rather pessimistic nowadays?

This is the time of the year when many businesses are beginning to see the first results of newly employed strategies, making tweaks to their websites, planning wage adjustments as we head deeper into the new year, or looking into changes in product lines or technology.

Some are still doing these things, but very few are looking forward to the year ahead with much excitement. The vast majority hope to make enough revenues to cover expenses. Except during the pandemic, we have never seen such a muted current business sentiment for retailers.

But the main culprit of feeling so down is the lack of demand, an indirect consequence of high interest rates and higher prices. High interest rates directly affect the demand for expensive items where financing is usually part of the deal. Therefore, retailers selling big ticket items feel the pinch much more than others. No appetite for financing at high rate, no new car, or new appliance and so forth. Consumers are very reticent to make large purchases, therefore retailers are stuck with inventories, and no revenues coming in.

For various items that are less expensive but not essential, the slowdown in demand is not as marked, yet it’s still impacting business optimism. For essential items, most consumers tend to substitute in terms of preferences and purchase less costly products, but the demand is clearly less impacted by high prices.

Shopping local has many benefits

Small businesses undoubtedly make significant contributions to their communities. In fact, when consumers shop at a small, independent retailer, 66 cents of every dollar stay within the local economy. On the other hand, only 11 cents of every dollar are recirculated back into local economies when consumers shop at big businesses with physical locations, and only 8 cents stay local when Canadians buy from online giants. However, despite the many community contributions small firms make, most consumers don’t support them on a daily basis even though they recognize the importance of shopping local. A strong majority (92%) of Canadians said they love having small businesses in their community, but only 13% shop more at small businesses. In addition, most (78%) small retailers said they’re losing revenue and customers to big businesses. We encourage consumers to challenge the way they think about shopping local. There are many benefits to it: personalized services, supporting local jobs and economies, and fostering a great sense of community. Even a small change can make a big difference.

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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 97,000 members across every industry and region, 22,000 of whom are operating in retail.