Inflation and high interest rates drive cautious spending, but a potential rebound is anticipated
Canadian Tire Corp., Tim Hortons parent company Restaurant Brands International, Roots Corp., and Alimentation Couche-Tard Inc. have all observed that shoppers are increasingly seeking cost savings and reconsidering some purchases.
According to BNN Bloomberg, this trend was noted across the latest set of quarterly earnings calls, with many companies attributing it to a mix of inflation and higher interest and mortgage rates that strained budgets last year and have continued to slow consumer spending into this year.
However, there is consensus that the latter half of 2024 might see these concerns ease, especially if the Bank of Canada cuts its key lending rate over the summer.
Liza Amlani, principal, and founder at Retail Strategy Group, highlighted how interest rates impact disposable income and spending on fashion, apparel, footwear, and experiences. She observed that consumers across all income brackets have been seeking deals, with even luxury customers shopping at Walmart.
Amlani sees signs of a rebound in consumer spending, noting an increase in travel spending and a “big lift” in sales of trendy items versus basics among her retailer clients, indicating a bounce back in discretionary purchasing.
This sentiment is supported by a recent survey by financial services firm Stifel, which showed more respondents in April than in January felt their spending would increase over the next 12 months. Of the six categories tracked, spending intentions were higher in four: apparel, mattresses, toys, and dollar stores.
Martin Landry, Stifel's managing director of equity research, was not surprised by the significant improvement in the clothing industry, as apparel is often a recession-resistant treat.
Food sales, however, have been hit due to weather and the ease of trading down to value items or opting for home-cooked meals.
Dax Dasilva, CEO of Lightspeed Commerce Inc., noted that consumers view dining out as a luxury, cutting back on items like tapas or tasting menus, but still spending on lower-cost indulgent items like pizza, coffee, and dessert.
Income plays a crucial role in how quickly consumers will return to higher spending, with Stifel's survey showing that those earning $75,000 or more annually are more likely to increase their spending sooner than those with lower incomes.
Landry pointed out that companies targeting higher-income consumers might fare better than those focusing on the middle class.
Retailers face the challenge of adapting to consumers' entrenched habits developed during inflation. Landry emphasized that all retailers must consider whether they have trained consumers to buy only during promotions.
