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The global pandemic has brought on the largest drop in Canadian retail sales on record, falling 10.0 percent to $47.1 billion in March. Advanced estimates expect to see retail sales decline by a further 15.6 percent in April, although Stats Can warned that the number is subject to revision. This dismal performance comes after a poor year for retail in 2019.
While the plunge in Canadian retail sales is a record, it is comparable to the retail sales decline observed in the United States (-7.1 percent) and other countries that are reeling from the impact of COVID-19.
The economic shutdown affected retailers across the country with 40 percent of respondents saying they closed their doors in March.
Hit the hardest were motor vehicle and parts dealers (-35.6 percent), clothing and clothing accessories stores (-53.1 percent) and gasoline stations (-19.8 percent), all of which were faced with lower consumer demand as physical-distancing rose and people curtailed their non-essential purchases.
E-commerce in Canada has been the winner during pandemic, growing by 16.3 percent (seasonally adjusted) in March. The jump in online sales to $2.2 billion in March (an increase of 40.4 percent year-over-year) is unusual for this time of year and is typically the type of increase we would expect to see during the holiday season. E-commerce accounted for 4.8 percent of total retail trade in March.
Not all retailers were harmed by COVID-19 in March, with food and beverage reporting an increase in sales of 22.8 percent, reflecting stockpiling of essential items as people moved into self-isolation. General merchandise also did well, rising 6.4 percent, its highest level on record and the largest monthly gain.
The pandemic measures hurt retailers across the country, with retail sales down in every province. The provinces with the worst performance in March were Quebec (-15.7 percent) and Alberta (-13.0 percent). Ontario came in at -9.0 percent, with Toronto declining 12.7 percent.
Looking ahead, we anticipate a recovery in the retail sector as the economic lockdown is gradually reduced. This is already underway in many provinces.
However, the tough times for stores reliant on sales from bricks and mortar locations will likely persist. Physical and social distancing will have to continue until a vaccine is deployed. Foot traffic at stores will pick up (and we will be monitoring this in our Deloitte Economic Recovery Dashboard), but it is unlikely to return to anything close to normal. The experience abroad suggests that consumers will be reluctant to go to stores, will try to avoid touching products on shelves, and will make larger purchases per trip, but total sales will be lower.
In order to build trust with consumers, retailers may have to make investments to reduce health risks. Although some of these investments, such as self-checkout counters, can enhance productivity, many of the health-related outlays will simply add to the cost of getting sales. This may impact efficiency and profitability.
A key question is whether the added costs can be passed along to the consumer. High unemployment, lower income, and continued weak consumer confidence may constrain personal spending. This is likely to make raising prices extremely difficult in many cases. I suspect that essential retailers have scope to do this. For example, I would not be surprised if food prices increase. In contrast, retailers of non-essential products or very low margin products (such as clothing and footwear) will have a more difficult time recovering any additional costs.
As e-retailers have been the winners in March and April, there is every reason to believe that many consumers will continue to favour online sales.
Consumption is roughly 60 percent of the economy, as measured by GDP. Accordingly, the economic recovery is tied to how consumers behave post-lockdown. Spending on retail is only a portion of household outlays, but retail performance is indicative of how consumers are behaving. Based on the health risks and the economic fallout from the lockdown, I expect a protracted consumer recovery.