Canadian consumers expect to spend more this holiday season than last year, but still less than before the pandemic.
Inflation is weighing heavily on the minds of consumers, although its impact is being felt unevenly.
Consumers are weary of products being unavailable and want retailers to adopt strategies for mitigating supply chain disruptions.
There’s good news for Canadian retailers as this year’s holiday shopping season gets underway: consumers say a cloud of economic uncertainty won’t slow their spending.
This year’s edition of our annual holiday outlook survey shows more than two-thirds (68%) of Canadian consumers plan to spend the same or more as last year. On average, Canadian consumers expect to spend $1,442 on gifts, travel and entertainment this holiday season. That’s up 2% from last year and comparable to holiday shopping trends in the United States. But it also shows consumer spending is still recovering in Canada: the average consumer’s planned holiday spend remains 9%, or $151, below pre-pandemic levels.
Our survey shows the rising cost of living is weighing on the minds—and wallets—of consumers. At the same time, we see reasons for retailers to be optimistic. Consumers no longer face the same public health pressures as in previous years to shop online and expeditiously complete their in-store shopping. This opens more possibilities for consumers to seek out engaging retail experiences, entertainment and other opportunities to make an event out of holiday shopping trips. But new priorities are also taking shape: frustrated with finding products out of stock, many consumers want to shop with retailers that have a strategy for mitigating supply chain disruptions.
We prepared this spending forecast to see how consumer sentiments are shifting and uncover the opportunities these changes present for retailers. Here, we take a closer look at the holiday shopping plans of consumers, based on our survey of 1,000 Canadian residents from across the country in late September 2022.
Gen X consumers are spending the most on gifts and entertainment, while Baby Boomers are expecting to spend the most on travel.
Canadian households that earn more are expected to also spend more this holiday season. Additional inflationary increases could widen this gap even further. Here's the average expected holiday spend of consumers with a household income of:
Average total spend among all Canadian consumers
There’s a clear theme running through this year’s survey results: Canadian consumers are increasingly concerned about the rising cost of living. Unlike the pandemic-related pressures that influenced the shopping habits of virtually all Canadians the last two holiday seasons, inflation is affecting different consumer groups unevenly.
Our survey shows households earning between $60,000 and $100,000—a group likely to have a modest amount of disposable income and some flexibility in their budgets—are the most likely to say the rising cost of living could affect their holiday shopping plans. Nearly three-quarters (73%) of these consumers say inflation could influence their spending, compared to 66% of consumers in other income brackets.
We also see signs of growing price sensitivity among this group of middle-class consumers elsewhere in our survey. For example, 49% say they’ll choose alternatives to home delivery, such as picking up online purchases in-store, curbside or at another designated location, to save money on shipping. That’s up from 43% last year.
Retailers, of course, are facing inflationary pressures themselves. But those companies that uncover ways of maintaining their margins without fully passing along their cost increases have a valuable opportunity to engage cost-conscious Canadian consumers.
of consumers earning between $60,000 and $100,000 say inflation could affect their holiday spending this year.
We’re seeing retailers adopt a variety of cost transformation initiatives. Automation technologies in particular can be powerful tools for reducing costs while also helping to manage labour shortages and improve customer experiences.
Automation can help streamline administrative tasks in corporate offices, accelerate the movement of goods between distribution centres and let consumers research and purchase in-store products without employee assistance through self-checkout options. In addition to reducing costs, automation tools can free up employees to spend more time on higher-value activities that enhance the consumer experience.
While the use of e-commerce grew during the pandemic, we’ve seen online shopping level off in recent months as Canadian consumers resume shopping in-store. We’re seeing the same trend reflected in cross-border shopping intentions this holiday season. Fewer Canadian consumers are planning to shop online with cross-border retailers this year. That’s particularly true for those living close to the US: just 39% say they’ll shop online with cross-border retailers, down from 44% last year.
Encouragingly for Canadian retailers, those consumers aren’t decisively shifting to in-person cross-border shopping. While 31% of consumers who live near the border say they’re likely to travel to the US to shop this holiday season, they represent a core group of cross-border shoppers whose numbers are unchanged from previous years.
Canadian retailers that offer an engaging shopping experience have an opportunity to win the business of consumers who previously shopped online with cross-border retailers. Notably, 42% of consumers say they’re willing to travel further to shop in places that provide a better overall experience. That’s especially true for younger consumers: that figure rises to 51% among Gen Z consumers and 47% among Millennials.
Younger consumers are also more likely to make an event out of holiday shopping, with 51% of Gen Z respondents planning to eat and drink at restaurants during their shopping trip. Gen Z consumers are also more likely to say it’s important to them to shop in an area with restaurants, movie theatres and other entertainment options.
Canadians have become accustomed to occasionally finding their preferred product out of stock over the past year. But many consumers say they’ll simply go without making a purchase rather than redirecting their spending to an alternative product. Nearly half (43%) of Canadian consumers say persistent product unavailability could affect their holiday spending this year—the most commonly cited disruptive factor after inflation.
Retailers that iron out the supply chain wrinkles that lead to product unavailability have an opportunity to differentiate themselves in the eyes of consumers. More than a third (38%) of our survey respondents say they’re likely to shop with brands and retailers that have a strategy in place to mitigate supply chain disruptions. Importantly for retailers, that figure rises to 45% among consumers who expect to spend more this holiday season compared to last year.
of Canadian consumers say they’ll shop with retailers that have a strategy for managing supply chain disruptions.
Retailers can build more resilience into their supply chains through back-office machine learning and artificial intelligence technologies. These tools can improve demand forecasts and purchasing decisions while taking variable lead times into account. Larger retailers can use these technologies to develop a hold-and-flow approach to replenishing in-store inventories, fulfilling online orders and maintaining the flexibility to respond to localized demand spikes.
We’re also seeing retailers looking to shorten and simplify their supply chains. This can make it easier to manage production and shipping disruptions. It also gives retailers greater supply chain visibility and reduces environmental, social and governance (ESG) risks, such as unknowingly purchasing products from suppliers whose subcontractors fail to meet the environmental or social responsibility standards demanded by consumers. Domestic sourcing can also be a competitive differentiator: 57% of consumers in our survey say they’re likely to shop with retailers that offer products made in Canada.
Canadian consumers overwhelmingly say there’s an additional factor that could influence their holiday purchasing decisions this year: trust. Three-quarters of respondents say they’ll likely shop with retailers and brands they perceive to be trustworthy this holiday season.
Building and sustaining that trust requires retailers to align their values with those of their customers. Our survey shows that consumers are looking for help managing the rising cost of living, engaging in entertaining experiences and purchasing the products they want without delays. A strategy-led plan to address these priorities, coupled with meaningful actions that match your commitments, can give retailers a competitive edge and earn the sustained loyalty of Canadian consumers, both this holiday shopping season and beyond.
National Consumer Markets Leader & Global Consumer Markets Advisory Leader, PwC Canada
Tel: +1 416 687 8598