(Toronto) Less snow than usual in many areas and high inflation dampened holiday spending in the country’s retail sector. And industry observers say apparel companies are looking at a similarly tough year.
“When we currently look at our consumer research among Canadians, let’s say that it’s not as if they are lining up to buy more,” explains Sandrine Devillard, senior associate director at McKinsey & Company in Montreal.
Their hesitance to spend stems from soaring prices, high interest rates, layoffs and efforts to recover from pandemic debt.
When Canadians spend, clothes aren’t on their list of priorities, says Mme Devillard, who is one of the heads of the consulting firm’s consumption and distribution business unit.
Instead, they are focusing on essential purchases like food and hobbies that they have been deprived of during the pandemic, such as travel or entertainment activities.
When [les Canadiens] splurge, they would rather experience things than buy an extra coat, because honestly no one needs an extra coat.
Sandrine Devillard, senior associate director at McKinsey & Company
This thinking has led to an “extremely volatile” apparel sector in which McKinsey expects year-over-year retail sales growth of between 2 and 4 percent in 2024, which pales in comparison to growth at two figures recorded in certain markets in 2021.
The generally resilient luxury market will also be affected. McKinsey forecasts its sales growth will slow to between 3% and 5% this year, compared to between 5% and 7% in 2023.
“Uncertainty”
McKinsey’s forecast is based in part on a survey of 435 fashion industry executives about their outlook for the year, in which the word most often mentioned by executives was “uncertainty.”
Thus, 37% of respondents expect the situation in the fashion industry to remain the same in 2024. More than a third expect the situation to get worse.
These feelings emerged during the unveiling of recent results from Canada’s biggest brands.
The president and CEO of Canadian Tire Corporation, owner of Mark’s and SportChek, Greg Hicks, blamed the company’s 68 per cent drop in fourth-quarter profits from a year earlier on “the rise interest rates, stubborn inflation affecting discretionary spending and unfavorable weather conditions.
Price rise in sight
To address the situation, 69% of executives surveyed by McKinsey said they would raise prices this year, up from 58% a year ago.
As many as 44% expect prices to rise by up to 5%, while 25% predict even bigger increases.
Canada Goose Holdings could be one of the companies that will raise their prices.
Chairman Carrie Baker said during the company’s latest earnings conference call that “there’s a lot of room” for the brand “at much higher price points.” She didn’t say how much the brand might raise prices, but some of the Toronto-based company’s parkas already exceed $1,500.
Less shopping
Carrie Freestone, an economist at the Royal Bank of Canada, says consumers have further reduced their discretionary spending this year to cover holiday bills.
She predicted in a note to investors that retail activity would be “dormant” in the first quarter of the year and “largely stable” later in the year.
Mme Devillard makes a similar observation. “People are buying less,” she said. They go less to shopping centers, they go to stores less. »
Luxury and innovation
However, the situation is not catastrophic for all retailers.
McKinsey research shows that luxury goods like jewelry, watches and leather goods are likely to be hot. Since these are often seen as having value in tough economic times, while consumers maintaining their pandemic habits of physical exercise and the outdoors will provide a boost to sportswear companies.
Many of these companies also know how to innovate to emerge from a recession, points out Mme Devillard.