Children haven’t even had Halloween yet and retailers are already wondering what to expect for the holiday season. The short answer: there will be fewer gifts under the trees than in recent years.
The opposite would have been surprising. With inflation, rising interest rates, housing prices, rising debt levels, a slowing economy and threats of recession, it would not make sense for us to see a unprecedented spending orgy.
If Santa were to be as busy as last year, it would mean that the Bank of Canada’s actions to slow consumption and inflation are not working.
Christmas will therefore be more sober. But to what extent?
From one end of the country to the other, we plan to spend $1,347, on average, according to a survey carried out by the accounting firm Deloitte released this Tuesday. This represents a drop of 11% compared to last year, which is not trivial. It’s also $400 less than 5 years ago.
The $1,347 budget seems high because it includes not only gifts, but also food, alcohol, charitable donations, travel (sometimes by plane) to visit family, and travel.
In Quebec, as always, we plan to spend less than elsewhere in the country, i.e. $1,072 (-9%). The most staggering drop (-32%) is observed in the Atlantic provinces, where the risks of recession are more worrying than elsewhere in the country. Ontarians, for their part, plan to reduce their spending by 16%.
Canadians are “frankly pessimistic,” to use Deloitte’s expression, which leads them to exercise financial prudence again this year. But to a lesser extent. Last year, consumers planned to reduce their holiday budget by 17%. At that time, food inflation was above 11%, putting a strain on household budgets. This certainly contributed to this result.
What is interesting to note from all these figures is that the next Christmas will probably be less… materialistic than the previous ones. Because if the budget allocated to gifts will decrease by a substantial 18%, that for travel should increase by… 11%. Concerts and spa days are also favorite expenses.
This growing interest in activities rather than materials is also noted by the Royal Bank, which carefully tracks consumer spending using data collected by its credit cards. Its studies show that for almost a year, sales of services have increased more than those of goods. This trend continues even though visits to restaurants and hotels have started to decline.
Same observation from the Bank of Canada, which surveys consumers every quarter. We prefer – by far – vacations to household appliances and electronics.
Is overconsumption going out of fashion? Do we really need to have fun in these gloomy times? Is this the effect of the aging of the population, since we need less things at 65 than at 35? Is the price of travel so high that it causes a budget cut for everything else? Probably a mixture of all of these.
In any case, the phenomenon is cause for concern for retailers who are preparing for a normally very lucrative period. Not only do they risk selling less, but they will also have to increase their efforts to rebuild a bond of trust that has crumbled. As many as three in four people (73%) believe, rightly or wrongly, that retailers have unfairly raised prices, according to Deloitte. Supermarkets are therefore not the only businesses to arouse bad feelings and to be accused of having caused part of the inflation.
Concretely, this distrust of companies encourages consumers to put a lot of time and energy into finding the best price. When it comes to buying gifts, Amazon won’t be the only destination, oh no! Canadians plan to visit an average of 16.5 stores and websites to find great deals, which is 37% more than last year. It is difficult to know whether this game plan will be profitable, but retailers will have every interest in displaying discounts if they want to capture customer interest and close sales in a context of high inventories due to the start of fall unusually calm.
Faced with this depressing situation for retailers, “the discount is the only tool they have. If they don’t cut prices before Christmas, they’ll have to cut them even more after,” Marty Weintraub, national retail industry leader at Deloitte Canada, told me. However, many companies have indicated to the Bank of Canada that they will continue to make larger and more frequent price increases than before the pandemic.
It’s still very early, but are you excited to see if the bargain hunting will be successful this year?