Retail sales slump (again) heading into the holidays

Analyst Ed Strapagiel predicts 2019 could be one of the worst years since the recession.

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It’s starting to look like the most wonderful time of the year – except for Canada’s retail sector, whose slumping third-quarter sales are likely to lead to one of the worst years for retail sales since the last recession.

The latest Stats Canada data shows retail sales were up a meagre 1.5% during the third quarter of the year, a touch above the 1.4% recorded during Q2, but down from 1.8% during Q1. According to an analysis of the numbers provided by Ed Strapagiel, that brings total year-to-date gains to only 1.6% from a year ago. The retail consultant notes that such a tepid growth rate falls short of matching inflation and population growth for the period.

And the long-term outlook is no more merry and bright. The three-month growth trend is on the uptick, but the longer twelve-month growth line continues to fall and could see sales end the year with an increase of 1.5%. Again, the analyst is less than optimistic about his projection, as it would make 2019 the slowest growth year since the 2008/2009 recession.

Soft sales gains are largely the result of slumping sales in the automotive sector, though the food and drug and store merchandise industries continue to perform poorly as well. Sales in automotive were up only 0.4% over the last quarter (matching its 0.4% year-to-date performance); the main culprit being gas station sales, which were down 5.3% for the quarter due to relatively low prices at the pump.

The food and drug sector performed well in early 2019, but have now fallen to near record lows of a 1.2% increase for the quarter after growing 3.5% in Q1 and 2% in Q2, respectively. They are likely to finish the year at around 2%, according to Strapagiel, making it “one of the lowest annual gains in recent memory.” For their part, supermarket and grocery store sales nearly broke even at a 0.01% decline, while convenience stores plummeted 7.1% and specialty food stores surged by the same percentage for the period. Sales at health and personal care stores had their best quarter of the year, finishing up 3.7%.

Store merchandise stores had a relatively good quarter, seeing a 2.8% growth, higher than the two previous quarters. Strapagiel points to electronics and appliance stores, whose sales dropped a precipitous 10.3%, as being one of the “weak spots” of the sector. The holiday period is generally an important time of year for tech and electronics companies, in particular, with a recent Shopify survey finding 57% of Canadians planning to purchase a home electronics or computer product during the upcoming Black Friday and Cyber Monday events, making it the most sought-after category.

The other two less-than-stellar categories in store merchandise were sporting goods, hobby and music store sales, which fell 1.8%, and clothing stores, which only managed to climb 0.8% during Q3. At 13%, miscellaneous store sales experienced some of the highest sales gains, supported by the addition of cannabis stores, which Strapagiel expects will “start to dampen” in the next few months.

Ecommerce sales were up an impressive 31.4% year-over-year, but still only represent around 3.4% of total Canadian retail sales. Those figures include both pure-play operators and online sales of brick-and-mortar stores, but not online sales from foreign websites.