Economic crunch could lead to depression-like drop in spending

A Deloitte report finds existing weakness in retail will be exacerbated by consumer concerns about unemployement.

A Deloitte survey of 1,000 Canadians paints a depressing picture of Canada’s retail environment in a time of crisis, with double digit unemployment leading to a dramatic decrease in spend.

The accounting firm’s latest report found that 96% of respondents believe the Canadian economy will be negatively impacted as a result of COVID-19, with 78% expecting the impact to be “significant.”

While retail sales were already lackluster leading into 2020, the employment rate was high (62%), the unemployment rate was near a 45-year low (5.7%) and labour market tightness was fuelling wage gains of above 4%. But according to Deloitte, the pandemic will cause the Canadian economy to contract by around 20% annualized in Q2, and the national unemployment rate will more than double, surpassing double digits. On personal level, 28% of respondents say their financial situation is worse than it was at this point last year.

“We haven’t experienced an economic contraction or rise in unemployment on this scale outside a depression environment,” the firm said in the report.

This will lead retail spending to “contract dramatically” in Q2, which “will have a devastating effect on brick and mortar retailers.” About 700 store locations across Canada had already closed or were in the process of closing during the first quarter of 2020, and the crisis could push many more – especially ones that had already been dealing with tough Januaries due to inflated holiday revenue expectations – over the precipice.

Even before the closure of non-essential businesses, Canadians were planning to scale back trips to stores as the result of COVID-19: when first polled in mid-March, 66% of survey respondents said they would visit shopping malls less often, with planned cut backs in trips to grocery stores (according to 37% of respondents), wholesale clubs (31%) and convenience stores (27%) already on their minds.

On average, Canadians say they’ve spent an average of $250 on goods as a direct result of COVID-19, which rises to $257 for those aged 18-29 and $306 for those aged 30-39. Canadians aged 55 and up, on the other hand, spent an average of $177.

But those increases are likely to be short-lived, as Canadians are already taking action to improve their cash flow in these challenging times. Overall household spend is expected to go down for 41% of respondents, with 68% planning on reducing discretionary spending, which the report warns could be permanent. Canadian consumers may continue to act cautiously after the pandemic subsides and continue to stockpile food and other supplies, so-called “pandemic pantries.”

Though the number of trips will be reduced, roughly one in five consumers expect total grocery spend to increase. To make up for that, 69% say they will reduce spending on entertainment, with 44% planning to cut back on apparel and footwear.

The report also found that 52% of Canadians overall say they’re more likely to buy online, and these numbers are expected to grow substantially. Younger people, aged 18-29, are even more likely to turn to online retailers (58%).