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In contrast to recent years, consumer confidence has strengthened based on an improving economy, supporting growth, albeit slow growth, in consumer spending. Rising levels of spending have also been reflected in greater comfort in consumer borrowing, but rising household debt has become a concern. High house prices have discouraged younger consumers from jumping on the property ladder and slowed demand for a wide range of household items. Younger consumers are driving growth in online shopping.
Despite recent economic and job uncertainty brought about by the decline in oil prices, in 2016 consumer expenditure reached CAD80,154 per household, reflecting steady growth of 5.2% (in real terms) since 2011. At the same time, spending has been bolstered by high levels of borrowing, with the outstanding balance of consumer credit reaching CAD37,400 per household in 2016.
Burgeoning consumer confidence, at least in the shorter term, is based in large part on the recent improving job market. According to recent data from The Conference Board of Canada, consumers appear confident that jobs will remain plentiful, spurring continued spending, at least in some provinces. On the other hand, in a separate report the group said it believes that growing levels of household debt will slow spending growth.
Regardless, rising inflation is expected to boost current spending levels. A recent article on website globalnews.ca noted “The doubling of inflation is expected to boost the cost of living this year. Conference Board of Canada chief economist Craig Alexander said in a blog post that inflation could hit two per cent [in 2017], boosting annual expenditures for the average Canadian household by CAD1,600”. The article went on to identify likely areas where prices could rise. These included prices of fuel and energy, food, healthcare and education. In addition, the article noted that mortgage rates are likely to increase.
Consumers continue to embrace internet retailing, reflected by internet retailing per capita spending increasing by 17% between 2015 and 2016, reaching CAD661 in 2016. In addition, consumers, particularly younger consumers, are increasingly turning to their smartphones and other mobile devices when shopping online. In 2016 value sales of mobile internet retailing reached CAD174 per capita, up from CAD36 per capita in 2012.
According to PwC’s Total Retail 2016 report, 46% of online shoppers said ‘convenience’ is their main reason for shopping online, followed by lower prices, cited by 37%. Canadian consumers’ shopping habits are also influenced by social media. Thirty-eight percent said they were influenced by reading reviews, comments and feedback on social media platforms and 22% said they were influenced by advertisements. On the other hand, only 6% of online shoppers said that purchasing directly via a social media platform was a part of their shopping behaviour. Products consumers purchase online most often are books, music, movies and video games (52%), consumer electronics and computers (28%) and clothing and footwear (23%). Shoppers also research products online with their mobile devices before buying them in brick-and-mortar stores, with many doing their price and product research while they’re in the stores. The survey revealed that the top product consumers research in-store are grocery items (51%), furniture and homewares (38%) and clothing and footwear (36%).
While domestic retailers have traditionally lagged behind US retailers in establishing their internet presence, in coming years growth in online shopping is expected to be driven in large part by the improved internet presence of those same domestic retailers. According to a recent study by PayPal, “Shopping local is now officially in vogue. The research reveals that this trend is driven by a multitude of factors with more than half (56%) of Canadians revealing that they plan to shop online from Canadian retailers because they want to support local businesses and the economy. Canadians are also choosing to shop online from domestic retailers because they want to avoid the cost of international shipping, taxes and duties (51%), unfavourable exchange rates (44%) and many (32%) prefer goods that are made in Canada”.
As a result of a strong and continuing increase in house prices in recent years, many prospective young home buyers are being shut out of the housing market. In a report on website globalnews.ca Glen Melnyk, financial consultant at Investors Group, observed “It looks like it was a little bit easier to buy a house 25 years ago. Even though interest rates were higher, house prices were lower”.
Rick Jansen, a real estate agent working in Winnipeg, said “There’s no hiding the fact that home prices have gone up. And it seems almost every year we are setting new high-water mark”. As a result, according to the article, prospective first-time Millennial home buyers are being forced to spend 25% of their monthly income on household debt compared to the 15% their parents paid. Jansen added “In terms of finding employment, the payment they’re getting and the costs they’re having to face don’t match up. So it’s not a millennial slacking issue which we’re so used to talking about”.
In addition, new, more stringent rules on mortgage qualification are expected to hit first-time buyers particularly hard. Edmonton-based broker Jason Scott recently observed on website moneysense.ca “People who have less than 20% down are going to qualify for a whole lot less money…You’re not paying more, but you’re going to be able to buy less house”. Frank Napolitano, managing partner at Mortgage Brokers Ottawa, said “Canada’s first-time home buyers may have to shelve their dream house fantasies…First-time homebuyers will probably have to probably scale down the type of home that they may have planned to buy”. Needless to say, fewer first-time buyers is expected to have an impact on demand for a wide range of household-related items that new home buyers tend to purchase, such as appliances and homewares.
The population of Canada is perhaps the most diverse among modern Western countries and that trend is projected to continue in coming years as more South Asian, Chinese, Filipino and Middle Eastern immigrants, among many others, come to the country. Increasingly, the wave of immigrants is influencing Canada’s consumer profile and shopping habits. In particular, the trend is affecting food shopping. According to Mike Fromowitz, Chief Creative Officer, Ethnicity Multicultural Marketing + Advertising Inc., “Multicultural consumers are transforming the Canadian mainstream…. They are also influencing the food shopping habits of the overall population. Shopping behaviours across multicultural shoppers reveals one important commonality—they are particularly influential in fresh groceries (the meat, produce, deli, bakery and seafood departments)”.
New immigrants to Canada tend to wield considerable spending power and this has bolstered their impact on consumer habits. According to a recent report from eMarketer, “Not only do recent immigrants represent a new and consistently growing consumer base, they are also arriving in better financial position than previous generations, reflecting the current skew in Canada’s immigration policy toward admitting skilled professionals”.
In addition, newly arrived immigrants tend to settle in the larger cities, such as Toronto, Vancouver and Montréal and many immediately seek to buy homes and, according to a recent study by the University of British Columbia, their spending power has had a significant impact on rising housing prices. The study’s author, Daniel Heibert, told the Vancouver Sun that he believes that “immigrants are seriously affecting housing affordability at both the high and low ends of the market”. He noted that in metro Vancouver the overall rate of home ownership among all residents in Metro Vancouver is nearly 70% but “The percentage of home ownership among Chinese is 81%. And South Asians are second at 75%”.
Those aged 60 years-old and older constitute the fastest-growing consumer segment in Canada. In 2016 Later-Lifers accounted for 23% of the population and by 2030 they will account nearly 29% of the total population. This demographic shift is expected to change the overall consumer profile, as older consumers tend to spend less. Indeed, according to a recent article in the Financial Post on a survey by Sun Life Financial Canada, retirees are living on 62% of what they previously earned and that 32% said they “were surprised at how they were able to manage on a reduced budget”. In addition, the growing number of older Canadians is expected to drive increased demand for a wide range of age-specific products and services, particularly health-related products and services. They will also drive increased demand for smaller living quarters as they seek to save money by downsizing their homes.
On the other hand, according to the results of a recent study from credit firm Equifax reported on website cbc.ca, Later-Lifers are accumulating debt—not including mortgage debt—at a faster pace than other age segments. Regina Malina, a senior director of insights at the credit firm, said “Seniors of today are behaving slightly different than the seniors of yesterday,” she said, adding that she suspects a lot of that consumer debt stems from having to help adult children or other family members with their own financial hardships”. The study also revealed that “across all age groups, the fastest-growing source of new debt was installment and car loans”.