Canadians plan to spend more on the holidays in 'make or break' period for retailers

Canadians plan to spend more during the holiday season this year, but supply chain issues could hamper sales during what may be a "make or break" period for many retailers.

After the COVID-19 pandemic disrupted 2020 holiday plans and saw many people opting to stay home, Canadians are ready to once again celebrate the season – and that means spending more.

Two surveys released last month found that Canadians will spend more during the 2021 holiday season as the pandemic subsides in some regions of the country and most economies remain open.

According to the Retail Council of Canada's Holiday Shopping Survey conducted in partnership with Leger, Canadians plan on spending $792 on holiday shopping this year, up from $693 in 2020. The online survey of 2,505 Canadians found that most are increasing their holiday spend this year because they are spending more time with family and friends, and that it will be a more "normal" holiday season.

"Consumers are showing more optimism than they did last year," Michelle Wasylyshen, a spokesperson for the Retail Council of Canada, said in an interview.

"We also saw that consumers have reported that their financial lives are on stronger footing this year. That's very different from last year, when there was much more uncertainty, and that's translating into people planning to spend more money this year on gifts."

The RCC survey also found that Canadians will be spending more this year on vacations, toys and food and alcohol over the holiday season, while spending less on books and music, sports equipment and home electronics than in 2020.

PwC's Canadian Holiday Outlook, released last month, also found that Canadians plan on increasing their holiday spending by 29 per cent this year compared to 2020. On average, Canadians expect to spend $1,402 on the holidays this year, including on gifts, travel and entertainment. Still, PwC says in its report that it's still 11 per cent below pre-pandemic spending levels.

Supply chain issues remain

While Canadians are expected to spend more this year, there are lingering concerns among retailers about meeting the increase in demand as they continue to grapple with supply chain issues.

Retailers have been warning consumers about potential shortages for several weeks now as global supply chain issues continue to disrupt the flow of goods. The issues prompted the RCC to launch a "Shop Early, Shop Safe" campaign urging Canadians to get a jump start on their holiday shopping and increase the chances of finding the products and brands they want to buy.

"We are seeing that retailers have been doing things for many months to try to minimize the disruptions when people go into stores... but we know that for some categories, availability for certain items is going to be tighter than in years past," Wasylyshen said.

"Shopping early and getting it done as quickly as possible is definitely a good plan this year, particularly if you have a very specific product in mind that you are looking for."

Retail analyst Bruce Winder says the shortages could be especially hard for smaller and independent retailers to overcome, since they do not have massive supply chains in the way that big-box retailers do. Those that are unable to find solutions and lose out on demand will face a difficult time in what is the most important retail period of the year.

"It's going to be make or break for a lot of companies," Winder said.

"You'll probably see a number of companies go bankrupt in the new year because they just couldn't make it. Subsidies are also being reduced – they're still there, but they are being reduced significantly. That's going to create a number of casualties unfortunately for smaller businesses."

Winder says customers should also brace themselves for fewer sales as well as inflation on certain items due to supply chain issues.

"Prices are going up and you're probably going to see less sales activity because retailers feel that it will be hard enough to get inventory as it is and they won't want to discount it," he said.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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