Battered by cost of living crisis, consumers cutting back on holiday spending

Worn down by broad-based inflation and worsening finances, Canadian consumers are expected to spend 17% less this holiday season than in 2021, according to Deloitte Canada’s annual holiday retail outlook survey.

Average household spending is projected to fall from $1,841 in 2021 to $1,520 this holiday season, according to Deloitte. The biggest drops will be seen in non-gift electronics (-55%), travel (-30%), and non-gift clothing (-27%).

Of those planning to reduce spending, 76% are doing so because of higher food prices, while 67% tagged inflation worries and 60% cited economic concerns. Of those who said they are spending more, over half (54%) are doing so because the cost of goods is rising.

The holiday spending drop also reflects Canadians’ financial challenges, with 41% saying their household finances have declined this year. Canadians don’t believe things will get better soon, with 48% expecting the economy to worsen in 2023.

“In 2021, consumers were looking for a reason to celebrate as pandemic concerns started to abate,” said Marty Weintraub, who leads Deloitte Canada’s retail practice. “However, this holiday season consumers are dealing with worries from every angle be it economic headwinds, rising interest rates, inflationary pressures, the ‘COVID hangover’, new and reoccurring diseases, geopolitical uncertainty, and more. Across income brackets, consumers have seen their buying power shrink and they’ll be looking for ways to stretch their dollar.”

Shoppers are willing (or are being forced to) put in more work to find deals. Nearly half (43%) said they’ll spend more time comparing prices and 69% will look for items on sale – up from 56% in 2021. Seventy percent said they’re more likely to purchase from a retailer that sells at the lowest possible price (up from 56% in 2021), while 72% will change brands if their preferred brand is too expensive.

Consumer trust in retailers is also potentially wearing thin. Seventy-six percent of shoppers expect higher prices this season, with 68% questioning if retailers are raising them more than needed.

Consumers aren’t dense. According to a US House subcommittee analysis published this month, corporations have engaged in excessive price hikes under the cover of inflationary pressure – raking in record profits and fueling further inflation. The analysis found that meat processing, shipping, oil and gas, and rental car companies have raked in particularly high profits by hiking prices far above what their increased costs necessitated.

The cost of living crisis has also left consumers with less capital and less patience for sustainable/ethically branded goods. Though four in 10 Canadians said they’re willing to pay up to 10% more for sustainable/ethical goods (not nearly the cost difference such goods tend to have), others won’t pay extra because of affordability issues (47%), difficulty identifying genuinely sustainable products (41%), and because they think their purchase choices won’t have a meaningful impact (28%).

E-commerce is expected cool from its pandemic-fueled heights, with half of survey respondents expecting to prioritize shopping in-store instead of online – pushing average store visits to just shy of pre-pandemic levels.

Can retailers respond to a low-trust, low-loyalty, and low-confidence holiday season?

Jason Raymer, VP at iQmetrix, a provider of telecom retail management solutions, has a few tips for retailers trying to create wins and stay ahead of trends.

Retailers should firstly ensure their online shopping experience is seamless, with fast loading, smooth navigation, informative product pages, and updated inventory statuses.

Raymer says stores should also roll out their best promotions early, since 37% of consumers will shop earlier – with nearly half of them doing so in the belief they can snag better deals, according to the Deloitte report.

Finally, stores should attempt to build on whatever loyalty capital they’ve accumulated, perhaps through the offering of considerate services such as flexible payment plans.