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Holiday shoppers in no mood to splurge Add to ...

Iyandi Campbell, a Toronto twenty-something, vows to be a savvier gift giver this Christmas after losing her job at a chiropractic clinic in September.

"I'm just going to buy for my immediate family this year and not splurge too much," she said.

Retail analysts predict that recession-battered shoppers will be reluctant to shop this holiday season, as their spending spirits are dampened by everything from unseasonably warm weather to higher consumer debt loads.

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Shopper Crystal Bowes said she's already made some holiday purchases and plans to splurge more than she did last year, but believes a warmer November may be keeping some shoppers out of the malls.

"It doesn't feel like the holidays yet, so that influences me a little bit, but other than that it's great because I can get more shopping done," she said as she stood waiting for a streetcar in the rain Tuesday.

A balmy November across much of Canada isn't helping to lift sales forecasts that were already looking dismal, thanks to high consumer debt, growing unemployment and weak consumer confidence, warns a report released Tuesday by consultants Deloitte Canada.

"This warm weather is a killer, because we've all been programmed in our DNA to go shopping when we see snowflakes because that means Santa is coming," said Brent Houlden, Deloitte Canada's retail practice leader.

Deloitte's 2010 holiday outlook survey predicts Canadians will take a more frugal path this year, partly because they are trying to pay down debt and partly because recent economic data points to more uncertainty ahead.

Almost half of the survey's respondents, or 44 per cent, said they plan to spend less this holiday season than they did last year.

"I think consumers are getting mixed signals [about the economy]and they're reacting hugely rationally," Mr. Houlden said.

"They're not totally out of the stores, but at the same point in time, they don't have the debt capacity to drive huge purchases, so people are just being cautious."

After racking up record levels of debt during the recession, when interest rates were at bargain-basement levels to inspire borrowing and consumer spending, Canada's collective retail debt load has reached 146 per cent of income. Put another way, consumers owe $1.46 for every dollar they earn.

In the Deloitte survey, respondents were asked what they would do with a bonus or extra income. Only 10 per cent said they would spend the money; 75 per cent said they would save it or pay down debt.

"In the good days, people would have run out to buy that car or that refrigerator, some big-ticket item, and that would have been great for retail," Mr. Houlden said.

"Now they're just being that much more cautious. That hurts, because those are big purchases people are avoiding right now."

Daniel Baer, a retail partner at Ernst & Young, projects that holiday sales will increase modestly, by about two to three per cent from last year.

Canadians will spend less on impulse purchases this year, but will still spend a little more than they did in 2009, when the economy was just emerging from the recession, he said.

"Consumers are still cautious and still anxious in terms of where the economic recovery is and that certainly plays a part in whether they spend on an impulse basis or a more rational basis."

Harmonized sales taxes in Ontario and B.C. are being blamed for premature spending sprees in those two provinces, which in turn have undermined the outlook for the holiday spending-season. Interest rates have also moved higher since June, rendering borrowing slightly more expensive.

The strong Canadian dollar is also expected to hurt matters by sending shoppers south of the border. Already, more and more Canadians are cross-border shopping without leaving their homes by taking advantage of free shipping and other discounts offered online by U.S. retailers.

The holiday shopping season in the U.S. officially kicks off next week, the day after U.S. Thanksgiving - known as Black Friday because it traditionally heralds the end of the period when retail sales ledgers are "in the red."

These days, it's a name with more than one meaning. Reports from the U.S. already suggest sales south of the border will be similar to last year's weak levels, since American consumers are in even greater debt and ever more jittery about the economy than Canadians are.

A number of U.S. retailers began their holiday promotions during the last week of October, as part of a strategy to push more modest sales over a longer period of time rather than offering hefty price cuts on Black Friday weekend, said retail analyst Robert Cavallo.

Canadian retailers, including Shoppers Drug Mart and the Bay, plastered their storefronts in wreaths and Christmas trees, while restaurants like Starbucks and Tim Hortons rolled out their holiday cups as early as Nov. 1.

The early holiday rollout is one way Canadian retailers are dealing with what is stacking up to be a weaker-than-average year for holiday shopping- a crucial sales period for retailers, said Paul Ferley, assistant chief economist at RBC Economics.

Mr. Ferley acknowledged "that there may be attempts to instill that Christmas spirit sooner in the hopes of boosting sales."

Mr. Houlden said shoppers shouldn't expect big discounts or sales, because retailers have become accustomed to consumers showing more conservative shopping habits, and have lowered inventory levels accordingly.

"People just don't want to get stuck with the inventory, so as a result retailers have not got huge quantities of their merchandise on hand."

But Mr. Baer suggested that retailers who are in tune with consumers' moods will still offer promotions to respond to demands for better prices and values.

Sears Canada said Tuesday it plans to "focus on the lowest prices with the best value" this holiday period after it blamed a 61 per cent drop in profit in third quarter profit and an eight per cent decline in revenues on low consumer confidence, rising interest rates and high unemployment and the HST.

However, privately-owned rival Hudson's Bay Co., which saw earnings before interest, taxes, depreciation and amortization rise in the third quarter, is expecting an "excellent" holiday period, its CEO and president Bonnie Brooks projected Tuesday.

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