It’s the busiest time of year for retailers. And each year since the onset of the pandemic, new trends have shaped priorities for tenants, landlords, and owners of retail assets. Colliers Real Estate Management Services’ retail experts have been monitoring holiday sales patterns, the impact of inflation on the sector, the stabilization of e-commerce, and predicting what’s on the horizon in 2023.
Here's what we’re observing:
1. In 2022, Canadian retail sales are expected to set a new record.
In 2021, total retail sales were the highest on record, reaching $680 billion. Following what we predict will be a strong holiday season, we expect retail sales to exceed $730 billion in 2022, an increase of 7%.
Figure 1: Retail sales (Year end 2016-2021, Jan-Sept 2022) and forecasted retail sales (Oct-Dec 2022). Source: StatsCan and Colliers
2. Apparel is currently among the healthiest retail sectors, with sales in 2022 up 27% compared to 2021.
Apparel was one of the hardest hit retail categories between 2020 and 2021, struggling to meet forecasts for two consecutive years. As in-person work, travel, and social activities have increased, apparel has seen a comeback. Spending on apparel has increased 27% YTD in 2022 compared to 2021 and 52% compared to 2020. This is particularly good news for enclosed mall owners and tenants, where apparel tends to encompass the majority of their merchandise mix.
Figure 2: Apparel sales and forecasted apparel sales prior to COVID. Source: StatsCan and Colliers
3. Inflation is not affecting each category of retail equally, with apparel among the least impacted and gas and groceries among the most impacted.
Total retail sales in 2022 are predicated to increase 7% compared to 2021, yet only 2% when adjusted for inflation. That said, inflation is not affecting each category of retail equally. Apparel is among the least impacted, as a 27% increase in sales YTD becomes 25% when adjusted for inflation. Gas and food are among the most impacted. In 2022 YTD, gas sales rose 35%, but only 7% when adjusted for inflation. A 1% increase in food spending is down (7%) when adjusted for inflation.
Figure 3: Overall retail sales growth and inflation adjusted growth, by category. Source: StatsCan and Colliers
4. E-commerce sales have stabilized at 6% of total retail sales, falling from the pandemic high of approximately 11%.
After a surge in 2020, e-commerce has stabilized at 6% of total retail sales. This percentage is growing annually, but poses little risk to brick and mortar sales, which are also increasing. E-commerce as a percentage of total retail sales is expected to rise to around 10% by 2025. As outlined in our last report, e-commerce and brick and mortar retail need to be seen as collaborative partners in creating omnichannel retail, where all potential points of sale drive overall growth.
Figure 4: E-commerce as a percentage of total retail sales and forecasted percentage prior to COVID. Source: StatsCan and Colliers
5. Lagging consumer confidence means retailers and retail landlords will need to prioritize the consumer experience to drive growth in 2023.
Consumer confidence is one of the main indicators of the consumer’s willingness to spend, especially on discretionary purchases. According to Nanos Research, this metric has been declining over the past few months and currently resembles the confidence felt in 2008, during the Great Recession. In order to see continued sales growth in 2023, retailers and retail landlords must prioritize the consumer experience. The type, quality, and ease of service, along with the range of promotions, and entertainment available, must be tailored to each retailers’ customer base. An enhanced consumer experience also includes sophisticated omnichannel retail, whereby there is harmonious service between all potential points of sale, including in-store and online.