Amid continued global economic uncertainty, Canadian retail sales are expected to continue their slow but steady climb next year. Fusion Retail Analytics is forecasting retail sales growth of 2.7% for 2013, maintaining the 2.5% growth pace set in 2012 . Retailers can expect a slower start to 2013 as we roll over a very strong Spring ’12 but YOY retail sales growth is expected to recover in the back half of the year. When looking at the underlying drivers of retail sales, their trends, oscillations, LY performance, lag impacts and tipping points it is unlikely that retail sales growth will deviate from its recent run-rate of 2-4%. Retail is unlikely to see a break in this pattern until we see a dramatic rise in Discretionary Income – the amount of money Canadians have left after paying their taxes and cost of living expenses. The key variable to watch is unemployment; if this drops below its tipping point of 6.5%, Canada will see accelerated wage gains, pushing Discretionary Income up and flowing into retail sales.
Discretionary Income in expected to grow in 2013, lifting retail sales, but this positive impact will be tempered by lower home turnover, cooler temperatures, and ever-increasing cross-border shopping in 2013. Growth in cost of living is forecasted to remain below the historical run-rate, primarily due to the expected low price of oil and cooler temperatures, which will curb increases in transportation and utilities costs, respectively. Slow growth in cost of living, combined with steady growth in income and taxes, will drive Discretionary Income growth back to historical, pre-recession levels.
Those who have recently moved purchase from more categories and spend more than other retail consumers, making home turnover – a measure of recent movers – a major factor in overall retail sales growth. Unfortunately, due to fairly strong growth in early 2012 and new mortgage rules, home turnover in 2013 in expected to trail 2012, maintaining the downward trend into the Spring before starting to recover later in the year.
Warmer temperatures can jump-start the Spring season, a key sales period for many retailers. This is exactly what happened in 2012, which included the warmest month of March in over 10 years, pulling seasonal sales forward and kicking off a warmer-than-average year. With average temperatures expected and only 2 months forecasted to be warmer in 2013 than they were in 2012, retailers will likely not have the benefit of a hot 2013, cooling our retail sales forecast.
American retailers continue to slowly eat away at Canadian retail sales. With the Canadian dollar expected to stay around parity with the US dollar, the trickle of Canadians travelling across the border will continue to increase in 2013, stealing an additional 0.4% sales growth from Canadian retailers. The exchange rate would have to fall to under $0.80 to deter most Canadians from crossing the border and keeping their purchases in Canada.