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With Black Friday upon us, the holiday shopping season is unofficially underway. Scotiabank Consumer Analyst George Doumet is our guest and breaks down where prices are going up and by how much, what trends he’s seeing and, believe it or not, where you might even be able to catch a deal this year. 

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Key moments this episode:
1:06 — Why does it seem like Black Friday deals start earlier and earlier each year?
1:29 — How important is Black Friday to retailers in Canada?
2:04 — The good news when it comes to retail this holiday season…
2:29 — …and the bad news. With a silver lining.
3:41 — How inflation will affect Black Friday prices
4:12 — What is ‘trade down’ and why is it a trend this season?
4:48 — Where will customers see some deals this season?
6:21 — Which areas won’t see much of a discount?
7:02 — The “big new threat” to retailers this season
7:37 — Why grandma’s apple pie is going to cost a lot more this year
8:33 — How grocery consumers’ habits are changing because of inflation
9:04 — What are customers to make of grocery store profits?
10:46 — Beyond the holiday season, what is the health of Canadian consumers?





Stephen Meurice: Tomorrow is Black Friday. The unofficial start of the holiday shopping season. Last year it seemed that because of supply chain issues, empty shelves were the big hurdle in crossing items off your shopping list. This year it’s a different villain – inflation. 
George Doumet: That’s exactly it, inflation certainly seems to be the Grinch this holiday season.

SM: That slinger of Dr Seussian wisdom is Scotiabank consumer analyst George Doumet. And while the Grinch’s heart famously grew three sizes, Canadian wallets may just do the opposite. 

GD: This year, more than any other year, we’re probably going to see Canadians kind of tap their savings, tap their credit cards. That’s something we’re watching. 

SM: George is our guest this episode and he’s going to give us the lay of the land. What trends he’s seeing this holiday shopping season. Where prices are going up and by how much, both for Black Friday and at the grocery store. And believe it or not, where you might even be able to catch a deal. I’m Stephen Meurice and this is Perspectives. 

George, thanks so much for being on the show.

GD: Thanks for having me on.

SM: So, as we heard in the intro, tomorrow is Black Friday. Is it just me, or does it feel like it starts earlier and earlier each year? It’s like a whole Black Friday season.

GD: Yeah, absolutely. It’s a phenomenon that started in the States and consumers love the idea of shopping early and getting good deals and it seems over time, it’s only gotten more and more intense in terms of timing. It’s game theory. You don’t want to be the last one standing. And if everyone’s kind of making it earlier, you want to make sure you’re doing the same.

SM: And how important has it become to retailers?

GD: Honestly, it’s all about Black Friday. It’s very important. Every season’s different. Certain things this season are going be different than last season. But it’s all about getting the right product assortment. It’s all getting the right deals out there. And yeah, it’s very important.

SM: So, Boxing Day or Boxing Week or however long that became, that was kind of the big sale season. Has Black Friday become more important than that?

GD: It has and again a lot of it’s been exported by the U.S.

SM: Right. And they don’t have Boxing Day in the States. So that’s why they just ignore it. [laughs]

GD: Exactly, it’s a Canadian only concept that over time has faded a little bit and Black Friday, Cyber Monday has definitely picked up its course.

SM: Okay. So how is it shaping up this year from your perspective? That’s your work, is to look at retail sales, the retail sector. How’s it looking this year?

GD: I’m cautiously optimistic. There’s a lot of pent-up demand out there. After nearly three years of suppressed behaviour from the pandemic, folks are ready to go all out and kind of celebrate the holidays. The data we’ve been seeing out there is that sales are expected to be up anywhere between 6 to 8% compared to last year. That’s the good news. The bad news is if you kind of account for inflation, you know, it’s close to a 0% growth. So not negative, but certainly not as strong as it was the last few years. And in general, look, to gauge the strength of the retail season, I like to look at levels of temporary hiring from the retailers. They’re down from the last few years. We’ve seen the Amazon headlines, all the layoffs out there. And inflation certainly seems to be the Grinch this holiday season. Forgetting gifts for a minute, just looking at living expenses, groceries are up 11%. Rent’s up 10%. Pump prices are up. Auto loans are up as well. And prices are expensive. But, you know, in general, I guess the silver lining in all of this is that the labour market’s strong, the unemployment rate is at the lowest it’s been in nearly five decades. So, we’re cautiously optimistic.

SM: So, some sort of conflicting signals then. Maybe on one hand, you started out saying there’s some pent-up demand. That people they want to get out, they want to splurge after the lockdowns of the last couple of years. On the other hand, there’s also this sense of caution, maybe because of the economic situation, generally. Because of inflation, because of worries about a recession. Is that right?

GD: Yeah, that’s a fair point. And I think this year, more than any other year, we’re probably going to see Canadians kind of tap their savings, tap their credit cards. So that’s something we’re watching.

SM: And from a price perspective, you started talking a little bit about inflation, is that going to sort of affect things across the board in terms of price tags heading into Black Friday in particular?

GD: The simple answer is yes. Stats Canada released the consumer price index for October, and it came in at 7% and that’s similar to the month before that. So, we’re not really getting any respite there in terms of pricing. Holiday favourites, toys, games, hobby supplies, they’re going to be up around 5% plus when compared to last year. Accessories, watches, jewelry, same magnitude there. We’re seeing one common trend to be mindful of in this holiday season, and that’s trade down. I mean, Morning Consult came out with a survey saying that 72% of consumers in the U.S. will look for less expensive alternatives this holiday season because of inflation, I think it’s the same for Canadians.

SM: So, trade down. That means customers are looking to brands with better price points, looking for cheaper stuff, basically maybe not going for the high-end products?

GD: That’s exactly it. So, you know, probably forgoing those Lululemon sweatpants this year for Uniqlo or Gap.

SM: Right. So how do retailers manage that? They also have to deal with the effects of inflation themselves, but they want to get the customers in the door. Will there be as many good deals out there? Is it a good time for people to go shopping ahead of the Christmas season?

GD: I would say yes. I mean, if you rewind a year ago, consumers shopped early, they spent more dollars to secure gifts and stores struggled in general to keep the shelves stocked. So, we just didn’t see a whole lot of discounting in the last couple of years. Typically retailers, they like to place their orders six to 12 months ahead of time. They could have over ordered their allocations for the season because of concerns around supply chains, rising freight, logistics. They anticipated higher levels of demand and it doesn’t seem like it’s really happening. It looks like the pendulum maybe swung the other way and retailers are finding themselves with too much inventory. In some instances, 25, 30% more than last year. And we’ve seen Walmart, Target, Gap, Macy’s all come out and say, look, we’ve got excess inventory and we’re probably going to have to discount it. So, yeah, absolutely the good news is there’s going to be more discounting this time around.

SM: Okay. And are there exceptions? Are there types of retail areas that are going to see more of that discounting and others that maybe see less or see continued price hikes over the next couple of months?

GD: Yeah. You know, we’ve heard Nike and Adidas say they’ve got way too much stock. So that should bode well for footwear prices coming down. In the apparel category, you know, there was a lot of switching away from leisure to more dressier items as folks go back to work and go out more often. So, I can imagine the casual apparel category probably going to see more discounting. Computer equipment, software, video games, they were hot a few years ago. Prices are coming down anywhere between 5 to 10%. Smartphones are going to be down. So, if you’re a gamer or you’re looking for a new TV or you’re looking to upgrade your phone, you might be in luck this season. Now, in terms of things that may not see much discounting, it’s, I would say top of mind, beauty products. They’ve been experiencing strong demand as kind of society reopens and folks are keen about going out and socializing again. So those items may not be as discounted this time around.

SM: So, things that people were doing when they were staying home during lockdowns that were super-hot then are less so now. And anything related to getting back out in the world, including going to work, those things are going to become in greater demand so maybe see higher prices?

GD: Yeah, exactly. And maybe it’s the function of the retailers not adjusting their assortments or maybe not anticipating that big switch. But yeah, absolutely. That’s exactly what’s happening.

SM: Any big trends you’ve seen in retail as the pandemic restrictions have gradually lifted?

GD: Yeah, it’s a good question. I read somewhere recently that retailers have a big new threat this year, and that’s wanderlust. Now, United Airlines said about this past September, I mean, which is normally off-peak month, it was the third strongest month in their history in terms of sales. Yeah, MasterCard said they saw strength in airlines, lodging, restaurants and away from categories like home furnishings and appliances. So, I think yeah, there’s a natural shift in spending away from physical goods towards experiences such as travel, spa days, dining out. So yeah, I think retailers are going to have to face this new reality on top of higher levels of inflation and higher inventories.

SM: Right – So the other big part of the holiday season is food. You talked about restaurants seeing a bump, but obviously lots of people will be having family over, making dinners, doing their holiday baking. And there’s been lots of attention paid to the price of food at grocery stores in the last few months. What kind of impact is it having on the grocery retailers and Canadians shopping for you know, grandma’s apple pie recipe?

GD: Yeah, I mean, the price of eggs is up 40%. The price of butter is up 30. The price of flower is up 25. I mean, those are really big numbers. So, making that apple pie is going to cost a whole lot more this year. Canadians first started to experience high inflation in kind of the August, September of last year, and it was around 3 to 4%. That seems like a manageable number. But since then, food inflations really accelerated. Just in October, it reached 11%. I mean, look, non-alcoholic beverages, sugar, confectionery, fats and oils, coffees and teas, condiments, they’ve seen the biggest year-over-year increases. And we’re talking well above 15% for some of these. Just in general, I think what we’ve noticed from consumers is that they’re willing to do more trips. They’ll go to their discount banners for certain pantry items. They’ll go to more conventional banners for some more specialized protein cuts, for example. And we’ve seen a general increase in consumables happening at the dollar store. And I feel like they’ll probably be the big winners of the holiday season. And also, as you can imagine, what kind of the higher prices of inflation. We’ve also seen trade down from the branded to private label items seem to be getting a whole lot more demand for.

SM: Right – and I guess one big issue here is as Canadians see their grocery bills rise, they’re also seeing headlines about some chains making increased profits. Customers are understandably left scratching their heads. Can you shed some light on that situation?

GD: Yeah. I mean, I would say taking a step back and just looking at the food chain, I mean, first and foremost, the biggest driver of that inflation has been from the war in Ukraine. It’s the biggest exporter of grain and wheat. You look at bakery products, cereal products, pasta, the price of pasta is up 45% from last year. Yeah, that’s been a big kind of driver. And on top of that, we’ve had really extreme weather events, droughts. That’s hit California and that’s had really poor yields there. And so, vegetables, vegetable oil, many fruits, I mean, they’re gone up a lot. The price of higher natural gas, obviously, from the war, has had an impact on fertilizer prices, which in turn has pushed up prices for other types of foods. So, it’s a confluence of factors that have happened, obviously. Keeping the politics out of it, I think it’s always easy to point the finger at the cash register. But inflation, as I mentioned, it’s been kind of a confluence of factors. And, you know, the food processors, the folks making the cheeses, the bacons and sausages, I mean, they’ve all struggled with higher prices for milk, higher prices for animal feed, higher prices for packaging products, higher prices for freight, higher prices for labour. So, it’s really across the supply chain, upstream and downstream. So, you know, if you look at the food gross margin, that’s something we track for the grocers in terms of profitability. They haven’t really moved up a whole lot. They haven’t really been making a ton of money from a margin standpoint.

SM: So more about volume than about margins, is that what you’re saying? If the margins are similar, then it’s just they’re selling more stuff?

GD: Yeah, the margins are similar. They’re not making more on the margin standpoint. But prices are more so it looks better on revenues because you’ve got stuff that’s up 10, 11%.

SM: Right. So, looking beyond the holiday season, how would you characterize the general health of the consumer here in Canada when it comes to retail?

GD: I think in general of the Canadian consumer is resilient. They’re still spending. But that being said, the consumer confidence has been declining lately and they’re worried about certain stuff. They’re worried about the real estate market. They’re worried about the personal financial situation. I mean, if you look at housing prices, they’re 10% off the peaks. You know, mortgage rates are rising. Inflation’s biting into consumer’s budgets. But the silver lining is, look, the labour market’s been really strong. And the general rule of thumb, the stock market’s done a pretty good job in general, predicting kind of what happens over the next 12 to 18 months. And it seems like it’s predicting a slowdown. So, I think all in all, while we could see some risks ahead, I mean, given kind of where the economy is going, I think I’m pretty cautiously optimistic about this holiday season. It’s hard to look at that crystal ball and see what happens over the next 12 to 18 months. But I think a healthy, natural kind of slowdown is probably what we’re going to see.

SM: Okay. And one last question. Are you going to be treating yourself to something on Black Friday or Boxing Day? And if so, what do you have your eye on? You sound kind of like a PlayStation five kind of guy.

GD: [laughs] Look I’ve had my dose of video games over the last few years, so would love to travel and kind of go out there and make up for some lost time. Hopefully a little bit of that. That’s something I’ll definitely look forward to.

SM: All right. We’ll leave it there. George, thanks so much for joining us. Really appreciate it.

GD: Thank you.

SM: I’ve been speaking with George Doumet, an Analyst in Equity Research who covers the consumer sector at Scotiabank.

The Perspectives podcast is made by me, Stephen Meurice, Armina Ligaya and our producer Andrew Norton, who may look a little like the Grinch but has the pluck of young Cindy-Lou Who.