The desperate situation for Canadian retailers came into clearer focus on Friday as Statistics Canada released a report showing record-breaking declines of billions of dollars in sector-wide sales during the early days of the coronavirus pandemic.
The sales data from March captures the first weeks of the panic, as work-from-home orders swept the country and non-essential businesses were shuttered en masse halfway through the month. Despite surges of panic buying, the closure of non-essential businesses crushed retail sales, which fell 10 per cent to roughly $47 billion in March from $51 billion in February — the largest-ever monthly drop on record, StatsCan said.
Although 40 per cent of retailers were closed for some part of March, it was only for an average of five days. Not surprisingly, sales dropped further through April, the first full month of the economic shutdown in Canada. An advance estimate from Statistics Canada expects a 15.6 per cent sales drop in April compared to March, though the agency suggested that figure could change.
“It goes without saying that either figure — the one for March or the one for April — would be record-breaking, but that back-to-back declines of this magnitude take us into fully uncharted waters,” Derek Holt, Scotiabank’s head, capital markets economics, said in note to clients on Friday.
Holt said Canadian retail was already in a bad place before the pandemic “blew the barn doors off,” noting the sector’s sales volumes haven’t grown since the third quarter of 2018.
“COVID-19 made a bad situation exponentially worse,” he said.
But it was clear from the StatsCan data on Friday that there was an obvious divide between the winners and losers of this retail reckoning, with essential businesses on one side and non-essential ones on the other.
The hardest-hit retailers — those selling clothing, shoes and luxury items such as jewelry — lost half their sales or more in March compared to a year earlier. And the best-off industries — grocery, beer and liquor — had year-over-year sales increases of between 20 and 30 per cent.
Back-to-back declines of this magnitude take us into fully uncharted waters
Derek Holt, Scotiabank
The one outlier was convenience stores, an essential business that had a relatively ho-hum month, with a 0.6 per cent decline in year-over-year sales.
But Alimentation Couche-Tard Inc., owners of the global Circle K brand, on Friday said the decline in March was a blip.
Corner stores scrambled during the last two weeks of March to adapt to an upside-down world in which popping into a store for one item was essentially forbidden. People were also filling up less on gas, and therefore shopping less at stores attached to gas stations.
“People didn’t get out of their home, and if they did, it was to make this big stockup at the grocery store,” said Stéphane Trudel, Couche-Tard’s senior vice-president of operations for Canada. “So, yeah, we were the only ones open, but the majority of people were at home. So, a big decline in traffic. Sales weren’t as impacted as traffic.”
Couche-Tard changed its assortment in the early weeks of the pandemic in Canada toward larger, take-home products instead of single-serve, ready-to-eat items. For example, customers preferred a big bag of potato chips to one little bag to eat on the go.
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Retail declines were comparable to other countries, including the U.S.
Trudel said Couche-Tard has started to see gains in alcohol and tobacco, particularly because “contraband” cigarettes are now harder to find.
After a “slight” sales decline in March, he said overall sales in Canada grew in April on a year-over-year basis, and are “constantly going up.” But he said it was too early to give exact numbers.
The sector’s steepest drop was in shoe retail, which was down 54 per cent from March 2019, according to the StatsCan report, while clothing had a 52.1 per cent decline, and the luxury category of jewelry, luggage and leather was down 47.8 per cent.
But auto sales, by far, contributed the most to the overall decline, down roughly $5 billion compared to February, or 35.6 per cent. StatsCan said the drop was due to lower demand for new and used cars, as well as auto parts, “as Canadians continued to physically distance and avoid all non-essential commerce.”
StatsCan noted that the retail declines were comparable to other countries, including the U.S., which had a 7.1 per cent drop in March.
On the plus side, supermarkets gained the most, up more than $2 billion, or 29.7 per cent in March from a year earlier and 27.1 per cent from February. Sales at beer, wine and liquor stores were up by 19.2 per cent year over year, while cannabis retail was up by 197.1 per cent, though StatsCan noted that the cannabis figures hadn’t been seasonally adjusted since there is “no seasonal pattern established by official statistics yet.”
E-commerce sales were $2.2 billion in March, or 4.8 per cent of total retail sales, a 40.4 per cent year-over-year spike that is putting retailers years ahead in their digital strategies, according to Marty Weintraub, national retail lead for Deloitte Canada.
But reviving the whole retail sector will largely depend on customers returning to stores.
“Concerns over health and safety is absolutely going to be a determining factor,” Weintraub said.
But it appears many aren’t convinced it’s safe to shop just yet.
Last week, Deloitte’s State of the Consumer Tracker asked 1,000 Canadians whether they felt safe going to the store. Just 38 per cent said yes.