E-commerce may not save some small retailers
This week would normally mark the traditional start of the holiday shopping season, with Black Friday typically kicking off a frenzied spending spree in which people flock to their favourite stores and sometimes huddle together in lines outside in frigid temperatures, waiting long hours to be first in line to take advantage of store sales.
Needless to say, this year may be different as new cases of COVID-19 once again surge across Canada, and partial lockdowns occur in many regions of the country.
“It’ll be unusual in that I don’t think we’ll see as many video clips of people crowding into Walmarts, you know, the crazy crowding into stores,” said Nathan Janzen, a senior economist with Royal Bank of Canada.
Janzen said he believes retail spending will “muddle along” amidst various mixed signs, but it’s clear that the health of the retail sector is in question, and a second wave of COVID19 could well exact a serious toll on the economy, in addition to its devastating health effects.
Royce Mendes, an economist at The Canadian Imperial Bank of Commerce, noted that retail sales face an uncertain path over the next few months.
“Typical holiday spending will likely be curtailed, as extended family and friends don’t gather together this year to exchange gifts,” Mendes said in a note, noting that the retail outlook is bleak. “Moreover, with further shutdowns now looming to contain the virus, bricks-and-mortar stores will have access to less foot traffic.”
While many businesses have temporarily closed or modified operations, e-commerce is thriving. In September, retail e-commerce sales rose 74.3 per cent year over year, while total retail sales increased 9.3 per cent, according to Statistics Canada.
Canadian businesses reported that their online sales had more than doubled since 2013 to $305 billion last year, or eight per cent of their total revenues, according to a report by Statistics Canada released on Monday. However, only 23 per cent of small retailers reported sales via e-commerce last year.
Amid this structural shift, small retailers and restaurants, especially those that do not have a strong Internet presence, will bear the brunt of
the lockdown measures being rolled out in many parts of the country.
“We’ve already heard from hundreds of concerned small retailers who feel the lockdown restrictions have created a massive unfair advantage for many big, multinational corporations,” said Dan Kelly, president of the Canadian Federation of Independent Businesses, in a statement.
He accused Ontario’s provincial government of placing overly restrictive measures on small businesses that won’t actually stop people from gathering in large groups.
“The current rules close small bookstores, florists and lighting stores to in-store business,” said Kelly, “but allow customers to line up at Costco and Walmart to buy these same items. If it is dangerous to buy a book at an independent bookseller, why isn’t it dangerous at Costco?”
CFIB, which represents 110,000 businesses across the country, said the province should pursue a ‘Small Business First’ Strategy, and put in place simple measures such as limiting customers, pre-booking appointments at stores, and encouraging curbside pickup or delivery that will allow small retailers to stay open.
“A second round of lockdowns is a crushing blow for Ontario’s retail sector,” added Ryan Mallough, CFIB’s director, Ontario. “Losing the holiday shopping season will mean permanent closure for many small retailers.”
Indeed, it’s unclear whether e-commerce can do all the heavy lifting if parts of the retail sector face restrictions. Overall, retail sales surpassed expectations in September with 1.1 per cent in nominal retail sales compared to a dour 0.5 per cent seen in August. The growth was broad based with nine of the 11 sectors, and eight out of 10 provinces, witnessing growth, Statistics Canada data showed Friday.
While estimated sales in October were relatively unchanged, RBC economist Rannella Billy-Ochieng expressed concern about near-term spending trends in the retail services sector with many regions re-imposing virus containment measures on businesses such as restaurants and gyms.
“The food and accommodations industries were among the hardest hit in the first wave of the pandemic,” BillyOchieng wrote in a note on Friday, adding that those sectors are still reeling.
In October alone, those sectors may have shed nearly 50,000 jobs — a sign that in addition to the health risks, the second wave of coronavirus is likely to have a severe economic impact, Billy-Ochieng wrote.
So far, economists believe Canada’s recovery has been greatly aided by government stimulus and aid programs, which would support retail sales.
Canadians collectively lost $23 billion in wages after widespread layoffs in the second quarter, but government transfers to households rose by $56 billion and the average household savings rate increased, RBC’s Janzen said. That suggests that Canadians have the financial wherewithal to spend but have limited outlets to do so.
“Where you see households not spending as much is on services that are just not available,” Janzen said.
Demand for services such as international air travel, which started plummeting in March, have yet to recover. Nor has demand for cruise ships.
Restaurants and bars, focused on dine-in experiences, have also been badly hurt.
Movie theatres, which had faced challenges from ondemand internet streaming platforms, are now battling on multiple fronts. First, there is the challenge of persuading customers that they can safely gather inside to watch a show. But there is also a looming challenge caused by the fact that the pipeline of new movies is drying up as a result of the pandemic.
“It’s the million-dollar question: what will happen to this business?” said Tirtha Dhar, interim chair and associate professor at Gordon S. Lang School of Business and Economics at the University of Guelph.
Dhar said ticket sales at movie theatres were declining before the pandemic because of pressure from Netflix, Amazon Prime, and other online streaming platforms.
As a result, movie theaters are being used for new purposes, such as the live telecast of sporting and other events.