Canadians hit brakes on spending, Americans open their wallets

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Worried about paying down debt, Canadian consumers are tightening their belts even as their American counterparts are moving in the opposite direction.

In growing numbers, Canadians are adopting the frugal shopping habits they picked up in the recession, such as bargain hunting and buying fewer non-essentials, even though they feel relatively optimistic about the economy’s future, according to new global research from Boston Consulting Group, which will be released next month. Americans, on the other hand, feel more confident about spending than they did two years ago, although they’re much more pessimistic than consumers here about the fate of the economy.

The reason for the divergence: many Canadians are still feeling financially strained as policy makers, including Bank of Canada Governor Mark Carney, warn against the dangers of taking on too much debt. Americans, in contrast, began saving during the economic meltdown and now feel less stressed than in 2009. These shifting trends are reverberating with retailers. While consumers on both sides of the border are watching their spending as food and gas prices soar, Canadians in many instances are scaling back even more.

Merchants in segments ranging from home improvement to apparel and office supplies saw their first-quarter sales pinched more in Canada than in the U.S. It’s the reverse of what happened during the recession, when businesses in Canada often outperformed their U.S. counterparts. Today’s disparities could widen later this year as retailers try to raise prices to cover their spiralling costs amid the prospect of an interest rate hike.

“Canadians did not modify their spending behaviour as much as Americans over the downturn, which fuelled Canada’s economic recovery,” said Cliff Grevler, partner and managing director at Boston Consulting in Toronto. “But now Canadian consumers are cutting back out of necessity.”

The Boston Consulting data underscore the diverging trends in the two countries since the downturn. They show a 6-per-cent increase among Canadians who say they plan to shave their spending on non-essentials in the next year – to 63 per cent of respondents – compared with a 19-per-cent drop among Americans who will do so – to 62 per cent of respondents.

Among consumers shopping around for more bargains, the survey shows a 10-per-cent jump among Canadians who say they plan to do so – to 69 per cent of respondents – compared with a 4-per-cent decline among Americans who plan on doing the same – to 67 per cent of respondents.

Indeed, among consumers in 19 countries, Canadians rank second after Italy in their propensity to purchase products “on deal,” reflecting their fragile spending mindset, while Americans are in a stronger fourth place, according to the research. At the same time, Canadians score No. 2 among their global peers (after Turkey) in feeling optimistic about the future economy, while Americans rank just 13th.

The cautious mood is even more pronounced among women, who control 70 per cent of households’ purse strings: 77 per cent of Canadian women say they’ll defer major expenses compared with just 62 per cent of men, the study found.

The different attitudes are tied to their sense of financial security: 41 per cent of women claim to have too much debt compared with 28 per cent of men. Because women are often the household “accountants,” they are more burdened with having to balance the books, Mr. Grevler said.

The fretting comes at a time when, in many respects, the Canadian recovery is further along than that of the United States, including housing sales and employment rates. Unseasonable spring weather hurt business in both countries, keeping consumers away from shopping for everything from shorts to lawn mowers. And some of the consumer funk in Canada stems from psychological rather than real factors, often sparked by news of global crises, industry observers said.

“I don’t think we’re doing that badly but I do think some of the optics are bad,” said Ian Thomas, chairman of retail strategist Thomas Consultants in Vancouver. “At big malls we work with, the sales have been soft but it’s certainly not anything alarmist.”

Still, the dent in sales is real. At U.S.-based apparel chain Children’s Place Retail Stores Inc., first-quarter sales fell 4.9 per cent at its U.S. stores open a year or more, and a steeper 9.7 per cent at its Canadian outlets. At U.S. home improvement retailer Lowe’s Cos., those sales slipped 3.3 per cent while at Canadian rival Rona Inc., sales tumbled 12.6 per cent. And at office supplies specialist Staples Inc., U.S. sales were flat while in Canada, they dipped in the “low single digits” at stores open a year or more, the company said last week.

At Staples, Canadian stores are usually a bright light but so far this year “we have seen a little bit of a slack in demand,” said John Mahoney, chief financial officer at the chain.

Other retailers whose first-quarter sales were weaker in Canada than in the U.S. include discounter TJX Cos. (Winners and HomeSense), department store Sears Holdings Corp. and apparel giant Gap Inc. The outlook for the coming months isn’t much better. Expected interest rate hikes later this year could scare away shoppers. And clothing chains such as the Gap warned that surging cotton and other costs will force them to increase prices by the fall, which could further dampen consumer spending.

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