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Monday, October 17, 2005

Study: Retail trade since the turn of the millennium

1996 to 2004

Canada's retail trade industry has grown at a relatively robust pace since the turn of the millennium, even though the economy encountered a series of dampening events, according to a new study.

These events included sluggish demand in the United States, the bust of the information and communication technology manufacturing sector, the appreciation of the Canadian dollar and higher energy prices.

The report provides an in-depth analysis of retail sales nationally and provincially between 2000 and 2004, comparing average growth rates during this period to those between 1996 and 2000.

Alberta retailers led the pack in terms of average growth in retail sales between 2000 and 2004. Sales in British Columbia, Saskatchewan and Manitoba also surpassed the national average, while those in Newfoundland and Labrador and Quebec maintained relatively robust growth. In contrast, sales for retailers in Ontario and the other Atlantic provinces grew at a pace well below the national average.

The report shows that several factors have helped buttress retail sales growth. First, consumers spent an increasing proportion of their disposable income in retail stores, at the sacrifice of immediate savings.

Thanks to historically low interest rates and the housing boom, consumers in most provinces maintained healthy spending on items for their homes, such as household electronics and building materials.

The food retail sector also grew at healthy rates in most provinces, as retailers diversified their offerings to include non-food items. Sectoral growth was more pronounced in provinces, such as Ontario and Alberta, which recorded significant population gains.

The report also found a divergence in growth patterns of retail sales among the provinces since 2000. The major contributor to this divergence was the automotive retail sector.

Retailers in the West outperformed those in the East, largely because of higher retail sales growth in the automotive sector. This sector's ability to dictate retail growth occurred, for one thing, because of its significant share of the consumer's retail dollar. In 2004, automotive sales accounted for about one-third of total retail sales.

Robust retail sales despite slowdown in economic output

Nationally, retail sales remained robust between 2000 and 2004 despite a slowdown in growth rates for both real gross domestic product and disposable income.

During this period, retail sales grew at an annual average rate of 4.8%, somewhat slower than the average of 5.9% between 1996 and 2000.

However, this slowdown was much milder than the deceleration in real GDP, where the growth rates slowed from 4.7% on average before the turn of the millennium to only 2.5% after. Average growth in disposable income slowed from 4.9% to 3.8%.

In 2004, consumers spent $346.7 billion in retail stores, compared to $287.8 billion in 2000 and $228.4 billion in 1996.

They also spent an increasing proportion of their disposable income in retail stores. For every $100 of disposable income in 2000, they spent $45 in retail stores. This rose to $47 in 2004.

Meanwhile, they were saving less. The national savings rate, which is personal savings expressed as a percentage of disposable income, plunged from 4.7% in 2000 to 0.4% in 2004.

Automotive sector: Average growth rate cut in half

Nationally, the automotive sector recorded a drastic slowdown in growth since the turn of the millennium. Between 1996 and 2000, automotive sales grew at an average annual pace of 7.1%. In contrast, between 2000 and 2004, the growth rate was cut almost in half to 3.6%.

Before the millennium, this sector was responsible for 41% of overall retail growth. Between 2000 and 2004, its contribution was only 26%.

In 2000, consumers purchased an average of 52 new motor vehicles for every 1,000 people in the population. By 2004, this had slipped to 49.

Given its significant share of consumer dollars, the automotive sector in turn dictated provincial retail growth. For example, Alberta's $4.7-billion increase in this sector revenue represented over 40% of total growth in retail revenue between 2000 and 2004.

Food and most other sectors followed the national trend. Food sales accelerated in most provinces, in part because retailers diversified their offerings to include non-food items. These included items such as furniture, home electronics, pharmaceuticals and personal care products.

Historically low interest and mortgage rates heated up the housing sector as housing starts soared. With significant savings from financing and refinancing houses, consumers were able to spend more on home-related projects.

The housing boom appeared to have a larger impact on the building materials sector than on the furniture sector. Sales in the building materials sector accelerated, while sales in furniture maintained roughly the same growth rate.

The provinces: Alberta led the pack

Alberta retailers led the pack between 2000 and 2004. Retail sales there increased at an average annual rate of 8.1%, the highest in the country and well above the national average of 4.8%. This growth followed a strong average annual increase of 7.4% between 1996 and 2000.

Sales in British Columbia, Saskatchewan and Manitoba also surpassed the national average, while those in Newfoundland and Labrador and Quebec maintained relatively robust growth.

In contrast, sales for retailers in Ontario and the other Atlantic provinces grew at a pace well below the national average.

In 2004, Alberta retailers sold nearly $43.4 billion worth of goods and services, which represented a 13% share of total Canadian retail sales.

In 2004, retail sales per capita in Alberta led the way and were 25% higher than the national average. Consumer purchasing power in Alberta was the nation's highest. As a result of solid labour market gains for years, disposable income per capita was more than 16% higher than the national average in 2004.

Moreover, the proportion of personal disposable income spent in retail stores had been increasing at one of the nation's fastest paces.

Growth in retail sales in Manitoba was second only to Alberta. During the four-year period, sales increased at an annual average of 5.8% in Manitoba.

Of every $100 of disposable income, Manitoba consumers spent $42 in retail stores in 2000. This rose to $47 in 2004, on par with the national average.

Ontario experienced a significant retail slowdown between 2000 and 2004 following a period of fast growth during the previous four-year period. This slowdown occurred mainly because of a lacklustre performance by the automotive retail sector.

Between 2000 and 2004, Ontario's retail trade grew at an annual rate of 3.7%, half its average rate of 7.4% between 1996 and 2000.

Newfoundland and Labrador was the only Atlantic province where retail growth remained robust. Between 2000 and 2004, retail sales grew at an annual average rate of 4.9%, just above the national average of 4.8%.

Consumers in Newfoundland and Labrador spent a much greater proportion of their disposable income in retail stores than consumers in other provinces. Of every $100 in disposable income, consumers spent $57 in retail stores in 2004, compared to the national average of $47, and only $43 in Ontario.

Definitions, data sources and methods: survey numbers, including related surveys, 1902, 2402, 2406, 2747, 2749 and 3886.

The analytical article "Provincial retail trade since the turn of the millennium," no. 32 (11-621-MIE2005032, free), is now available online in the Analysis in Brief series (11-621-MIE).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Yiling Zhang (613-951-2057), Distributive Trades Division.



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Date Modified: 2005-10-17 Important Notices