Retail Resilience or Consumer Crunch? Inside Canada’s Spending Trends in 2025

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Retail Resilience Canada

Toronto, ON | Montreal, QC | Winnipeg, MB – Canadian retailers are walking a tightrope in 2025. On one side lies the lingering strength of post-pandemic demand; on the other, the chilling effects of high interest rates, persistent inflation in core goods, and a cautious consumer base. This tension has created a fractured retail landscape, where essentials remain resilient, but discretionary spending is eroding fast.

While total retail sales in Q1 grew a modest 0.8%, the composition of that growth reveals a widening gap in consumer behavior—a tale of two shoppers: those protecting essentials and those pulling back across all non-essentials.

Grocery and Essentials Still Hold Strong

Despite the broader slowdown, grocery chains, discount stores, and bulk retailers continue to outperform. Consumers, faced with food price inflation still hovering near 8%, have shifted spending to:

  • Private-label or store-brand goods

  • Value-packaged staples

  • Discount retailers like No Frills, Giant Tiger, and Dollarama

Retailers have responded by expanding house-brand offerings, introducing new app-based coupons, and investing in loyalty programs to retain price-sensitive customers.

Even major chains like Loblaw and Sobeys have begun offering multi-tiered loyalty systems, which combine digital engagement with in-store offers—creating a hybrid retail experience tailored for cautious shoppers.

Winners and Losers in Non-Essentials

The non-essential sector tells a different story:

  • Apparel & Fashion: National chains report declining foot traffic, with Q1 clothing sales down 6.4% year-over-year. Luxury brands are holding steady in metro areas, but mid-range apparel has been hit hardest.

  • Home Furnishings & Decor: A pandemic-fueled boom has faded. With housing transactions frozen, demand for renovations and new furnishings has dropped sharply.

  • Electronics: Consumer tech sales are holding, but upgrade cycles have lengthened, with fewer Canadians upgrading smartphones, laptops, or TVs in 2025.

Interestingly, experience-based retail—such as home gyms, outdoor gear, and travel goods—has seen modest growth, driven by middle-class households reallocating funds from real estate to lifestyle.

E-Commerce Plateaus, Hybrid Models Rise

Canada’s e-commerce sector, which grew by over 75% between 2019 and 2022, has now plateaued. Online sales account for 18.9% of total retail transactions, slightly down from their pandemic-era peak.

Retailers are investing instead in hybrid experiences:

  • In-store pick-up for online orders

  • Digital-first loyalty programs tied to mobile apps

  • Enhanced analytics for personalized in-store offers

Companies like Canadian Tire and Sport Chek are leading the charge with integrated app-store experiences that blur the line between digital and physical retail.

Household Budget Pressures

Several macroeconomic pressures continue to reshape consumer spending:

  • High interest rates are straining credit card usage and installment purchases, especially among Gen Z and millennial households

  • Housing costs, particularly rent, are eating into discretionary income in urban centers

  • Job uncertainty in tech, manufacturing, and construction has pushed many consumers into precautionary saving mode

In a recent consumer confidence survey, 67% of Canadians said they plan to reduce spending on non-essentials over the next 6 months.

Retailers Adjust: Leaner Inventories, Targeted Promotions

Retailers are responding by:

  • Reducing inventory purchases to avoid overstock

  • Focusing marketing on value messaging and limited-time discounts

  • Slowing store expansions, especially in Tier 2 markets

  • Doubling down on data-driven promotions and cross-selling within loyalty ecosystems

Retail executives are cautiously optimistic that a Q4 rebound could emerge if the Bank of Canada signals clear movement on interest rate reductions and consumer confidence improves.

The Takeaway: A Market in Transition

Canada’s retail economy in 2025 is no longer about rapid growth—it’s about strategic adaptation. From consumer psychology to product sourcing, everything is shifting to reflect a new reality: Canadian households are becoming more selective, value-driven, and digital-savvy.

For businesses, the winners will be those who listen, pivot, and personalize. The rest may find themselves cut from a shrinking consumer wallet.