Canadians’ enthusiasm for shopping is swelling the revenues of retailers and wholesalers and spurring employment in the sector. Indeed, the number of people working in retail nearly equals employment in manufacturing, as the retail sector continues to grow while manufacturing contracts.
In 2006, retail operating profits reached $21.1 billion, a 9.5% increase over 2005 and the highest level since 2002.
Operating revenues of $413.8 billion represented a gain of 5.7%, well above the annual average growth rate of 4.7% from 2002 to 2006.
Retail employment expanded an average of 1.8% a year from 2001 to 2006. This was an addition of 156,000 workers to the workforce, bringing the number of jobs to 1.8 million. This was 81,000 workers shy of total employment in manufacturing, the largest employment sector, which shed 137,000 workers over the five-year period.
Meanwhile, wholesalers saw their operating revenues total $660.0 billion in 2006, up 5.8% over 2005. While this growth was lower than the 7.1% in 2005 and the 9.1% in 2004, wholesalers’ operating profit margins as a percentage of total operating revenues continued to rise.
In 2006, wholesalers had an operating profit margin increase of 4.7%, up from 4.4% in 2005. Growth in investment and consumer spending, with a healthy construction sector, all contributed to higher revenues and profits.
Most of Canada’s shopping is still done the traditional way, in a store. Internet sales have doubled in less than five years, but they still account for less than 2% of the operating revenues of private-sector firms.
If shopping patterns reflect interests, then Canadians are focused on their homes. In 2006, all retail trade groups except gas stations reported rising gross margins (total operating revenues less cost of goods sold), as home and garden retailers made major gains. The gross margins of specialized building materials and garden stores increased 26.8% to $1.9 billion, while those of home furnishing stores rose 22.9% to $2.7 billion.
Meanwhile, home centres and hardware stores realized gross margins of $6.0 billion, home electronics and appliance stores, $3.4 billion, and furniture stores, $4.0 billion. It was also a good year for used and recreational motor vehicles and parts dealers, who saw a 20.8% rise in gross margins, up to $4.9 billion.
Gas stations posted a decline of 1.4% from 2005, as they were affected by increased product costs. Their operating revenues rose 8.9% over 2005, but they were hit by an 11.2% increase in the cost of goods sold.
Despite the virtually across-the-board growth in gross margins in 2006, Canada’s store-based retailers were dealing with a 9.5% increase in operating expenses over 2005, for a total of $89.2 billion. Operating expenses represented 39.0% of operating revenues for home furnishing stores, up from 34.6% the year before. For specialized building materials and garden stores, the ratio rose from 26.7% to 29.9%.
Half of these operating expenses were for labour, with rental and leasing second at 12.0%, up 12.7% from 2005. Half of the 18 retail trade groups reported double-digit increases in advertising expenses.
Gas stations were again the exception: they were the only retail group to have lower costs for labour. The 16% decline in their labour costs was partly attributable to the growing trend of drivers paying at the pump.
In 2006, the sales of Canada’s store retailers totalled $389.5 billion, an increase of 5.8% over the previous year, as profitability increased an average of 10% nationally.
In the western provinces, both sales growth and profitability were above the national average. In Alberta, sales rose 15.4% to $55.9 billion, while operating profits grew 27.2%. Manitoba and Saskatchewan also saw strong gains in operating profits, enjoying increases of 23.5% and 21.5% respectively. In British Columbia, where operating expenses increased 11.4% over 2005, profits increased 16.2%.
Ontario has lagged behind the rest of Canada over the past few years. Sales there edged up 4.0% in 2006. Combined with a 7.5% rise in operating expenses, this resulted in a 2.3% decline in operating profits. Newfoundland and Labrador was the only other province to see a decline in 2006, down 9.6%.
Wholesalers continued to benefit from a variety of favourable factors in 2006: increased business investment, vigorous consumer spending, growth in imports of consumer goods, record construction levels, and lower prices on certain products because of the higher loonie.
The provincial pattern in wholesalers’ operating profits differed from that of retailers. For example, Ontario was behind on the retail side, but its wholesalers had a 16.7% gain in operating profits in 2006, well above the Canadian average (10.9%).
Ontario’s wholesalers account for 42% of all wholesale revenues. Their average gross margin (21.6%) was above the national average (19.1%), largely because of high margins in apparel, household and personal goods, and office and professional equipment.
Other provinces posted above-average growth in operating profits in 2006: Manitoba led the country with a gain of 51.6%, Nova Scotia was up 20.2% and Alberta had a gain of 16.0%.
Posting the sharpest declines in operating profits were Prince Edward Island, down 22.8%, and New Brunswick, down 22.1%. Saskatchewan also had lower wholesale operating profits, down 8.9% from 2005.