Canadian Retail 2024: Developments, Trends and Industry Outlook

Looking at developments and trends from 2024, many sectors of the retail industry remain in flux and continue to be buffeted by various challenges and headwinds, including the threat of a very different tariff landscape, increased regulations across the board, persistent supply chain hurdles and decreased consumer confidence. Volatility is the new normal. In this year-end bulletin, we provide an overview of key areas and industry topics that are keeping our retail clients busy.

Indirect Taxation and Tariffs

Retailers who import goods into Canada are facing significant uncertainty and headwinds at the end of 2024. In recent weeks, the U.S. President-elect, Donald Trump, has threatened to impose 25% tariffs on all exported Canadian goods. The Canadian government has suggested that it would retaliate with similar measures. Given the retaliatory nature of trade measures, retailers and retail consumers in 2025 could expect to see higher prices for imported goods and domestically manufactured goods that rely on imports for their production.

Earlier this year, it appeared that Canada and the U.S. were aligned in imposing tariffs on Chinese-made goods. In October 2024, the Canadian federal government enacted a 100% tariff on Chinese-made electric vehicles. The measure is closely aligned with the U.S., which implemented its own 100% tariff rate. For consumers, the immediate effect of the tariff is a direct increase in the price of electric vehicles. However, we can expect that retaliatory measures from China may also affect unrelated Canadian exports.

Going forward, Canada and its Western trading partners are aiming to diversify their supply chains away from Chinese manufacturing, especially in the realm of advanced clean energy technologies. The U.S. has already introduced related tariffs to certain semi-conductors, solar panels and battery parts, while Canada recently completed public consultations to determine whether it should do the same. Accordingly, companies operating in the clean energy sector that rely on Chinese imports would be well advised to begin the process of investigating alternative suppliers.

Mergers and Acquisitions (M&A)

From 2020 to year-to-date 2024, retail merger and acquisition activity in Canada (a category including everything from drugstores and pet food to bookstores and auto parts) has decreased by 7% by deal count (compared with an 18% overall deal count decrease), but has increased by over 238% in terms of deal value (compared with 31% for overall M&A involving a Canadian target). This opposing trend may signal a flight to quality in terms of the kinds of deals getting done (i.e., fewer deals but for A+ assets in terms of profitability and growth prospects). It will be interesting to see if deal volume intensifies in the retail industry as interest rates and the cost of capital for private equity buyers decrease.

Loyalty Programs

Retailers are focusing on loyalty programs more than ever before to build retention and stay competitive, as consumers look for enhanced discounts and benefits. Loyalty programs also give retailers an opportunity to engage with their customers, and this engagement can be tailored to personalized, one-on-one communication based on the data generated through the program. Some retailers and retailer partners are using sophisticated data lakes with inputs from numerous third-party channels to provide very tailored reward offers to their customers.

Privacy remains top of mind for data-driven loyalty programs. Any collection, use or sharing of personal information – including among related entities – must be clearly described in the applicable privacy policy, and all required consents must be obtained. In the United States, complaints to the Consumer Financial Protection Bureau about credit card rewards programs were up more than 70% in 2023 from pre-pandemic levels, and programs in the U.S. are facing increased scrutiny by U.S. regulators (on such issues as rewards devaluation and the imposition of unexpected conditions on promotions). We will be keeping an eye on this topic to see if this enhanced scrutiny crosses north of the border as well.

Commercial Real Estate

While the overall outlook for retail real estate is strong, Canadian landlords remain willing to offer creative rent solutions to attract certain desirable uses to their centres, as well as to assist those retailers facing challenges whose customers are prioritizing essential expenses over discretionary ones due to the generally higher costs of goods and services. These creative rent structures deviate from the traditional triple net lease structure and come in many forms, including gross rent arrangements and the capping or fixing of all or part of a tenant’s contribution towards property operating costs and realty taxes. In some cases, a landlord may also agree that a tenant’s total rent obligation will not exceed a certain, pre-determined percentage of the tenant’s store gross revenue. For tenants, these creative rent structures provide a level of budgeting certainty and, to a degree, rent relief. For landlords, the creative structures can help close a deal and attract (or retain) an otherwise reluctant tenant.

Greenwashing

Earlier this summer, the federal government passed amendments to the Competition Act that target “greenwashing” (i.e., making untested or unsubstantiated claims about the environmental benefits of a product or business). These amendments create substantial uncertainty, risks and potential liability for businesses looking to make representations about the environmental benefits of their products or their sustainability initiatives as an organization. In the wake of these amendments, businesses should review their existing public representations and implement strict compliance programs to minimize the risks of attracting enforcement action or becoming a target of private greenwashing litigation.

Consumer Protection

Several provinces are looking to or have introduced new legislation to refresh their consumer protection laws. Notably, Ontario’s Bill 142 (Better for Consumers, Better for Businesses Act, 2023) recently received royal assent. While the key portions dealing with the Consumer Protection Act, 2023 have not yet been proclaimed into force, once in force, these provisions would repeal and replace Ontario’s’ existing Consumer Protection Act with a new regime. While the bulk of the prescribed requirements would be found in regulations (which have not yet been published), the new regime is expected to change supplier obligations in a variety of areas, including contract amendments, renewals and certain prohibited terms for consumer contracts.

Insolvency

Retail insolvency filings have increased in Canada in recent years, and this trend continued into 2024. In addition to the pressures placed on traditional brick-and-mortar retailers by online shopping, these retailers are facing economic headwinds generated by inflation, high interest rates and periodic supply chain interruptions. Certain retailers have used insolvency filings to conduct structured liquidations of their inventory and a coordinated exit from the Canadian market. Others have used these processes to rationalize their footprint and restructure around a subset of economically viable locations.

Landlords, suppliers, lenders and transportation and logistics companies are all stakeholders who have been adversely impacted by these retail insolvencies. Industry players and distressed investors, however, have also been able to realize value through strategic, value-maximizing acquisitions. Accordingly, the current market provides not just challenges but opportunities for market participants who are knowledgeable about the commercial realities of the retail sector and fully informed of their legal rights.

Circular Economy Requirements and Plastic Regulation

Across Canada, provinces and territories are implementing measures aimed at promoting a circular economy, with implications for producers and retailers of a variety of products. Such actions include banning single-use and hard-to-recycle plastics as well as transitioning from product stewardship programs, which are funded in part by government or consumer environmental fees, to extended producer responsibility systems. These systems make producers financially and practically responsible for managing end-of-life products.

The federal government is likewise taking action to manage plastics and move towards the goal of zero plastic waste, including by collecting information about the lifecycle of plastics across Canada. In April, the federal government instituted a mandatory reporting obligation for those that manufacture, import or sell certain types of plastic products, with the first reporting deadline set for September 29, 2025. In addition, the notice requires generators of 1,000 kg or more of packaging and plastic waste at industrial, commercial and institutional premises to report to the registry. While the initial deadline may seem far away, entities with reporting obligations would be well advised to begin collecting the required information now for the 2024 reporting year.

PFAS Mandatory Reporting

PFAS (per- and polyfluoroalkyl substances) is a family of over 5,000 manufactured chemicals found in everyday products such as non-stick cookware, paints and firefighting foam, as well as many plastics. In July, the federal government implemented a mandatory survey requiring manufacturers, importers and users of certain PFAS to report information about their use and/or importation of PFAS and PFAS-containing products in Canada during 2023. This has significant implications for the retail industry, as retailers importing goods containing PFAS must assess their supply chains to determine if reporting thresholds are met.

If an entity meets the reporting thresholds and no exclusion applies, it must disclose information about the company and its facilities, including whether any known releases of PFAS have occurred, the quantity of each listed PFAS manufactured, imported, exported and/or used, and information about the goods containing PFAS including the concentration of the PFAS. Reporting entities must provide information that they possess or can reasonably access, which includes any reasonably accessible information within their supply chain and information possessed by subsidiaries. Testing does not need to be performed. The deadline to submit the required information is January 29, 2025, unless an extension is granted.

For more information, please contact the authors or any other member of our Retail group.