Canadian Consumer Spending Trends: Unlocking Investment Opportunities in a Shifting Retail Landscape

The post-holiday period in Canada has long served as a barometer for broader economic and consumer behavior shifts. In 2025, the interplay of moderation, policy changes, and evolving priorities has created a nuanced landscape for investors. While some sectors struggle with volatility, others are adapting to long-term trends, offering strategic opportunities for those who can discern the signals.

Key Trends Shaping Consumer Behavior

1. Moderation and Value-Driven Spending:
   After a 13% year-over-year surge in holiday spending (averaging $1,853 per household), consumers have adopted a more cautious approach. RBC data shows a 1.1% month-over-month decline in core retail sales (excluding autos and gas) in June 2025, signaling a natural correction. However, quarterly growth remains positive in most categories, with dining and entertainment leading the way. This suggests a shift toward experiences over goods, a trend likely to persist as inflation and debt concerns linger.

2. Regional Disparities and Policy Impacts:
   The removal of the consumer carbon tax in April 2025 caused a 1.3% drop in gasoline spending, while domestic travel rebounded by 4.7% in May. Provinces like the Maritimes and Saskatchewan outperformed Ontario and British Columbia, where labor market challenges and slower wage growth dampened spending. These regional dynamics highlight the importance of localized investment strategies.

3. Sustainability and Circular Consumption:
   Consumers are increasingly prioritizing ethical practices, with 73% citing sustainability as a key purchasing factor. The rise of resale markets (up 42% in 2024) and rental programs underscores a shift toward circular economies, creating opportunities for businesses that align with these values.

4. Digital and AI-Driven Retail:
   Retailers are leveraging AI for inventory management, personalized promotions, and customer engagement. For example, AI-powered tools like ChatGPT are influencing $260 billion in global digital sales, with Canadian consumers using them to compare products and optimize purchases.

Underperforming Sectors and Risks

Certain sectors remain vulnerable to structural and cyclical headwinds:
- Automotive Retail: A 2.1% contraction in May 2025, driven by U.S. tariff uncertainties and the removal of EV incentives, highlights the sector's fragility. Used vehicle dealers face additional pressure from declining resale values and policy shifts.
- Gasoline Stations: A 6.5% decline in March 2025 and ongoing volatility from tax changes and crude price swings make this sector a high-risk bet.
- Discretionary Goods: Categories like building materials and clothing saw declines in Q1 2025, reflecting a broader pullback in non-essential spending.

Investment Opportunities in a Shifting Landscape

1. AI and Digital Innovation:
   Retailers integrating AI for personalized experiences (e.g., dynamic pricing, inventory optimization) are well-positioned to capture market share. For instance, companies offering AI-driven loyalty programs or social commerce platforms (e.g., Instagram/TikTok shopping) could see sustained growth.

2. Sustainable and Circular Retail:
   Businesses specializing in upcycled products, rental services, or eco-friendly supply chains are gaining traction. The 77% of consumers aiming to spend the same or less in 2025 underscores the demand for value and sustainability.

3. Discretionary Services Resilience:
   Dining and entertainment spending grew 7.7% quarter-over-quarter in Q2 2025, outpacing goods. Investors should consider hospitality and local tourism operators, particularly in provinces like the Maritimes, where domestic travel is thriving.

4. Logistics and Delivery Optimization:
   With 43% of holiday spending expected to occur online, companies excelling in last-mile delivery, flexible shipping options, and AI-driven logistics will benefit from the shift to e-commerce.

5. Regional Arbitrage:
   Provinces like Saskatchewan and British Columbia, which showed strong growth in household and construction categories, present opportunities in home improvement and travel sectors. Conversely, smaller provinces with volatile spending (e.g., Prince Edward Island) may require cautious, targeted investments.

Strategic Recommendations

• Underweight High-Risk Sectors: Avoid overexposure to automotive retail, gasoline stations, and discretionary goods unless companies demonstrate adaptive strategies (e.g., EV partnerships, sustainability initiatives).
• Overweight Resilient Services: Prioritize investments in dining, entertainment, and domestic tourism, which have shown resilience despite macroeconomic headwinds.
• Leverage AI and E-Commerce: Allocate capital to retailers and tech firms integrating AI for personalization and efficiency, as these are likely to outperform in a value-conscious market.
• Monitor Regional Dynamics: Diversify across provinces with strong growth (e.g., Maritimes) while hedging against weaker regions through sector-specific plays.

Conclusion

The post-holiday spending shifts in Canada reveal a landscape of both caution and opportunity. While underperforming sectors like automotive retail and gasoline stations face headwinds, the rise of AI-driven retail, sustainable consumption, and discretionary services resilience points to long-term investment potential. By aligning with these trends, investors can navigate the evolving retail landscape and position themselves for growth in a post-pandemic, post-holiday economy.