Capitalizing on Canadian Retail Resilience: Navigating Trade Tariffs with Strategic Sector Focus

The Canadian retail landscape in early 2025 is a study in contrasts. While U.S. tariffs on vehicles and industrial goods have created headwinds, Canadian consumers are proving adaptable, pivoting toward domestic services and home-related spending. This shift presents a clear roadmap for investors: focus on sectors thriving in this new economic reality while steering clear of industries directly in the crosshairs of trade disputes. Let's dissect the data and identify where to allocate capital now.

The Automotive Roller Coaster: A Cautionary Tale

The auto sector's 4.8% month-over-month sales surge in March 2025—its strongest since January 2023—was a last hurrah before U.S. tariffs on vehicles and parts took effect in April. Exports of motor vehicles and parts jumped 22.5% from November to March, as businesses front-loaded shipments to avoid the 25% levy. But this volatility underscores a critical risk: auto retailers and manufacturers remain exposed to prolonged trade tensions.

Investors should tread carefully here. While short-term gains may emerge from pre-tariff buying sprees, the sector's long-term trajectory hinges on resolution of U.S.-Canada trade disputes.

Home-Related Retail: A Foundation of Resilience

The real story lies in sectors that have defied tariffs altogether. Building materials, furniture, and home appliances are booming as Canadians prioritize renovations and home improvements.

• Building materials and garden equipment retailers saw sustained growth in Q1 2025, with sales rising alongside a 2.5% increase in furniture and electronics spending.
• Canadian Tire (CTC.A.TO), a key player in home and automotive retail, stands out. Its diversified portfolio—spanning outdoor equipment, appliances, and home services—positions it to capture this trend.

This is a buy signal for investors: home-related spending is a defensive play in an uncertain economy.

Discretionary Services: The New Consumer Oasis

While cross-border travel slumped (down 22% to the U.S. in March), domestic services are thriving. Dining, entertainment, and local experiences are filling the void left by international tourism.

• RBC cardholder data shows discretionary services spending rose 2% in April, with dining and groceries up 2.2% and 2.5%, respectively.
• Regional disparities reveal opportunity: British Columbia and Saskatchewan's 2.7% provincial sales growth—driven by construction and household services—signals a shift toward localized economic engines.

For investors, this points to service-sector plays:

• Restaurant chains with strong domestic footprints (e.g., Tim Hortons (THI.TO)),
• Entertainment venues (e.g., Cineplex (CGX.TO)), and
• Home improvement retailers (e.g., Home Hardware, a Canadian-owned chain)

are all poised for growth as Canadians stay local.

The Sectors to Avoid: Trade's Unintended Casualties

Not all sectors are insulated. The energy and general merchandise industries are reeling from tariffs' ripple effects:

• Energy exports fell 2.2% in March due to retaliatory tariffs on steel and aluminum, exacerbating supply chain disruptions.
• General merchandise retailers saw core sales plummet, as consumers shifted spending to home and services.

Investors should avoid pure-play energy stocks and retailers reliant on imported goods. The pain here is structural, not cyclical.

The Investment Playbook: Go Domestic, Go Defensive

The data is clear: Canadian retail's resilience hinges on home-centric spending and domestic services. Here's how to capitalize:

1. Buy into home improvement and durable goods retailers like Canadian Tire or Home Depot Canada (HD.TO), which benefit from DIY trends and rising housing demand.
2. Allocate to discretionary services with strong local appeal—restaurants, entertainment, and regional service providers.
3. Avoid automotive and energy stocks until trade tensions ease.

The Bank of Canada's warning of potential GDP contraction underscores urgency: act now before sentiment worsens.

Final Call to Action

The writing is on the wall: Canadian consumers are voting with their wallets for domestic goods and services. Investors who follow this trend—while avoiding tariff-stricken sectors—will thrive. The time to act is now.

Invest with confidence in sectors that are not just surviving but thriving—despite the storm.

Risk disclosure: Past performance does not guarantee future results. Trade disputes and economic conditions may affect outcomes.