Retail found momentum in early 2021 with consumers coming out of lockdowns with wallets wide open. However, the latest numbers from Statistics Canada show retail spending began to slow by the end of 2021 and the trend is likely to continue into 2022. Combine that with record level inflation, rising gas prices and a war turning the world upside down, retailers may need to brace themselves for unprecedented times once again. 

According to Stats Canada, year-over-year (YoY) retail sales growth in 2021 was 11.6%, the highest in five years. Keep in mind this reflects a rebound after a massive drop the previous year due to the pandemic. Also, most of those gains occurred in the first half of the year and by Q4, retail sales were up just 6.4%. 

E-commerce was the biggest winner during the pandemic with sales increasing 74.2% in 2020 and another 14.2% in 2021. But by Q4 of last year, e-commerce sales actually dropped by 4.2% giving us more evidence that sales will continue to lag into 2022. 

This forecast was all before inflation and war headlines shook economies around the globe. With inflation rates at 40-year highs, oil topping $130 U.S. a barrel and mortgages hit by rising interest rates, Canadian budgets will face extraordinary pressure.  

Access to financing may become more important than ever for Canadians during this financial storm. Usually, consumers turn to credit cards during tough times, however, that may not be the case this time around. 

Credit card balances dropped the most last year since 1999 and more are paying it off in full – 55% of Canadians in 2021 paid their balance in full each month, up from 46% in 2020 (Source: DBRS Morningstar Canada). In a CTV interview, Nicole McKnight from finder.com said 20% of Canadians want to lessen their reliance on credit cards and are very wary of taking on debt in 2022. 

“Three times as many people said they would either stop using their credit card or use it less often, than those who said they would use it more,” McKnight told CTV.

The February 2022 Nilson Report also revealed that in 2021, 53% of all purchase volume was generated by debit/prepaid cards, whereas only 33% of transactions were from credit cards. So, if consumers are weaning themselves off credit cards and the majority are shopping with cash rather than credit, what can consumers turn to if their budgets fall short? Enter buy now, pay later (BNPL). 

BNPL can help Canadians manage this sudden cost-of-living rise by spreading purchases into four-equal, interest-free payments. Doing the same on a credit card would accrue interest and make matters even more expensive – the reason these consumers avoid credit cards in the first place. 

For retailers, offering BNPL gives these financially savvy consumers a powerful option – access to financing on their terms. It’s a win for cash consumers who can now split purchases into an interest-free payment plan, while their newfound buying power benefits retailers with more sales. 

Without BNPL, cash/debit shoppers literally don’t have access to financing, unless they resort to a credit card. And statistics show that isn’t happening, especially with Gen Z and Millennials. Overall, with the growth of financial education, more Canadians are realizing that credits cards are simply a bad deal according to Ian Lee, an economics professor at Carleton University. 

Lee told CTV the pandemic changed Canadian spending habits and described credit cards, specifically those from retailers, (aka private label credit cards) as “dangerous” and “risky” with some charging interest rates as high as 29%!

“You’ll never have a mortgage loan or a car loan that is approaching 28%. Never,” Lee told CTV.

And now that Canadians are seeing the same grim picture, they’re realizing that by spending the cash they already have and adding the interest-free financing of BNPL, they can have their cake and it eat it too.