Canadian Retail: Developments, Trends and 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.

Indirect Taxation and Tariffs
Earlier this month, U.S. President Donald Trump announced Canadian imports to the United States would be subject to an additional 25 per cent tariff, except for Canadian energy products, which would be subject to a 10 per cent tariff, effective Feb. 4. In response, the Canadian government announced it would impose 25 per cent tariffs on $155-billion of goods from the U.S., with $30-billion tariffs imposed on Feb. 4, and the remaining $125-billion duties imposed after a 21-day delay to allow Canadian businesses some time to adapt. The day before implementation, Canada and the U.S. agreed to a 30-day pause on the additional tariffs to allow the two countries to work together on border and other issues.

If tariffs are reinstated at the end of this period or sometime thereafter, they would have wide-ranging impacts on Canadian businesses. Retailers and retail consumers could expect to see higher prices for imported goods and domestically manufactured goods that rely on imports for their production. Businesses should review their supply chains, supplier contracts and customs valuation methodologies to assess the financial and operational impact of tariff measures.

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 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.

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 toward 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
Last summer, the federal government passed amendments to the Competition Act that target ‘greenwashing,’ which is when companies make 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 – recently received royal assent. While the key portions dealing with the Consumer Protection Act have not yet been proclaimed into force, once done 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. 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 utilized 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 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 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 toward the goal of zero plastic waste, including by collecting information about the life cycle of plastics across Canada. Last 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 Sept. 29 of this year. In addition, the notice requires generators of 1,000 kilograms or more of packaging and plastic waste at industrial, commercial and institutional premises to report to the registry.

PFAS Mandatory Reporting
PFAS (per- and polyfluoroalkyl substances) is a family of more than 5,000 manufactured chemicals found in everyday products as well as many plastics. Last 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 was Jan. 29, unless an extension was granted.

The authors are partners at Blake, Cassels & Graydon LLP, whose integrated network of offices provides its diverse national and international client base with access to a full spectrum of capabilities in virtually every area of business law. Jake Gilbert practices in corporate and commercial law. Linc Rogers is co-practice group leader of the restructuring and insolvency group. Zvi Halpern-Shavim practices tax law and international trade. Wendy Mee is co-chair of the privacy group. Pei Li practices in health and product regulatory law. Joseph Grignano practices commercial real estate law with a specialty in commercial leasing. Lana Finney is a certified specialist in environmental law.