Canada’s retail landscape is entering a new chapter, according to some experts

Retail analyst Bruce Winder says this economic backdrop means a new kind of shopper in 2026, whom he describes as 'a frugal consumer, a cautious consumer.'

Canada’s retail landscape is entering a new chapter, according to some experts.

After a year of stubborn inflation, shifting consumer priorities and retail innovation, 2026 could see significant change in how Canadians shop.

Donna Smith, director of Toronto Metropolitan University’s (TMU’s) School of Retail Management, says the turbulence of 2025 reshaped both spending habits and business models across the sector.

“We seen inflation on a number of fronts,” the professor said in an interview with CTVNews.ca in November. “Food has risen about four per cent year over year, rent is up nearly five per cent, and apparel – a more discretionary category – has been growing at a slower rate.”

A monthly Statistics Canada Consumer Price Index report published in the fall is one example of the uneven cost landscape. In an October release, food prices were among the largest contributors to inflation, rising about 3.4 per cent year-over-year - still above the overall inflation rate that sits at 2.2 as of October 2025.

In another illustration of 2025 trends, a September release showed rent also stayed elevated, rising 4.8 per cent year-over-year and outpacing the CPI average.

Retail analyst Bruce Winder said this economic backdrop means a new kind of shopper is entering 2026, whom he describes as “a frugal consumer, a cautious consumer.”

He added in an interview with CTVNews.ca in October that business owners themselves are also holding back because of wider economic uncertainty. He said this caution is showing up in hiring freezes and reduced investment, as business owners worry that the ongoing trade dispute may slow exports and cut into future sales.

“We have elevated unemployment rates, and companies are cautious because of the trade war. When you have a cautious consumer and a cautious business community, that usually leads to a bit of a slowdown,” he said. This means slower economic activity overall, including weaker exports, softer domestic sales and reduced consumer spending, Winder said.

Affordability shapes shopping habits

With household budgets stretched, Canadians have increasingly turned to value-driven formats, according to TMU’s Smith.

“People aren’t buying big-ticket items,” the retail management expert explained. “They’re turning to discount stores, thrift options and Canadian-made products because they want value – and in some cases, they’re paying more for that peace of mind.”

For those willing to spend extra on made-in-Canada goods, that shift also comes with a reassessment of where they can cut back, and what they’re purchasing in the first place.

“Apparel has a discretionary expense,” Smith listed as an example.

One of the most notable trends she expects to see is a surge in clothing rentals, discount shopping and second-hand purchases. These alternatives offer lower-risk ways for consumers to refresh their wardrobes without committing to traditional full-price retail.

Clothing rental, in particular, has become a popular option for Canadians who want variety without long-term cost, Smith said. She described the model as one where shoppers pay to borrow apparel for set periods — often for events and in some cases for everyday wear.

Smith listed Rent the Runway and TheRealReal as the “major players” in the space and said she expects a trend towards sustainability, including the use of these types of services.

Smith noted that some of the strongest performers she observed in 2025 — and expects to continue thriving in 2026 — are discount-driven retailers.

“Dollarama is going gangbusters,” she said. “Winners, meanwhile, succeeds because of its treasure-hunt model, brand-name goods at lower prices, even without an e-commerce site.”

Winder said, “People are changing channels. If you bought at Walmart, now you’re buying at Dollarama.”

This appetite for affordable finds reflects a broader shift in Canadian retail. A 2025 survey by Retail Insider found that 77 per cent of adult Canadians surveyed said they purchased at least one pre-owned item in the past year, and the trend spanned all income levels.

“It’s not just affordability,” Smith noted. “Seventy-three per cent of respondents said sustainability motivated them. Even professionals and high earners are buying second-hand or renting apparel because it’s good for the planet.”

Winder said the rise of thrifting is especially pronounced among Gen Z, which is facing unique financial pressures. “Youth unemployment is high,” he said, referring to a recent Statistics Canada labour survey that put it at 14.1 per cent, as of October 2025.

“They’re tightening their belts more than most. There’s a thrift movement, a frugal movement happening with Gen Z.”

Private label rise

Smith said private label products – once dismissed as “store brands” – are becoming a cornerstone of retail strategy. Private label refers to items created and sold by the retailer itself under its own name, as opposed to national brands like Tide, Kraft or L’Oreal that are produced by large manufacturers and sold across many chains.

“Private labels eliminate the middleman, which raises profit margin,” Smith said. “They’ve also gained customer trust. Gen Z shoppers especially are skeptical of national brands because they’re often more expensive, and much of that price goes toward marketing or ingredients that might be higher quality.”

“Gen Z wants transparency — they don’t want to pay extra unless they clearly understand what they’re paying for,” she added.

A Retail Insider report supports her observation, noting that 40 per cent of consumers believe improvements in traditional national brands are “just window dressing.” In plainer terms, shoppers —especially younger ones — feel national brands are charging more simply because of upgraded packaging or messaging, rather than meaningfully improving products. That’s pushing them towards private labels, which they see as more straightforward, better priced and often just as good.

Smith highlighted Sephora as an example of a private label driving loyalty.

As she explained, the company’s in-house cosmetics line performs strongly because the products come in simple, clean packaging rather than costly bottles or jars, keeping prices affordable. It is successful in part because shoppers feel they’re getting “similar quality for a better price.”

“If consumers keep coming back, it should infer that consumers are satisfied with the products,” she added.

On the business side, she said, “When Sephora offers 30 per cent off its private label products, it’s still making a healthy profit. The markup is built into the final price. These sales are expected and factored in from the start.”

Winder also noted that this broader shift to private label fits within a cautious retail environment. Consumers are being more careful with their spending and the economy itself feels “fragile,” he said, with retail performance still a little soft. Private label growth, he suggested, is one way retailers are trying to stabilize sales in 2026.

Winder said, “You’re changing where you’re buying and buying more private label products as well. Things are tender from a retail perspective.”

Behind the scenes: Planning, AI, inventory

As consumer behaviour evolves, so too are the tools retailers use to anticipate demand.

Smith said artificial intelligence and data analytics are increasingly central to inventory management and marketing.

“Large U.S. retailers have proprietary demand-forecasting systems and some Canadian firms do too,” she said. “Even smaller retailers can now subscribe to semi-tailored forecasting programs.”

But Smith said that while she recommends these forecasting programs, many independent, owner-operated shops struggle to adopt these tools, not because they aren’t useful but because they lack time and staffing. “They are time-poor and their priority is the selling floor.”

Smith said the last thing retailers want to do is become experimental in inventory planning because of the impact of 2025 tariff changes on the retail sector. The pandemic’s supply chain chaos has also left a lasting mark.

Smith said retailers are already ordering seasonal goods earlier to avoid shortages or late arrivals — a trend she expects to continue into 2026.

She noted that sourcing strategies have shifted as well. Near-shoring allows retailers to work with suppliers closer to Canada, reducing shipping times and giving them more flexibility, as opposed to far-shore factories overseas, which offer lower production costs but longer delivery windows and greater risk.

Winder said AI is now central to both consumer-facing and back-end operations.

“AI is being used to make sure retailers have the right inventory in the right location, the right price and the right channel ready for consumers,” he said. “It’s slowly but surely revolutionizing retail and how we shop.”

AI-driven personalization is another frontier, and Smith predicts companies will increasingly push customers towards mobile apps because apps allow retailers to collect richer data and delivery highly tailored promotions.

“Mobile apps are data powerhouses,” Smith said. “When you use an app, it tracks what you buy, what you click on, how long you browse. Then it tailors promotions directly to you. It’s all about loyalty and making sure the customer doesn’t switch.”

Smith said apps appeal to customers who already rely on a curated set of preferred retailers and want access to deals, early product launches and targeted suggestions.

Smith highlighted McDonald’s Canada’s mobile app as a prime example. She said the app learns a user’s ordering patterns, pushes time-sensitive deals and rewards repeat customers – all designed to keep people choosing McDonald’s over competitors.

But she stressed that personalization doesn’t eliminate comparison shopping and signing up for another retailer’s discount program as a new customer.

According to a Deloitte Canada report, 75 per cent of respondents said they’re more likely to buy from brands that can deliver personalized experiences.

Smith compared this incoming era of increased digital engagement to one-on-one service reserved for luxury shoppers.

“In the future, your app might function like a personal shopper,” she said. “You’ll have a digital assistant that knows your habits, recommends products, even interacts with you in real time. That’s where retail is heading.”

Winder agreed that personalization is becoming one of retail’s most powerful tools, saying, “Retailers are using AI to analyze your digital footprint and offer customized, relevant, specific offers. It’s being used in a multitude of ways.”

Winder and Smith both said they see changes in consumer purchasing behaviour and retailers changing how they serve them.

The future

For business owners struggling with the impacts of tariffs and inflation on their bottom line, Winder warned the retail environment may worsen before it improves. He said that until Canada can renegotiate its trade deal or strengthen exports with other countries, the broader economy — in turn retailers and consumers — will continue to feel the pressure.

“It’s sort of anemic. Not robust. Flat-ish. Maybe down in some categories, slightly up in others,” he said.

Winder pointed to the rising unemployment as the clearest sign of the 2025 “purge,” noting that weakened consumer spending is already squeezing businesses and forcing closures, bankruptcies and liquidations.

One of the biggest indicators was Hudson’s Bay Company, the owners of which filed for creditor protection in March 2025. By late April, it received approval to liquidate all but six of its department stores, including its flagship Bay locations.

Winder said retailers operating on thin margins or those in high-pressure sectors, like restaurants, are most at risk, and many are likely to be pushed out of the market as conditions tighten.

Yet pockets of strong sectors are expected to remain in 2026 – value retailers, second-hand marketplaces, private labels and digitally invested brands are poised for growth, experts predict.