Skip to main content

The Globe and Mail

It's hard to be optimistic about domestic retail stocks

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

Canadian retail stocks look expensive at a time when consumer spending is sluggish at best. Household debt has hit record levels of over 97 per cent of GDP, and even though current debt loads appear sustainable at low interest rates, at some point a Canadian credit deleveraging will create huge headwinds for the retail sector.

This chart (also at left) shows the year-over-year change in Canadian retail spending against the performance of the S&P/TSX retail sector. Retail stocks drove higher through 2012, while at the same time, growth in spending slowed significantly.

Story continues below advertisement

At 19.2 times trailing earnings, the sector is expensive relative to its history. The average P/E since 2005 is almost five points lower at 14.4. If I take out 2008 as a one-time only anomaly, the average P/E is still lower at 17.9.

Analysts expect earnings growth of 21 per cent for the next twelve months, but it's hard to see what the drivers of this growth might be. This is particularly true if the housing market slows further and the wealth effect (consumers feeling more flush as their home prices rise) fades away.

Importantly, there are only four companies in the retailer index – Canadian Tire Corp. Ltd., Rona Inc., Reitmans (Canada) Ltd. and Dollarama Inc. – so we're looking at a very small sample. Still, it's hard to be overly optimistic about the sector for the medium-term given record consumer debt levels.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.

Report an error Licensing Options
About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More


The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at