IAB Canada was invited to an eye-opening RCC / Kearney presentation last week about the impact of tariffs on the Canadian retail media sector. Here were top-line findings and how advertising might be impacted.
As geopolitical tensions flare and a renewed U.S.–Canada trade conflict escalates, the retail landscape is bracing for a storm. In a compelling presentation delivered by Kearney in partnership with the Retail Council of Canada (RCC), two future-facing scenarios were laid out, exploring the deep economic implications of new tariffs and retaliatory measures on the Canadian retail sector. The ripple effects could meaningfully shape consumer demand, retailer margins—and yes, advertising budgets.
The Big Picture: Trade War Fallout
Over the period from 2025–2028, Kearney modeled two plausible tariff escalation scenarios:
- Scenario 1: “Initial Sparks” – A moderate tariff environment leading to:
- $3,107 cumulative reduction in household spending per household
- $52B in lost retail sales
- $106B in tariff-related costs
- $135B hit to retailer gross margins
- Scenario 2: “Trade Storm” – A deeper economic impact with:
- $5,968 cumulative reduction in household spending
- $100B in lost retail sales
- $155B in tariff costs
- $209B in gross margin losses
Even with attempts to shift sourcing away from U.S. imports, over 60% of goods remain critically exposed to tariffs due to limited alternatives or logistical complexity.
Why This Matters to Advertisers
1. Retail Advertising Budgets Will Be Under Pressure
The most immediate impact of retailer margin compression is likely to be cost-cutting across non-core functions—including advertising. As retailers face significant cost burdens and declining revenue, discretionary budgets such as media investments may be frozen or trimmed.
2. Shift in Promotional Strategies
Retailers may pivot towards lower-cost, high-efficiency digital advertising, emphasizing owned media, loyalty programs, and data-driven targeting over traditional mass campaigns. Expect a heavier reliance on retail media networks (RMNs) to drive immediate returns and shopper conversion, particularly for categories under margin strain (e.g., apparel, electronics).
3. Category-Level Variability
Not all product categories are equally impacted. Electronics, appliances, and apparel—sectors with high elasticity—are projected to take the hardest hit. This may lead to shifts in where ad dollars are allocated, with greater scrutiny on ROI in vulnerable categories.
4. Consumer Demand Weakening
With households spending significantly less, particularly under Scenario 2, brands will need to sharpen messaging to reflect value, necessity, and relevance. Performance marketing and lower-funnel strategies will likely dominate as marketers chase limited consumer dollars.
5. Strategic Opportunities for Media Sellers
As retailers reconfigure sourcing and operations, media partners have an opportunity to position themselves as efficiency drivers, offering smart targeting, cost-effective reach, and performance transparency.
What Advertisers Should Do Now
- Pressure-Test Media Plans: Build flexibility into budgets and prepare contingency plans across macroeconomic scenarios.
- Prioritize Agility: Focus on channels that can be dialed up/down quickly, particularly digital formats and in-store retail media placements.
- Deepen Retailer Collaboration: Co-invest in retail media programs that drive immediate conversion—especially in categories at risk.
- Track Category-Specific Risks: Align advertising strategy with sectors that are least exposed to tariffs and margin erosion.
- Lean into Shopper Insights: As consumers cut back, understanding evolving purchase behaviour will be critical.
Final Word
The coming years could bring significant volatility, but also an opening for advertising to prove its value as a growth lever. Those who can adapt quickly, embrace data-driven retail partnerships, and pivot toward resilient strategies will be best positioned to weather this economic turbulence.