Sluggish economic conditions and normalization after a post-pandemic purchasing rush have had a significant impact on promo sales in Canada.

As part of its just-released 2024 State of the Industry report for Canadian promo, ASI Research estimates that the sector was worth $2.8 billion CAD ($2.1 billion USD) in 2023, about 8% of the $26.1 billion North American market. Traditionally, Canada has been estimated to account for about 10% of promo sales in North America.

The entire North American promotional product industry grew an anemic 1.4% between 2022 and 2023, which is essentially flat, says Nate Kucsma, ASI’s senior executive director of research.

“Last year was certainly a struggle in both Canada and the U.S.,” says Kucsma. “The first half of 2023 was cause for optimism, but inflation, interest rate pressures, world conflicts and general economic uncertainty turned the second half into the toughest few months since we emerged from the pandemic.”

$2.8 billion CAD
the size of the Canadian promo market in 2023 (8% of U.S.).(ASI Research)

A slowing economy in particular had a noticeable impact on promo sales, but the Canadian government is taking action to spur growth across the country. Last week, the Bank of Canada cut its key interest rate to 4.75%, the first of the G7 countries to do so – it had been at 5% since July 2023. Officials say they’re gradually winning the fight against inflation, which stood at about 2.7% in April. The move follows weak numbers for Q1. GDP grew 1.7%, below the 2.2% expected, and the April unemployment rate of 6.1% was the highest in over two years.

In the U.S., inflation has slowed, which may mean a rate cut by the Federal Reserve later this year – prices rose 3.3% year over year in May, compared to 3.6% in April.

Average gross profit margin:
37.7%(ASI Research)

Promo sales started to plateau in 2023 after the pandemic surge, says Steve Levschuk, president and CEO of Talbot Marketing (asi/341500) and Counselor’s 2021 Lifetime Achievement Award winner. That may explain the drop from 10% to 8% last year, and is in line with general economic lethargy.

“Coming out of COVID, the promo industry here was hyper-hot, with double-digit growth,” says Levschuk. “Now, things have normalized and the pent-up demand has dissipated. The U.S. market has experienced the same normalization, but the Canadian industry may have slowed down more quickly, hence the 2% difference in size.”

In 2023, top end-buyer markets for Canadian distributors were construction, at 13.1% of total industry sales ($375 million CAD); education, at 11.5% ($327 million); associations, clubs and civic groups, at 9% ($254 million); government, at 6.1% ($172 million); and nonprofits and not-for-profits, at 6% ($169 million).

The construction industry in Canada has been dominated by industrial builds, like warehouses and distribution centers, much of it to meet high demand for e-commerce shopping post-pandemic. The country saw a record number of completions in the fourth quarter of 2023.

Meanwhile, as a result of high costs, inflationary pressure and strict mortgage criteria, starts of single-detached homes fell 20% in 2023. In fact, only 15% of all starts were of single-detached homes, a record low. However, apartment construction increased 7%, particularly in Toronto, Calgary and Vancouver. And according to recent end-buyer data from ASI Research, 54% of North American end-buyers in construction plan to increase their promo spend this year, while 66% say it’s very important for their marketing strategy.

The most lucrative product categories for Canadian distributors were T-shirts, at 15.1% of sales ($425 million); caps/headwear, at 14% ($395 million); drinkware, at 10.8% ($304 million); other wearables (mostly outerwear) at 10.2% ($288 million); and bags, at 9% ($254 million). Average gross profit margin was 37.7%, up from 35% in 2022.

At Outstanding Branding (asi/288522) in Winnipeg, top markets for 2023 were manufacturing, construction, property management, education and professional services. Top product categories were fleece, T-shirts, outerwear, drinkware and safety wear.

“Our company grew 30% last year,” says Jennifer Tarnopolski, co-owner of Outstanding Branding and the incoming PPPC Chair. “We just finished our fiscal Q1 and we were up 21.4% year-over-year. The 2% difference between the Canadian and U.S. markets may be the result of a rise in interest rates. It could be that companies that carry large debt had to cut spending in other areas.”

1.4%
The percentage growth of the North American promo market between 2022 and 2023.(ASI Research)

Outstanding Branding saw an increase in average gross profit margins, while Talbot’s stood at just under 37%. Talbot’s top markets last year were education, government, service industries and mining, and top categories were polos, T-shirts, jackets, drinkware and bags.

Among the top business challenges for 2024, according to ASI Research, are “increasing the size of my customer base” (22%); “remaining profitable under pressure to cut prices” (22%); and “recruiting and retaining well-qualified employees” (16%).

For Tarnopolski, top challenges are finding and keeping “happy, qualified” employees, as well as accessing stock of popular items like bags and safety apparel. Levschuk says controlling costs of doing business, bringing up margins and hiring qualified workers are also at the top of the list at Talbot.