Canadian retailers can expect only a modest 5% to 6% increase in holiday spending, according to the 2005 Canadian Holiday Sales Forecast, prepared by Ernst & Young LLP.

Retailers experienced similar sales growth in 2004 when the season’s holiday spending amounted to a relatively restrained $50 billion — less than 5% higher than the year previous.

The forecast also suggests retail performance will not be even across the country. Vancouver and Calgary are expected to fare better than the national average, while Toronto and Montreal are expected to perform below the rest of the country.

“We don’t see any chance for really aggressive growth in retail sales in Canada again this year,” says Jacques Dostie, head of Ernst & Young’s national retail and consumer products group. “And while the forecast is for positive growth over the November and December timeframe, even that slight growth will not automatically translate into increased profit,” he says. Dostie notes that many other factors are influencing the market, such as higher distribution costs and energy price. “Retailers will be hesitant to pass these added costs onto the consumer,” he says.

Dostie adds it’s not all gloom and doom. Retailers with back-up distribution plans or healthy inventories will be better able to counter the negative effects. “Retailers can also take advantage of a growing focus by customers on luxury items and private label merchandise.”

The Holiday Sales Forecast is based on U.S. and Canadian current market indicators and data, including stock market performance, consumer confidence, unemployment rates and historical relationships between retailers and customers. The retail outlook further takes into account big box and department stores, specialty and luxury retailers, online sales, the season’s “hot items,” trends in major merchandise categories, distribution cost fluctuations and regional shopping trends.