On February 29, 2024, McCarthy Tétrault proudly hosted our 14th Annual National Retail and Consumer Markets Summit. Each year, this gathering is carefully curated with our clients' needs in mind, canvassing a selection of the latest and most significant developments in the evolving landscape of the retail and consumer markets ("RCM") industry.
This publication highlights key takeaways from this year's Summit, which featured timely and insightful discussions that ranged across a broad array of topics such as artificial intelligence in the retail sector, employment law considerations, and consumer-facing French language requirements under Bill 96.
Keynote address: Exploring Retail's Transformation – Analyzing Key Trends Reshaping the Industry
Don Unser (President of Thought Leadership, Circana) and Armin Begic (Vice President of Retail, Circana) kicked off the Summit with a data-powered discussion on forecasted retail trends in 2024.
Key Challenges for Retail Industry
Retail inflation is moderating, but there is no "deflation" or reduction in price for consumers. This past holiday season, for example, customers made more purchases than ever using consumer credit (including increasingly common "buy now, pay later" options).
Retail theft and safety of employees and shoppers in stores remains a key concern, with various retailers taking different approaches to address this problem (for a real-life example relating to Rite Aid's use of AI to try to curtail shoplifting, see the section below entitled "Responsible AI Governance - Anticipating the Impacts of AI Regulations on the Retail Sector").
Increasing Pressure on Personal Finances
Following a spike in both disposable income and savings in 2020, we are seeing a steady decline to 2019 levels. In parallel, we are also seeing a rise in household debt, mostly driven by rising housing costs and increased mortgage payments. Further still, while retail pricing remains above 2019 pre-pandemic levels (with certain industries, such as video games and office supplies rising significantly more), wage growth has not kept the same pace. As a result, we can expect consumer spending to continue pulling back, whether it is through looking for more promotions, buying more private label brands, or relying on loyalty program rewards.
Industry-Specific Shifts and the New Norm of e-commerce
Early 2024 performance is largely looking to be on par with 2023. Although retail sales grew by 2.2% in 2023, car dealers represented 40% of total growth – excluding car sales, total retail grew by a more modest 0.6% last year.
In terms of industries, only three of the industries tracked by Circana saw growth in 2023: beauty (16%), video games (4%), and apparel (4%). All of the other tracked industries (including home appliances, tech, and toys) saw significant declines in the same period. Despite these overall declines, the share of sales happening via e-commerce for all of these industries have reached a new normal that is higher than 2019 levels. Around 25% of all retail sales are now happening online, with that figure being as high as 50% in industries like technology.
Expected Areas of Growth in 2024
Due to complex supply chain challenges, one of the biggest casualties of the pandemic was the introduction of new products. In 2024, we expect to see a significant volume of new products coming into the retail market. The Circana team noted that, even in times of restricted personal finances, the average consumer tends to find the funds for exciting, innovative new products.
What this means is that we will see a very "choiceful" consumer in 2024 – they will not be spending indiscriminately, but they will be comfortable with spending in the areas that matter most to them and bring value during difficult times. In addition to newness and innovation, we expect to see the consumer focusing on wellness, self-care, and convenience. Book sales echoed this trend as well, showing that the dominance of cookbook sales in 2020-2021 transitioned into sales of health and mental wellness books as we emerged from the pandemic.
Over the next 18 months, we expect to see a push and pull between the consumer, who is seeking more value in their purchases, and the retailer, who is keen to maintain their sales of higher-priced goods.
The Canadian Ombudsperson for Responsible Enterprise
Martha Harrison (McCarthy Tétrault) shared valuable insights on the actions, strategies, outcomes and likely upcoming priorities of the Canadian Ombudsperson for Responsible Enterprise ("CORE").
The CORE receives and reviews complaints in relation to alleged human rights abuses in the supply chain of Canadian companies operating abroad in the garment, mining, and oil and gas sectors. It promotes the objectives of the UN Guiding Principles and the OECD Guidelines in supply chain management. The CORE will consider allegations arising from unsafe work practices, unpaid wages, child and forced labour, discrimination, harassment, and labour disposition. The CORE was established in May 2019, and has been active in intaking various complaints since then.
CORE's remedial powers
If the CORE investigates and determines that a Canadian company has engaged in practices outlined above, it can recommend a variety of remedial actions to the company, the Canadian government, and other involved parties, with a view to rectifying harm. The CORE has several strategies at its disposal, including: (a) reporting publicly on its determinations, and related follow-up; (b) recommending that the company take certain actions; and (c) recommending that the Canadian government take certain actions including a reduction in consular trade support.
Public Reporting and Limitations
Despite its significant role, it is important to note that the CORE's powers are limited. As it is not a court, it does not have the power to compel people or companies to take specific actions. However, its ability to publicly disseminate information about its findings and related public statements can have powerful implications for a company's reputation. The CORE reports on various stages of an investigation, from the initial assessment to the final determination and recommendations. These communications can include references to the CORE's interactions with the Canadian companies, their actions or non-actions, including whether the CORE considers the company to be acting in good faith.
The CORE maintains transparency in its operations by publishing annual and quarterly reports on its active investigations and significant developments. These reports provide the public with insights into the organization's activities and the progress it has made in addressing and investigating human rights abuses.
Looking Forward
Looking ahead, given the implementation of the new supply chains act in Canada, Fighting Against Forced Labour and Child Labour in Supply Chains Act, it is unclear whether the CORE will maintain its administrative status as an Ombud. It is indeed possible that the CORE will advocate for a legislative change that would include rights to compel witnesses, etc. In the absence of any such changes, we expect the CORE to continue taking in complaints and moving forward with its dispute resolution procedures.
Employment Law Developments Affecting Retail
Donovan Plomp (McCarthy Tétrault) was joined by Lindsey Taylor, Senior Director, Associate General Counsel, and Head of Employment at lululemon, a leading Canadian athletic apparel retailer. Their discussion focused on the distinct challenges and trends facing retailers as workplaces emerge from COVID, and generally, including discussion of remote work considerations, DEI initiatives, workplace investigations and the new BC Pay Transparency Act.
Responsible AI Governance - Anticipating the Impacts of AI Regulations on the Retail Sector
Charles Morgan and Francis Langlois (McCarthy Tétrault) delivered a timely discussion on a subject that has remained at the forefront of the news cycle over the past year – artificial intelligence.
Use of AI Technology in Retail Environment
Consumer-facing companies must be particularly careful not to deploy AI technologies in a way that infringes on the rights of shoppers.
Anonymous Video Analytics: Cadillac Fairview was investigated by the Office of the Privacy Commissioner of Canada ("OPC") for their use of anonymous video analytics ("AVA") tools, which collect behavioral and demographic information (but not the identity) of shoppers. The investigation found that over 5 million biometric images were collected without proper consent, via cameras embedded in digital information kiosks. Cadillac Fairview claimed consent had been obtained via its privacy policy, but the Office found this inadequate; the policy was overly broad, buried in a long document, and not easily accessible. The use of AVA technology has since been discontinued by Cadillac Fairview.
Facial Recognition Technology: Facial recognition technology ("FRT") identifies individuals from biometric data and is often used for surveillance to prevent shoplifting and fraud by populating databases of known perpetrators. FRT was at the heart of a recent action against Rite Aid by the United States' FTC, in which Rite Aid was found to be using FRT without proper procedures and sufficient consent. The system had generated thousands of false positives, with particularly high rates of misidentification for women and people of color, causing disproportionate harm and bias against these demographics. Rite Aid has been banned from using FRT for 5 years.
Generative AI and Retail-Specific Risk
Despite the promises of Generative AI ("GenAI"), retailers must be mindful of novel areas of risk.
Marketing and Intellectual Property: Users must be mindful that GenAI may produce outputs based on copyrighted data scraped from the internet during its "training". This means that generated content may infringe the copyrights of third parties. Content generated by GenAI may also hinder your ability to assert your ownership of that IP.
Brand Integrity: The advent of increasingly sophisticated deepfakes generated by text-to-image or text-to-video AI systems make it possible to generate convincing content featuring specific brands and recognizable products, with potential repercussions on brand image and reputation. AI technology could be used to create convincing, seemingly high-quality counterfeits of retail products, making it even harder for consumers to distinguish between genuine and counterfeit goods.
Cybersecurity: Finally, GenAI is already fueling a spike in cybersecurity incidents, ranging from sophisticated phishing attacks to video deepfakes impersonating company leadership. Retailers must ensure that they have implemented robust safeguards against such incidents.
Responsible AI Governance
As regulation attempts to keep up with the rapid evolution of technology, businesses remain subject to multifaceted uncertainties and risks. To reduce exposure to vulnerabilities flowing from litigation risk, operational risk, and cybersecurity risk, it is incumbent on businesses to implement comprehensive AI governance policies. These governance frameworks should synthesize common themes from emerging regulations to define a clear matrix of responsibility to map, monitor, and manage risk across the enterprise.
Gift Cards: Best Practices and Avoiding Pitfalls
As outlined by Louis-Philippe Samson (McCarthy Tétrault), the use and sale of gift cards (or prepaid purchase cards) has seen a significant increase since the pandemic. Such cards are generally regulated across the Canadian landscape under provincial consumer protection laws and regulations, the most material rule applicable being that such gift cards cannot expire, a measure taken to protect consumers' rights to recover their money. Each provinces provides for exceptions to such rule, including when the cards are issued for no consideration. Issuers of such cards must be careful in making such "no-consideration" determination as it must be interpreted broadly and there exist no meaningful case law in that regard.
Best Practices
As a best practice, businesses must remember that a gift card represents a contract with consumers. The terms and conditions should be robust and fall within the scope of provincial consumer protection laws. The fees and use of a gift card can be flexible if the terms and conditions allow for it, as long as they comply with foundational consumer laws and regulations.
Clear communication of the terms and conditions to consumers is crucial. This is easier with digital gift cards but poses a challenge for physical ones. QR codes and clearly visible links can direct consumers to your terms and conditions, facilitating consumers' access and understanding of these terms.
Common Pitfalls
With respect to gift cards attached to a specific service or product, the lack of an expiration date might result in consumers holding onto a gift card for years, potentially leading to larger discounts than anticipated due to inflation. One safeguard against this is specifying the value of the specific product or service, allowing consumers to redeem the gift card for such product or service and pay the difference between the amount set forth in the gift card and the current price of the product or service.
Lastly, to prevent gift cards from being resold at a premium, consider placing restrictions on their resale and specify this in the terms and conditions. This will ensure a fair and balanced approach to the usage of gift cards in the current market.
French Language Compliance – What's Happened Since the Adoption of Bill 96
Véronique Wattiez Larose and Jessica Cytryn (McCarthy Tétrault) discussed French language obligations in the province of Quebec and provided a much-anticipated update on the recently published draft regulations, which, once adopted, will have important operational repercussions for consumer-facing businesses. In addition, they provided insight into the general approach of the regulator and shared clients' experiences.
Impact of Draft Regulations
The draft regulations, which were released on January 10th of this year, shed light on certain areas of doubt prompted by Bill 96 (which introduced significant changes to Quebec French language obligations in 2022), while also raising some additional questions. Along with these regulations, which relate mostly to product inscriptions, public signage, and commercial advertising, the Office Québécoise de la langue française (the "Office"), also circulated a visual guide with images illustrating what they would consider to be compliant. However, a number of ambiguities continue to linger in relation to Bill 96; the business community is watching closely to see what position the Office will take on these questions.
To learn more about the changes proposed by the draft regulations, and to access the images discussed above, please refer to our two-part blog series which examines recent amendments impacting product inscriptions, as well as public signage and commercial advertising.
General Approach of the Office
Although Bill 96 raised the bar for compliance, the Office seems to have maintained its approach of being collaborative and open to dialogue. This emphasis on collaboration was confirmed in their 2022-2023 annual report, which disclosed that, for non-compliances identified through the complaints process, the Office has a target of settling a minimum of 85% those non-compliances without engaging in a judicial process. This means that in at least 85% of cases, the Office to work with companies to remedy non-conformities, rather than imposing any fine.
Looking Forward
The takeaway, based on recent enforcement trends and our clients' experiences, is that although the stakes for non-compliance have been heightened, the Office has continued to prioritize working together with businesses and generally seeks to maintain a collaborative dialogue with a view to achieving compliance. Although certain areas of ambiguity remain, we expect the Office's position on these outstanding questions to become more clear with time.
Privacy Pulse – Recent and Imminent Privacy Law News
Eugen Miscoi (McCarthy Tétrault) provided an overview of key privacy developments across the country.
Bill C-27 in Canada
At the federal level, Bill C-27 is moving through the stages of parliamentary review and is expected to be passed by the end of 2024. Bill C-27 enacts the Consumer Privacy Protection Act ("CPPA"), which would replace its less toothy predecessor, the Personal Information Protection and Electronic Documents Act ("PIPEDA"). The CPPA proposes administrative monetary fines as high as the greater of $10M or 3% of the non-compliant entity's global revenue (while more serious offenses are subject to fines of up to $25M or 5% of the entity's global revenue).
The CPPA also introduces a number of new requirements, including stricter consent requirements that call for more detailed disclosures and express consent requirements for minors. Businesses will also need to thoughtfully review their procedures of gathering of personal information ("PI") to ensure compliance with the new obligation of ensuring that collection of PI occurs in a "manner that a reasonable person would consider appropriate". Even as Canada makes this move to push for stricter privacy protections, government officials have quietly acknowledged that Canada is not a market maker in this domain; rather, Canada's stance will likely take a cue from the approaches taken by the EU and the US.
Law 25 in Quebec
In Quebec, the Commission d'accès à l'information ("CAI", the province's privacy commissioner) has been busy releasing a range of guidance documents following the coming into force of the largest wave of obligations under Law 25. The CAI has released guidelines regarding Privacy Impact Assessments, guidelines on the validity of consent (both available in French only), and regulatory guidance on the drafting of privacy policies (unofficial English translation), as well as draft regulations on the anonymization of PI.
Recent Class Action Trends
A recent trend in court decisions is raising the bar for damages in data breach class actions.1 Gone are the days when intrusion upon seclusion—a legal tort that permitted damages without the need to prove actual harm—would cleanly tip the scales in favor of plaintiffs. This shift has significant implications for class actions related to corporate cyberattacks; plaintiffs will now need to demonstrate that the data breach caused genuine harm that rises above the ordinary annoyances of life. Settlements in privacy class actions are generally modest on a per person basis, but the cumulative amount can quickly add up if the affected population is significant.
Key Changes and Updates to Ontario's Consumer Protection Legislation
Stephanie Sugar (McCarthy Tétrault) highlighted notable changes in Ontario's consumer protection legislation. After 15 years without substantive review or revision, the Ontario Government recently passed a largely overhauled Consumer Protection Act, which is now awaiting a date to be declared in force. This new Act signals the government's intent to operationalize its intention to make the Act more clear and understandable, simplifying compliance for businesses and providing clarity for consumers.
Major Changes in the new Act
- Disclosure rules, which previously differed across various types of agreements, have been consolidated. The new Act offers a more streamlined approach to disclosure across various industries and types of goods and services.
- While prior legislation declared certain clauses (for example, those required mandatory arbitration) unenforceable, the new proposed legislation indicates that the effects of having any such forbidden clause may now in fact render the entire contract subject to cancellation.
- The new Act also expands the rights of action against unfair or unconscionable practices, potentially making contracts voidable if such practices occur before, during, or after the contract's formation.
- The new Act imposes strict timelines for refunds and reliability standards, and increases the amount of penalties that can be determined. Non-compliance in certain cases could result in triple damages payable to consumers.
Implications
These changes present substantive alterations to consumer protection legislation in Ontario, and potentially signal similar changes coming in other jurisdictions. The new Act creates more rights and avenues for consumers to litigate and prosecute consumer rights, which may increase businesses' risk of class action litigation.
While the changes present challenges, they also offer businesses the opportunity to adapt and better protect consumers' rights in this increasingly complex marketplace.
Footnotes
1. See Owsianik v. Equifax Canada Co. and Winder v. Marriott International, Inc.
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