“Uncertainty is still on consumers’ minds, and confidence is not back at the level it was before the recession, but the good news is that consumers are looking for the fun factor and more exciting gifts,” says Daniel Baer, Ernst & Young Partner and national retail industry leader.

Four themes will likely dominate this holiday season: consumer caution amid attempts to repay debt; consumer skepticism of the long-term health of the Canadian economy; consumer restraint and a lack of impulse buying; and conflicted consumers, seeking some gratification after two difficult holiday seasons.

While more traditional gifts, such as gift cards, clothing and books, will still appear on many wish lists this year, more consumers will be attracted by eReaders, electronics, mobile data devices and even jewellery.

That being said, the golden days are not expected by retailers anytime soon. Consumer confidence in Canada fell for a fourth straight month in September; strong competition is putting continuing pressure on retail prices, and retail sales have dropped in four of the last five months.

Baer adds, “The trends we have seen since 2008 are still a reality, but there is some hope.” After two consecutive difficult holiday shopping seasons, holiday 2010 sales are expected to increase in the range of 2% to 3%, versus comparatively weak 2009 holiday sales.

Discount chains, warehouse clubs and dollar stores will still have an important share of holiday spending. Online spending will also continue to serve the time-starved consumer well, with a number of retailers already lowering minimum purchase amounts to obtain free shipping. And consumers will increasingly use smartphone technology to do research and comparison shop, forcing retailers to adapt to new technologies.

Holiday spending will vary across Canada, with Quebec and British Columbia outperforming the rest of Canada, and Alberta and Ontario in line with the average increase.