CHHMA - EYE ON OUR INDUSTRY

Volume 13, Issue 41, November 06, 2013

Inside This Issue:
  
• Come Check Out the Renovated Casino de Montreal at this Year’s Industry Cocktail
• Could Sears Canada’s Real Estate Be a Cash Cow for Shareholders?
• La Coop fédérée Acquires Minority Interest in Groupe BMR
• Big Lots Closing Existing Wholesale Operations 
• Target Aims to Reshape Canadian Shopping Habits as Sales Fall Short
• Five Game-Changing Canadian Consumer Trends You Need to Watch Out For
• Building Permits Rise 1.7% in September
• CMHC Cuts 2014 Housing Starts Forecast, Signalling Slowing Market
• Canada’s GDP Edges Ahead in August Led by Surging Oil and Gas Sector
• Expect the Canadian Dollar to Continue Eroding
• U.S. Home Prices Rise at Slower Pace as Higher Mortgage Rates Hit on Sales



Association News 


Come Check Out the Renovated Casino de Montreal at this Year's Industry Cocktail  
 
This year’s Industry Cocktail will be taking place on Thursday, December 5th, from 5:30 p.m. to 8:30 p.m. at Bar Reine de Coeur located at the recently renovated Casino de Montreal.

This traditional industry year-end event brings together a wide spectrum of people from the industry including manufacturers, distributors and retailers.

The location offers a fun and relaxing atmosphere where you can enjoy some wonderful food, drinks and conversation with your industry colleagues while enjoying the festive season together. 

For further details and registration go to: http://events.chhma.ca/indct2013/indct13main_en.html.



Industry News
 
Could Sears Canada's Real Estate Be a Cash Cow for Shareholders?
(Article by Hollie Shaw, The Financial Post)
 
The swift exit of Sears Canada’s chief executive in September and the ongoing sale of some of its most valuable mall locations back to landlords has led many analysts to speculate the value of the retailer’s real estate outstrips that of its retail operations.

That could potentially yield rich rewards for shareholders, according to CIBC analyst Perry Caicco, if its biggest shareholder continues to direct the selloff of its assets. 

“It is clear that [Sears Holdings CEO] Edward Lampert sees significant value in Sears Canada — but specifically in the real estate,” Mr. Caicco said in a report to clients, initiating coverage on the stock with an outperform rating and target price of $21.

Sears Canada has a valuable real estate portfolio consisting of joint ventures, owned properties and below-market rent leases in prime locations comprising 20 million square feet, which Mr. Caicco values at roughly $1.8-billion. Sears Canada’s market cap is $1.49-billion.

Mr. Lampert does not have ostensible operational control over the Canadian unit, but he controls 55% of Sears Holdings and directly owns 28% of Sears Canada.

“His combined effective ownership of about 50% gives him immense influence over the day-to-day activities of Sears Canada,” Mr. Caicco noted.

The promotion of COO Douglas Campbell to Sears Canada’s chief executive in the wake of Calvin McDonald’s exit signals that Sears Holdings, “and more likely Mr. Lampert, has, for better or worse, taken over operations of the company,” he added, noting Mr. Campbell’s experience as a consultant suggests the company will likely continue cutting costs and selling properties.

“The fundamental weakness of the retail offering causes Sears Holdings to occasionally repatriate cash from Sears Canada, which forces Sears Canada to monetize properties,” Mr. Caicco said. “Either way, Sears Holdings seems to prevent Sears Canada from investing material amounts of capital, preferring to harvest from existing assets rather than to invest in new assets.”

The analyst estimated the company has about $18 per share worth of real estate yet to be monetized and recent property sales have put about $7 per share of cash on the balance sheet. With Sears Canada’s other businesses worth more than $1 per share and liabilities of about $4 per share, the retailer’s shares net out to about $22 of value, the analyst calculates.

Mr. Caicco predicts Sears Canada will either partner with a real-estate or private-equity firm over the next two to three years in order to sell its properties and leases; sell the whole company to a private-equity firm; sell to a varied group of international merchants such as Macy’s, Kohl’s, Target or Walmart; or sell both flagship and regional locations directly to retailers entering Canada or to its landlords, a move aimed at realizing embedded real estate value.

Source: The Financial Post


La Coop fédérée Acquires Minority Interest in Groupe BMR

Following discussions regarding a future commercial partnership, Groupe BMR and La Coop fédérée announced last Friday that they have entered into a commercial agreement under which La Coop fédérée, through its Unimat banner, is acquiring a minority interest in Groupe BMR.

"Our company is pleased with this new partnership with La Coop fédérée, a leader in Québec's economy for 92 years", said Yves Gagnon, President and CEO of Groupe BMR.

Through this association, the two companies will offer some 360 retail locations to consumers and contractors in Québec, Ontario and the Maritime Provinces.

"Groupe BMR's expertise in the renovation industry is well established. The strength of its brand and the trust of its customers represent major advantages from which we are sure our 100,000 members will greatly benefit", explained Claude Lafleur, CEO of La Coop fédérée.

As part of approving the deal, the Competition Bureau said that the agreement will require certain store franchisees in four local markets in the province of Quebec to find new banners under which to operate. The parties are also required to continue supplying the stores on competitive terms until either a new franchisor is found or the end of 2014.

Source: Groupe BMR & La Coop fédérée, Competition Bureau Canada 

Big Lots Closing Existing Wholesale Operations

Big Lots is narrowing its focus to its retail operations and will close its wholesale business by the end of 2013, the company announced last Friday. 

During the 90-day wind down period, the wholesale business will liquidate its inventory and employees will be shifted into Big Lots’ retail operations “where and when possible,” the company said.

The Columbus-based closeout retailer has conducted wholesale operations through Big Lots Wholesale, Consolidated International and Wisconsin Toy.

Big Lots will take a pretax charge of $5 million to $8 million during the third quarter to account for the action.

Closing the wholesale side of the business was “not a decision we take lightly, as a number of associates who have been dedicated and worked very hard in an effort to grow the wholesale business will be impacted,” said David Campisi, CEO and president, in a statement.

However, the wholesale business has changed over the years, Campisi said, becoming “increasingly more competitive, and the sales and margin growth opportunities are not what they once were. We believe a narrower focus and investing in new ways to enhance our relationship with the customer will provide greater value for our shareholders over the longer term."

With the elimination of the wholesale operation, Big Lots will continue to focus on several new initiatives in its retail operations, Campisi said, such as the expansion of its cooler and freezer program, the introduction of furniture financing, and a renewed effort in e-commerce.

Big Lots is North America's largest broadline closeout retailer operating 1,527 Big Lots stores in the U.S., 5 Big Lots stores in Canada, and 74 Liquidation World and LW stores in Canada.

Source: Big Lots, Inc., The Columbus Dispatch


Target Aims to Reshape Canadian Shopping Habits as Sales Fall Short

Executives at Target Corp. say they will spend next year trying to reshape the habits of Canadian shoppers who have soured to the company’s roll-out north of the border.

The head of the Minneapolis, Minn.-based retailer told analysts last Wednesday that Target stores in Canada will play a key role in its growth over the next five years, conceding that not everything has gone according to plan.
 
“While initial sales in Canada have fallen well short of expectations, we remain very confident in the long-term potential of these assets,” chief executive Gregg Steinhafel said at an investor event in Toronto.

“These are great locations in strong markets with demographics that are ideal for our strategy.”

Target Canada president Tony Fisher said Canadians still haven’t fully embraced the “one-stop shopping” concept that’s so popular in the United States. Companies like Target have thrived in the U.S. on the idea that everything consumers need is under one roof, an image that competitor Wal-Mart has also embraced with its superstore locations, which are relatively new in Canada.

Fisher hopes that next year, Target will convince Canadians to come to its stores on a regular basis as well.

“This requires us to redefine the perception of what a trip to Target means,” Fisher told analysts.

“Consumers are accustomed to visiting many different competitors to accomplish all of their shopping.”

Fisher said the company will focus on growing its share in sales of “frequency categories” such as groceries, cosmetics and health products.

Target has already found particular sales success in Canada in both home and apparel, he added.

The acknowledgment that Target’s entry into Canada has been underwhelming is a stinging admittance by the company, especially since the discount chic chain generated such a high level of consumer anticipation and hype that’s rarely experienced in the retail industry.

Many Canadians who had travelled to the U.S. to shop at Target hoped that the retailer could recreate the spirit of its U.S. locations when it spent about $1-million to revamp each of the stores it acquired from Zellers.

Instead, various studies found that consumer perception of the Canadian stores was lacklustre, with complaints ranging from stores running out of some products while others considered the prices too high. Target defends its prices by saying that consumers save more when combining additional discounts applied to shoppers who pay using its credit card.

A survey in August by market research firm Forum Research found only 27% of those polled indicated they were “very satisfied” with their experience at Target.

That was below Target’s score in Forum’s April survey, when 32% of those polled indicated they were “very satisfied” with their experience at the discount retailer.

Analysts have also been critical of Target’s roll-out in Canada. The company’s “impact has been extremely modest and consumer buzz has died down substantially since the first stores opened in early March,” said Irene Nattel, an analyst at RBC Dominion Securities Inc.

“We reiterate our view that over time, Target will become a more formidable presence in the Canadian market, but for the time being, impact has been minimal,” she added.

Source: The Canadian Press
 

Marketplace Stats & Trends

Five Game-Changing Canadian Consumer Trends You Need to Watch Out For  
(Article by april Fong, The Financial Post)
 
Canadians are known for proudly sewing the country’s flag to backpacks and suitcases when traveling abroad. So it may not be surprising that Canadian consumers are increasingly letting their love for country guide their purchasing decisions as well.

According to a recent report by the Business Development Bank of Canada, the “Made in Canada” label has become increasingly influential in how people shop — both because consumers are looking to support the economy and the perception that Canadian-made products are of a higher quality.

“It was a trend that surprised us — it’s become much stronger than in the past,” said Pierre Cleroux, chief economist of BDC.

“Canadians are more aware of their social responsibilities. And it seems that buying locally is being seen as taking an action that can have an impact on job creation and also because they think buying local is better for the environment.”

Canadians may also be choosing to buy more Canadian-made products because of the recession’s lingering effects and their changing perception of value, Mr. Cleroux said. “Although the economy came back in Canada, people are not as confident as before. They want to have an impact on their local economy now, and actually, I think that’s very good.”

In addition to Made in Canada, BDC named four other game-changing consumer trends it says small and medium-sized businesses need to adapt to:

The Web leads the way: Before making a purchase, consumers can now search for products online, check out online reviews and compare products and prices across websites. Entrepreneurs need to have more than just a simple Internet presence and embrace a more proactive, multi-platform online approach, BDC says.

Health mania: Nearly one-third of Canada’s are willing to pay a premium for health-enhancing products, the report found.

More customization: Consumers are feeling more empowered and have a growing desire to tailor their purchases to their own needs and wants.

The recession’s effects: Consumer habits aren’t changing much from the 2007-08 recession — people expect quality at a low cost. BDC suggests SMBs consider different pricing models based on use rather than ownership, and also group couponing.

The “Made in Canada” advantage: Entrepreneurs should not only consider expanding product lines to include Canadian choices, but also highlight their local aspects — perhaps in marketing materials or with promotions for buying Canadian-made goods, Mr. Cleroux suggests.

Source: The Financial Post

 Economic News
Building Permits Rise 1.7% in September 
 
Aging boomers Increased plans for housing construction helped edge the value of Canadian building permits up by 1.7% in September after permits were whipsawed by a gain and loss of more than 20% in July and August.

Statistics Canada reported on Wednesday that it was the seventh monthly advance for building permits since the start of 2013, yet the total value in September was only 0.2% higher than in September 2012.

The median forecast in a Reuters survey of analysts was for a 6.0% increase in the month. Permits in July had risen by 21.4%, with August then falling by 20.0%, which was revised from 21.2%. The figures are seasonally adjusted.

Canada’s financial authorities and financial markets have been watching to see whether the housing sector was having a soft landing or if it was in fact heating up again.

Statistics Canada said contractors took out $6.5 billion worth of building permits in September, up 1.7% from August as mentioned, with the increase coming from the residential sector, mainly in Alberta and Quebec.

The total value of residential building permits rose 3.3% to $4.1 billion, following a 4.8% decline in August. Residential construction intentions increased in five provinces, led by Alberta and Quebec.

Construction intentions for single-family dwellings rose 3.4% in September to $2.2 billion, the fourth increase in six months. Advances were posted in six provinces, with Ontario and Alberta accounting for most of the gain.

Construction intentions for multi-family dwellings increased 3.3% in September to $1.8 billion, following a 7.3% decline in August. The gain in September came from higher construction intentions in six provinces, with Alberta and Quebec accounting for most of the national advance.

Nationally, Canadian municipalities approved the construction of 17,310 new dwellings, down 1.4% from August. The decline was the result of a 5.1% drop in multi-family dwellings to 10,825 units. The number of permits issued for single-family dwellings rose 5.6% to 6,485 units.

In the non-residential sector, the value of permits edged down 0.8% in September to $2.5 billion. This was the third decrease in four months. Declines in Alberta and Manitoba offset gains in the other eight provinces. Quebec registered the largest increase, followed by British Columbia and Newfoundland and Labrador.

Canadian municipalities issued $1.4 billion worth of commercial building permits in September, down 0.2% from August and the second consecutive monthly decrease. The decline was the result of lower construction intentions in a variety of commercial buildings, including office buildings, hotels and restaurants, retail complexes and warehouses. Gains posted in six provinces, led by Saskatchewan, failed to offset declines in the remaining provinces.

The total value of industrial building permits fell 13.4% to $460 million in September, the third decline in four months. The value of industrial building permits was down in six provinces. The decrease was mainly the result of lower construction intentions for utilities buildings in Alberta and Ontario, as well as manufacturing plants in Quebec and British Columbia.

In the institutional component, the value of permits increased 9.8% to $601 million in September, following a significant decrease in August. The value of institutional building permits was up in half of the provinces. Quebec and British Columbia accounted for much of the gain, as a result of higher construction intentions for educational institutions, medical facilities and government buildings in Quebec and for educational facilities and nursing homes in British Columbia.

In September, the value of building permits advanced in six provinces. Quebec posted the largest advance followed by Alberta.

The large increase in Quebec occurred mainly as a result of higher construction intentions for multi-family dwellings and institutional buildings. In Alberta, both single and multiple-family dwelling buildings were responsible for the gains.

Newfoundland and Labrador followed a distant third, with higher construction intentions for industrial buildings accounting for the gain.

The largest decrease in total value of permits occurred in Ontario, mainly as a result of lower construction intentions for multi-family dwellings. The decrease in Manitoba was a result of a decline in the value of permits for institutional and commercial buildings.

Source: Statistics Canada, Reuters

CMHC Cuts 2014 Housing Starts Forecast, Signalling Slowing Market
 
Canada’s federal housing agency has bumped up its forecast for housing starts in 2013 but trimmed its forecast for 2014, setting an essentially flat outlook for a once-roaring market.

The Canada Mortgage and Housing Corporation (CMHC) said last Thursday in its Fourth Quarter 2013 Housing Market Outlook that housing starts will be in a range of 179,300 to 190,600 units in 2013, with a point forecast, or most likely outcome, of 185,000. That is up from its August estimate of 182,800, but down 13.9% from 214,827 units in 2012.

The agency said there will be 163,700 to 205,700 units started in 2014, with a point forecast of 184,700. That is down from CMHC’s August estimate of 186,600.

Canada sidestepped the worst of the financial crisis of the last decade because it avoided the real estate excesses of the U.S., and a post-recession housing boom helped it recover more quickly than its Group of Seven peers.

But the Canadian housing market began to cool last year after the federal government, worried about a potential property bubble, tightened mortgage rules.

While some economists still worry that the U.S. housing crash of the last decade may be repeated in Canada, the CMHC forecasts see homebuilding and sales leveling off, with prices continuing to notch small gains.

CMHC said existing home sales will range from 439,400 to 474,000 in 2013, with a point forecast of 456,700 units. That’s up slightly from August’s forecast of 448,900 units and about equal with the 454,005 sales in 2012. For 2014, it expects a move up to a range of 438,300 to 498,100, with a 2.5% increase in the point forecast to 468,200. That’s up slightly from August’s forecast of 467,600.

Price gains are expected to slow in 2013 and 2014. CMHC’s point forecast for the average price calls for a 4.0% gain to $378,000 in 2013, and a 1.9% gain to $385,200 in 2014. 

CMHC expects total housing starts to be stable in 2014, as fundamentals, such as employment growth and migration, continue to support the Canadian housing market.

“In the new home market, builders are nevertheless expected to limit the number of housing starts while inventories of unabsorbed units, completed and under construction, are drawn down,” said Mathieu Laberge, deputy chief economist for CMHC. “In the resale market, home buyers have been motivated to advance their purchases and lock-in pre-qualified mortgages given the recent moderate increase in mortgage rates. It is expected that existing home sales will increase modestly in 2014 with improving economic conditions,” added Mr. Laberge.

Source: CMHC, Reuters

Canada’s GDP Edges Ahead in August Led by Surging Oil and Gas Sector  

Canada’ economy edged ahead in August, led by the energy and mining sectors, albeit at a overall slower pace than the previous month as growth was limited by weak manufacturing and construction activity. 

Real GDP rose 0.3% during the month, Statistics Canada said last Thursday, down from a surprisingly strong 0.6% gain in July.

Economists had forecast a gain of between 0.1% and 0.2% in August. That followed a 0.5% drop in June and 0.2% advance in May.

Since August of last year, GDP has managed a year-over-year advance of 2%.

Benjamin Reitzes, senior economist at BMO Capital Markets, said the economy “looks as though it had a bit more momentum than anticipated in Q3.”

“While this is certainly a welcome surprise, the Bank of Canada will need to see continued momentum before changing policy tack.”

Canada’s economy has been struggling to maintain momentum, with signs of a turnaround in Europe and a pickup in the United States tempered by weaker growth among emerging economies.

Last week, the Bank of Canada downgraded its growth outlook for the economy and dropped the forward guidance on interest rates, adopting a neutral stance on the direction borrowing costs will take.

Still, the impact of the Alberta floods and construction strikes in Quebec during June have eased, and appear to have little impact on overall output levels in July and August.

Statistics Canada reported a 1.9% jump in the energy sector during August, following gain of 0.9% the previous month.

The sector includes oil and gas extraction, as well as mining activity in coal, metal ore and uranium. Also included are support services for oil and gas operations, electricity and natural gas distribution, and refineries and pipeline distribution.

The mining, quarrying and gas extraction sector — which includes some of the activities in the overall energy sector, but adds potash, gold, copper and silver mining — was up 1.9% from 1.5% a month earlier.

“We had factored in a nice climb in oil production, but the news was even brighter there, offset only partly by a drop in potash mining,” said Avery Shenfeld, chief economist at CIBC World Markets.

Statistics Canada said services industries were also higher in August, gaining 0.3% overall.

Wholesale trade grew 0.4% in August, led by wholesaling of personal and household goods. Wholesaling of machinery, equipment and supplies and of motor vehicles and parts was also up in August. These gains were partially offset by a decline in the output of miscellaneous wholesalers (which includes agricultural supplies).

Retail trade grew 0.3% in August. There were notable gains at food and beverage stores, clothing and clothing accessories stores as well as building material and garden equipment supplies dealers. In contrast, retailing activity was down at gasoline stations, electronics and appliance stores and motor vehicle and parts dealers.

The output of real estate agents and brokers rose 2.5% in August, up for a sixth consecutive month, as activity in the home resale market increased.

Accommodation and food services grew 1.3% in August, in parallel with an increase in the number of overnight travellers to Canada.

The transportation and warehousing sector grew 0.4%, mainly as a result of gains in rail transportation and support activities for transportation.

The public sector (education, health and public administration combined) edged up 0.1%, while the finance and insurance sector edged down 0.1%.

However, construction activity was flat in August after a gain of 2.1% the previous month. Manufacturing, which has struggled with weak exports activity, declined 0.3% after a gain of 0.9% in July.

“Canada’s resource base came through in August, enough to offset the bleeding in factory activity,” Mr. Shenfeld said.

Source: Statistics Canada, Bloomberg News

 Expect the Canadian Dollar to Continue Eroding  

Exporters can thank the U.S. and Canadian central banks for what’s expected to be a further erosion of the loonie as the year winds down.

The currency took it on the chin two weeks ago when the Bank of Canada shifted its policy – it’s no longer signalling an interest rate hike - and softened last week as the U.S. dollar strengthened on the Federal Reserve announcement. 

The loonie has since come back from its Fed-induced dip and was also buoyed also last week by Statistics Canada’s report on how the economy fared in August.

However, where Fed chairman Ben Bernanke and his colleagues are concerned, it all has to do with the expected timeline of the central bank’s quantitative easing program, or QE, under which it buys $85-billion (U.S.) in bonds every month.

Originally, the Fed was expected to begin cutting those purchases in September, but held off, surprising markets.

It did so again last week but it certainly left the door open to what the markets call “tapering” later this year.

In its classic style, the Federal Reserve didn’t show its full hand: The stimulus package was left unchanged, but there were also suggestions that tapering might begin sooner rather than later,” said market analyst David Madden of IG in London.

“It would appear that when Mr. Bernanke steps down there will be no change to monetary policy, so Janet Yellen may become the Wicked Witch of the West who will trim the QE policy."

Market players are all over the map on this, some believing the Fed won’t begin to pull back until the end of the first quarter of next year, or possibly at some point in the second quarter. Others see the move occurring earlier.

Chief currency strategist Camilla Sutton of Bank of Nova Scotia believes there’s a chance that market sentiment will change, and that investors could begin to bet on an earlier tapering, which would boost the U.S. dollar, in turn weakening the loonie further.

Source: The Globe and Mail



U.S. Home Prices Rise at Slower Pace as Higher Mortgage Rates Hit on Sales

 A measure of U.S. home prices rose only slightly in September from August, a sign that prices are levelling off after big gains earlier this year.

Real estate provider CoreLogic said Tuesday that home prices increased 0.2% in September from the previous month. That’s sharply lower than the 0.9% month-over-month gain in August and the 1.8% increase in July.

Prices still rose 12% in September compared with a year ago. 

Higher mortgage rates and prices slowed home sales in September. As a result, price gains have cooled off.

Mortgage rates are still very low. And the average rate on a 30-year fixed loan has fallen to 4.1% in the past month, down from a two-year high of nearly 4.6% over the summer.

“This deceleration is natural and should help keep market fundamentals in balance over the longer-term,” said Anand Nallathambi, president and CEO of CoreLogic.

Many economists expect the U.S. housing market to keep improving, though with slower gains in home sales. Still, the spike in rates over the summer has weighed on the market. A measure of signed contracts to buy homes fell 5.6% in September to the lowest level in nine months.

There is generally a one- to two-month lag between a signed contract and a completed sale. The sharp drop in September suggests final sales will decline in the coming months.

The annual price gains are widespread, according to CoreLogic. Prices rose in all 50 states and in all 100 of the largest U.S. metro areas.

Price jumped 25.3% in Nevada from a year earlier, the most in any state. California (22.5%), Arizona (14.6%), Georgia (14.4%) and Michigan (13.9%) reported the next highest gains.

Home prices are still about 17% below the peak reached in April 2006, according to CoreLogic.

Source: The Associated Press
 

 Upcoming CHHMA Events 

       
Industry Cocktail
Thursday, December 5, 2013
Casino de Montreal, Montreal, Quebec

Canada Night
Sunday, March 16, 2014
InterContinental Hotel, Chicago, Illinois

CHHMA Spring Conference & AGM
Wednesday, April 23, 2014
International Centre (Conference Facility), Mississauga, Ontario

CHHMA Maple Leaf Night
Tuesday, May 6, 2014
Location TBA, Las Vegas, Nevada

CHHMA Quebec Golf Classic
Thursday, May 22, 2014
Club de golf Le Fontainebleau, Blainville, Quebec

CHHMA Ontario Golf Tournament
Tuesday, May 27, 2014
Angus Glen Golf Club, Markham, Ontario

CHHMA Industry Calendar

To register for all events visit our website at www.chhma.ca or call Pam Winter at (416) 282-0022 ext.21.

CHHMA Links


Freight Logistics Savings
No Obligation Consultation


Discount Cellular
Phone Rates


Long Distance &
Telecommunications Savings


Discount Gas & Diesel Rates


Logo Apparel &
Promotional Products



Office Product Discounts

"Eye On Our Industry" is published by the CHHMA as an information resource for our members. Member input regarding content and format is welcomed. Please contact Michael Jorgenson by email: mjorgenson@chhma.ca, or call at (416) 282-0022, ext. 34. CHHMA is located at 1335 Morningside Ave., Suite 101, Scarborough, ON, M1B 5M4 www.chhma.ca