Industry News
Sears Launches 60th Anniversary Shoppable iPad App for Wish Book
In 2011 Sears Canada gave customers a new way to experience the much-loved Wish Book with Canada's first shoppable iPad catalogue app and Canadians responded overwhelmingly with thousands of downloads of the app from the Apple iTunes store.
On Tuesday, the retailer announced that due to the tremendous response, Sears has developed a permanent Sears iPad Catalogue App on which will be placed various content throughout any given year, the first of which appears this week in the form of the 60th anniversary Wish Book.
"As Sears celebrates 60 years of wishes this holiday season we are thrilled to offer our customers another exciting way to shop for all their holiday gifts through our new iPad Catalogue app, which launches with the 2012 Wish Book," said Calvin McDonald, President and CEO, Sears Canada. "It's fun, interactive and filled with convenient advantages that make Christmas shopping easier than ever and a lot of fun! The app solidifies Sears as a leader when it comes to innovative approaches to holiday season gift shopping, a place it has held in the hearts and minds of Canadians for six decades."
The app features a smart, responsive pinch and zoom function, as well as a simple, intuitive navigation and browsing experience, new for 2012. An additional incentive for customers is access to exclusive notifications of new catalogues, promotions and specials.
Great holiday gifting solutions included in the app:
- Wish Lists: Each family member can create their own Wish List of must-haves and share via email, Twitter or Facebook
- Bookmarks: Highlight individual pages to remember that special gift for that special someone
- Sears Products go Social: Share individual products via email, Twitter or Facebook to let everyone know the wishes of the season.
The iPad Sears Catalogue app is available for download via Apple iTunes App Store or www.sears.ca/app.
Last week, Sears Canada also announced that the board of directors of Sears Holdings Corporation has approved the previously announced spin-off of a portion of Sears Holdings' interest in Sears Canada.
Sears Holdings, which currently owns approximately 95.5% of the issued and outstanding common shares of Sears Canada, will distribute approximately 44.5% of the total issued and outstanding common shares of Sears Canada on a pro rata basis to holders of Sears Holdings common stock such that Sears Holdings will retain an ownership interest of approximately 51% in Sears Canada. The distribution will be made on November 13, 2012 to Sears Holdings' stockholders of record as of the close of business on November 1, 2012, the record date for the partial spin-off. Every share of Sears Holdings common stock held as of the close of business on the record date will entitle the holder to a distribution of 0.4283 Sears Canada common shares. Following the distribution, Sears Canada will continue to be listed on the Toronto Stock Exchange under its current symbol "SCC". We expect that from a date determined by the TSX through the distribution date, entitlements to the common shares being distributed by Sears Holdings in the partial spin-off will trade on a "when issued" market on the TSX.
Canadian Tire Looks to Reduce Costs as Target Store Openings Approach
According to Bloomberg News last week, Canadian Tire Corp. Ltd. is planning to wring savings in contract talks with store dealers as competition looms from Target Corp.
Bloomberg reports that Canadian Tire is negotiating with its 489 franchisees before the current accord expires on July 1, 2014, and as Target sets to open its first stores in Canada next year. Canadian Tire declined to discuss details of the talks or the existing contract.
Operating costs equalled 31% of Canadian Tire’s sales in 2011, compared with 20% for Minneapolis, Minnesota- based Target and 19% for Bentonville, Arkansas-based Wal-Mart Stores Inc., Mark Petrie, an analyst at CIBC World Markets, wrote in a note Oct. 9.
“Looking at 2011, we estimate that the gap to Wal-Mart and Target would have been roughly $950-million in operating expenses,” for Canadian Tire, according to Petrie.
Efficiency is going to be a bigger and bigger topic for the Canadian retailer, which sells auto parts, small appliances, hardware and sporting goods, Petrie said in a telephone interview from Toronto.
“Canadian Tire has significant opportunities in terms of improving its operating efficiency,” and a renegotiated dealer contract is among them, Petrie said.
Target’s northern expansion will reduce Canadian Tire’s sales by 1% as it faces increased competition in housewares, apparel and seasonal merchandise, Jim Durran, a Barclays Plc analyst wrote in an Oct. 1 note.
Canadian Tire, which has 1,700 retail and gasoline outlets across the country, disagrees with Petrie’s estimate, said Chief Financial Officer Dean McCann. Canadian Tire’s operating costs are not comparable to Target and Wal-Mart because the latter two include grocery segments and are U.S. companies, he said. Against comparable Canadian rivals, McCann said he’s “very comfortable” with Canadian Tire’s performance.
Negotiations with dealers on supply chain and administration could result in savings, McCann said. Those “are things, as a team — between the corporation and the dealers — we can work together to reduce costs,” he said in a telephone interview.
Canadian Tire acts as a wholesaler to dealers, who order products they think will sell best. Wal-Mart And Target stores are controlled by the corporation.
The structure means Canadian Tire consults with dealer committees for major decisions, making it harder to remove underperforming dealers, and provides an incentive for dealers to order a surplus of sale merchandise and sell the extra at regular price after the sale ends. That increases margins at the company’s expense, Petrie said in his note.
If the dealers allowed the company to streamline its supply-chain by giving up some control, Canadian Tire could reduce costs, Petrie wrote.
McCann said Canadian Tire won’t reduce dealer autonomy because it’s an advantage having an independent entrepreneur with knowledge of the local market making decisions for each store.
“Any perceived inefficiency is far outweighed by the opportunities, and the proof is in the pudding, we’re still here,” he said. “It’s been extraordinarily effective.”
Canadian Tire will look for cost savings in the new contract, McCann said. There are already mechanisms for removing underperforming dealers, he said.
The last negotiation in 2007 produced as much as $20 million in extra pretax income that the company projected will grow to as much as $100-million by 2014, according to a Canadian Tire statement at the time. The company didn’t disclose the source of the extra income.
“One of the advantages of Canadian Tire has been the very strong dealer organization in that the dealers have a proprietary interest in their store,” said Stephen Jarislowsky, chief executive officer of Jarislowsky Fraser Ltd., the largest owner of Canadian Tire’s non-voting Class A shares. “You can’t piss off your dealers but you also have to be on top of the pricing.”
Canadian Tire had average revenue growth of 20% in the last four quarters and reported about $3-billion in revenue in the second quarter, for a profit of $134-million, or $1.63 a share. Annual revenue growth at Canadian Tire will slow to 1.5% in 2013 after Target’s arrival, compared with projected growth of 9.9% this year, according to a survey of analysts by Bloomberg News.
Both Target and Wal-Mart are eroding the advantages of the dealer system as they use more precise market research to build knowledge of individual stores, and adjust pricing accordingly, said Alex Arifuzzaman, a partner at Toronto-based retail consulting firm InterStratics Consultants Inc. and a former financial analyst at Canadian Tire.
When Wal-Mart first entered Canada in 1994, Canadian Tire maintained revenue growth by adding stores, boosting total retail square footage to 30 million by June of this year from 7.1 million, Canadian Tire said. That avenue won’t be available this time, said Arifuzzaman.
“In the past they were able to address the increased competition by growth, by increasing the store network, making the pie bigger for Canadian Tire,” he said. “But now that is not the case, growth is not at the level it was in the past, so that’s the only way they can do it, through operational cost savings.”
Source: Bloomberg News
Economic News
Canada’s Economy Shrinks for First Time in Six Months
Canada’s economy slipped into reverse in August, the first decline in six months, led lower by the manufacturing and energy sectors, Statistics Canada said Wednesday.
Real GDP contracted by 0.1% during the month, following a 0.2% gain in July. Economists had expected the economy to match July’s growth in August.
August marked the first monthly decline since February, and lends credence to the view that higher interest rates are a long way off.
Hardest hit in August were mining and oil extraction operators, with the sector shrinking 0.7%, as scheduled maintenance shutdowns affected metal ore production. Mining output dropped 2.8%.
Manufacturing declined 0.6% during the month, reversing the 0.9% gain in July. Durable goods production was among the hardest hit in August, falling 1.3%. Among the other sectors losing ground were retail, utilities, construction, financial and insurance.
Non-durable manufacturing, on the other hand, rose 0.3%. Gains were recorded in wholesale trade, up 1.0%, as well as transportation and warehousing, which gained 0.3%.
In a sign of the times in Canada’s cooling housing market, construction dipped, while the output of real estate agents and brokers fell 6.6% in August, down for a fourth consecutive month.
Lower stock trading also helped push down the financial services industry, by 0.3%, after four consecutive months of gains.
With continuing global uncertainty, and weak economic growth in Canada, central bank governor Mark Carney has acknowledged any increase in his key interest rate — now at a near-record low 1% — has become “less imminent.”
Douglas Porter, deputy chief economist at BMO Capital Markets, said the August contraction “was no fluke.”
“The economy was hit with a one-two punch of deep declines in both mining and manufacturing (which fell 0.6 per cent in a month that real manufacturing sales were reported up 1.8 per cent),” Mr. Porter added. “… Fully 10 of the 18 Canadian industrial sectors saw output drop in August, so this was no fluke. While some temporary factors weighed on activity in August, the main message here is that the economy is struggling to churn out any growth whatsoever.”
“We would look for a modest rebound in output in September, but Q4 is expected to see growth of less than 2% as well.”
BMO has now lowered its growth outlook for 2012 to 2.1% from 2.2%.
The Bank of Canada, in its quarterly Monetary Policy Report released last week, was still predicting growth of 2.2% for all of 2012. The central bank’s outlook for next year is 2.3% and 2.4% in 2014.
“Overall, today’s number makes a Q3 GDP print of 1.8 per cent (our previous call) unlikely, and sets the quarter up for growth closer to 1 per cent, the Bank of Canada’s recently revised estimate,” said Emanuella Enenajor of CIBC World Markets.
“The bank sees growth accelerating thereafter, and we expect the temporary resource-sector weakness to also unwind, supporting stronger growth going forward.”
Department of Finance Cuts Canada’s 2013 Growth Forecast
Canada expects to maintain real economic growth of at least 2% through 2017, but lower commodity prices will cause government revenues to be a little slower than expected, Federal Finance Minister Jim Flaherty said on Monday.
The consensus of private sector forecasts, surveyed by the Finance Department, is for 2.1% growth this year, unchanged from the consensus forecast in the March budget. For 2013, the forecast was cut to 2.0% from 2.4%, but for 2014 it was increased to 2.5% from 2.4%.
Flaherty told reporters after meeting with the private sector economists that lower prices have affected the nominal level of GDP, which is not adjusted for inflation.
He said commodity prices for exports such as oil have been about 5% lower than expected, impacting corporate profits and wealth creation as well as tax revenues.
But, Flaherty said, Canada remains on track to balance its budget in the medium term (2015-16).
“The October survey underlines the renewed weakness we have seen … especially in Europe and the U.S., our two largest trading partners,” he said.
“In particular, Canada has been affected by volatile and lower commodity prices, which are dampening government revenue growth. This will have an impact on the fiscal outlook that was presented in Economic Action Plan 2012 (the March budget).”
The mood among economists was not all “doom and gloom,” Flaherty said. He commented that despite problems in the U.S., he was encouraged by modest growth there and by signs of life in the housing market, which will help Canada’s economy, especially lumber producers.
Flaherty added: “On average we’re doing OK on real GDP growth, and certainly relative to the rest of the industrialized world we’re doing relatively well on real GDP growth.”
MLI Leading Indicator Shows Growth for Canadian Economy in September
The Canadian economy continued to show growth in September after several sluggish months of economic activity, according to the new MLI Leading Indicator released on Tuesday.
The MLI Leading Indicator was developed by the Macdonald-Laurier Institute to fill the gap left by the cancellation of the Statistics Canada Leading Composite Indicator last May.
The MLI Leading Indicator showed growth of 0.2% in September, after a 0.1% gain in August and a flat reading in July. The index decelerated steadily in the first half of the year.
Financial components outpaced the others in September. The money supply posted steady gains of 0.6%. The spread in the interest rate between public and private borrowers fell to its lowest level in two years. Commodity prices firmed up after five consecutive declines, and that helped the Toronto Stock Exchange firm up after a summer of steady losses.
Both the components related to manufacturing in Canada levelled off in September, after small declines the previous month. The average work week in factories was 37.4 hours while new orders for durable goods were at their second highest level in 2012.
The weakest component of the index was housing. It fell 2.5% in September. Lower housing starts and existing home sales both contributed to this decline.
New and Continuing Employment Insurance claims edged down 0.3% - their sixth straight decline.
Meantime, the leading indicator for the U.S. rose 0.1% in September to reverse a dip the previous month. The increase was led by U.S. building permits.
“All in all, the latest MLI Leading Indicator shows the Canadian economy may be in better shape than some people realize,” said Philip Cross, Research and Editorial Coordinator at the Macdonald-Laurier Institute.
CIBC: No U.S. Style Housing Crash for Canada
Even though the latest news out of the Canadian housing market isn’t good, the country will avoid a U.S. style real estate meltdown, a new report from CIBC said on Tuesday.
According to the report, house prices in Canada will likely fall in the next year or two, but a number of factors are likely to mitigate the impact on borrowers and the broader economy. The bank forecasts that the Canadian housing market will likely experience a soft landing, exactly what policy makers in Ottawa are hoping for.
Factors that should cushion the damage that lower house prices could cause included a lower degree of speculation in the Canadian market, and higher quality mortgages the report says.
The Canadian debt-to-income ratio in Canada has recently risen above the level that it had been at in the U.S. prior to that country’s housing crash, a development that has raised alarm bells for a number of economists.
However, the report’s author, CIBC deputy chief economist Benjamin Tal, says that less should be paid to the level of the debt-to-income ratio has hit, and more to the speed at which it has been rising. A number of other countries have had higher rates without a crash, he points out. And in the last three years the ratio in Canada has been rising at half the speed that it did in the pre-crash U.S. market, making it appear less threatening, he says.
“To be sure, house prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding of the credit landscape of the pre-crash environment in the U.S. and today’s Canadian market,” he wrote.
Mr. Tal stresses that the quality of the mortgages in Canada, as determined in large part by the credit scores of borrowers, is much better.
One-third of mortgages taken out in the U.S. in 2005 and 2006 were in negative equity positions before house prices dropped, and at least half of the mortgages had less than 5% equity, making them extremely vulnerable to even a small drop in prices, Mr. Tal said. In Canada, only 15% to 20% of new mortgages have less than 15% equity, and the negative equity position is nil, he said.
As well, many buyers in the U.S. benefited from low introductory teaser rates on their mortgages only to be caught short when rates increased and they were faced with increased monthly payments.
“The introduction of the teaser rate, a low introductory rate for a period of two or three years that would adjust upward at the end of the initial period, worked to effectively neutralize U.S. monetary policy,” Tal wrote.
Meanwhile, Canadian borrowers have been reducing their exposure to rising interest rates by choosing fixed-rate mortgages over variable. The opposite occurred in the U.S. where adjustable rate mortgages remained popular until the bitter end, the report said.
However, the report also pokes holes in some of the reasons that policy makers and bankers in Canada often cite for keeping the Canadian housing market on a solid footing. For instance, bankers will regularly point to the extremely low mortgage delinquency rate here. “But as the U.S. experience teaches us, this sea of tranquillity can turn into a violent storm overnight. In a short eighteen-month period in 2007-08, the serious mortgage arrears rate in the U.S. surged by more than 300 per cent,” Tal wrote.
Indeed, home sales in Canada have been falling amid uncertainty about the economy and Ottawa’s tightened mortgage lending rules. According to the Canadian Real Estate Association’s latest data, September home sales fell 15.1% from a year ago, while the national average home price was up 1.1% to $355,777 in September from a year earlier.
Mr. Tal says home prices in large cities like Vancouver and Toronto are overshooting their fundamentals and will likely slip as sales fall.
“But the Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned,” he wrote.
There are plenty of other factors that should help Canadians sleep a little better at night. “When it comes to jitters regarding a U.S. type meltdown here at home, the only thing we have to fear is fear itself,” he concluded.