CHHMA - EYE ON OUR INDUSTRY
Volume 14, Issue 36, September 24, 2014
Inside This Issue:
• Last Call for Next Week’s Industry Memorial Golf Classic
• CHHMA to Hold Information Session on Canadian Data Synchronization
• ÉEQ News: 2014 Company Reports Due by September 30th
• La Coop fédérée Confirms Closure Date for Trois-Rivières DC
• Study Finds Basket of Goods Cheaper at Target Canada than Walmart
• Data Breach Spurs Lawsuit on Behalf of Home Depot’s Canadian Customers
• ‘This is the End’ for Sears, Says Credit Suisse
• Family Dollar Rejects Dollar General’s $9.1-Billion Tender Offer
• Costco Canada Switches to MasterCard from AmEx
• Canadian Retail Sales Fall for the First Time in Six Months
• Wholesale Sales Unexpectedly Drop by 0.3%
• Inflation in Canada Holds Steady at 2.1%, But Core Rate Rises
• Rising Home Prices Cause Rude Awakening for Potential Buyers
• Toronto and Vancouver’s Red-Hot Housing Markets Aren’t as ‘Insane’ as They
Look, Says CIBC’s Top Economist
• Canada’s Aging Population Expected to Head West
• Latest U.S. Economic News
Association News
Last Call for Next Week's Industry Memorial Golf Classic
Looks like we are starting off fall with some nice weather and an opportunity to get in a few more golf games before the clubs get stored away for the winter. With that in mind, there is still an opportunity to register to attend next Wednesday’s (Oct. 1) Industry Memorial Golf Classic at the Blue Springs Golf Club in Acton, Ontario.
The Industry Memorial Golf Classic is held on behalf of the hardware and housewares industry and honours stalwarts from the industry who have passed away. CHHMA members and non-members are welcome to attend.
The day allows family, friends and colleagues to honour these industry stalwarts while enjoying a fun day out on the golf course followed by a dinner and silent auction.
Money raised from hole sponsorships and the silent auction will go towards the CHHMA Scholarship Program which provides support for children of CHHMA member company employees to attend university or college.
Terry Davis, Ray Gabel, Joel Marks, John Dyksterhuis and several of the buyers from Home Hardware will be in attendance to help honour their former colleague, Bruce Webster, who passed away just prior to last year’s event and is one of the honourees this year.
Bruce spent most of his career in the home improvement industry. He worked at many companies, including being a buyer at Homecare and Cashway. He then joined TSC Stores as a senior category manager, and finished his career as a product manager at Home Hardware Stores.
The other honourees this year are: Tom Ross - Served for 33 years as the Executive Director of the Canadian Retail Hardware Association (CRHA). Tom passed away on June 26 of this year. Ray Ceolin – Over his 40 year career, was an active member of the hardware and housewares community. Together with his brother Leo, they built a successful sales agency, Phaeton Limited, representing varied lines through many classes of trade. Ray passed away in October of 2012.
Past honourees include: Chris Hrushowy, Mike Pullen, Jim Ypma, Bill Caldwell, Brayl Copp, Ed Hardison, Stuart North, Joseph Kuchar, Shelly Lush, Jack Pountney, Christof Vanooteghem, Ian Hay, Trygve Husebye, Bernie Carpenter, Don McDonald, Les Groves, Bob Hilton, Doug Straus, Mel Boshart, George Giles and Ed Barnes.
Registration and lunch starts at 10:30 a.m. with a shotgun start at noon. Dinner will commence at around 6:00 p.m.
For further details and to register now, click here.
CHHMA to Hold Information Session on Canadian Data Synchronization
Data synchronization is rapidly becoming the product content solution of choice for retailers and distributors in Canada and globally. In Canada there are two current data synchronization options:
1. GDSN (Global Data Synchronization Network):
• Global network of 28 active GDSN data pools
• 31,998 registered entities
• 789 registered data recipients
• 14,992,799 registered items
2. ECCnet (owned and operated by GS1 Canada):
• Canada-only national product registry
• Product information catalogue service
• Operates outside the GDSN
• Number of registered entities and items not disclosed
Data synchronization enables a supplier to populate their product catalogue items into a standard data structure and as they add new items and update existing items the changes are automatically transmitted into the data recipient’s environment within 24 hours – this keeps them and their trading partners on the same page.
ECCnet is an older, Canada-only solution used primarily in the grocery, drug store and general merchandise channels. GDSN is broader in scope and is used globally.
Many vendors have been getting pressure from customers to comply with data synchronization. The CHHMA has been lobbying retailers to keep an open and competitive environment and not limit the marketplace to one exclusive service provider for data synchronization in Canada.
There has been a lot of confusion and misinformation about data synchronization and the inter-operability of various options, so the CHHMA will be conducting an information session on Thursday, October 30, 2014, Toronto Airport Area TBA to help clarify the situation.
This information session will be interactive and informative. Attendees will learn:
• All the benefits of data synchronization
• All the data sync acronyms
• The differences in cost and value of each system
• Which companies support each system today
• Where industry is headed in the future
Further details and registration info will be available soon, so watch your email or check the CHHMA website in the coming days to see how you can attend.
Stewardship News
ÉEQ News: 2014 Company Reports Due by September 30th
This is a reminder for stewards from Éco Entreprises Québec (ÉEQ) that your company reports for the 2014 Schedule of Contributions are due by September 30, 2014. That is also the deadline for providing documentation to support your request for a credit for recycled content. In addition, your last instalment payment for the 2013 Schedule of Contributions is due this Friday, September 26. Interest charges will be applied after that date.
ÉEQ has begun its review of the financing formula by meeting with government authorities, packaging manufacturers and European eco-organizations. ÉEQ held its first meeting with the Steering Committee made up of company representatives, and another will be held with the Association Committee in September. All contributing companies will be invited to a webinar to be announced this fall. For further info on this, click here.
On August 27, ÉEQ held its 1st Best Practices workshop in the Lanaudière region in order to provide a discussion forum on curbside recycling best practices. With close to thirty municipal partners in attendance, participants shared their challenges and successes in recyclable materials management. Over the coming months, ÉEQ’s team will crisscross the province to discuss regional issues to identify, in cooperation with local stakeholders, the factors that help make this essential service a success. The next workshop will be held in the Québec City region on October 30, 2014.
Created by companies that put containers, packaging and printed matter on Quebec’s market, ÉEQ is a private non-profit organization that develops the Schedule of Contributions and collects company contributions, which are then redistributed to finance municipal curbside recycling services in Quebec. ÉEQ also encourages innovation and best practices in order to optimize the recyclable materials value chain. To do so, ÉEQ works with companies to reduce quantities of materials at the source and encourage the use of recyclable materials, as well as with municipalities and other stakeholders to increase recycling and the economic value of recovered materials.
Industry News
La Coop fédérée Confirms Closure Date for Trois-Rivières DC
La Coop fédérée confirmed on Tuesday that January 16, 2015, will be the closure date for its hardware and material distribution centre in Trois-Rivières. The plan to close the DC was first announced back in February of this year when the company said the time required to complete the closure was estimated at 12 to 15 months.
In a press release, the company said 60 employees have voluntarily left with severance pay and 130 employees still remain working at the facility. The release added that the involvement of La Coop fédérée in the hardware and construction material sectors is still a priority for its members and it intends to remain as a full player in its own right. The decision to close was guided by the strong competition in the retail trade sector, and by the fact that the hardware and renovation industry has been slowing down in recent years.
Last November, La Coop fédérée announced that it was acquiring a minority interest (20%) in Groupe BMR and it is expected that BMR’s warehouse operations will take over for the Coop DC that is closing.
Source: La Coop fédérée
Study Finds Basket of Goods Cheaper at Target Canada than Walmart
Target Canada has moved aggressively to lower prices in an attempt to gain some ground against Walmart in this country, a new study finds.
An identical basket of consumer goods cost 3.9% less at Target than at Walmart in August, according to the latest pricing study conducted last month by consultancy Kantar Retail of Boston.
The cuts suggest Target is willing to drop prices further than it did when it first entered Canada, when Kantar’s first survey in the spring of 2013 indicated basket prices between the two retailers were virtually identical in this market.
Despite that, consumers complained that many of the apparel and décor items they had seen at Target’s U.S. stores were priced higher than they had anticipated in Canada.
“Sharpening price is one of the key initiatives being implemented in [Target’s] turnaround strategy, alongside improving in-stocks and expanding the assortment,” said Robin Sherk, director of retail insights at Kantar.
“While Target handily led this basket, it continues to struggle to shift pricing perception amongst Canadians, despite plentiful assurances of its ‘unbeatable prices’ in store.”
Kantar’s sample basket included 33 identical national brand goods from the edible and non-edible grocery and health and beauty categories at Walmart and Target stores within five kilometres of each other in Toronto.
Customers who used Target’s loyalty debit or credit RedCard would have paid 8.7% less for the basket at Target, Kantar said, noting the retailer achieved savings mostly through temporary price cuts on the items, with 36% of the 33 items checked on sale.
By comparison, Walmart’s basket had one item on sale.
The bulk of the items in the basket — 67% — were priced within 3% of each other, Kantar said.
Ms. Sherk noted that Target is focusing on sharpening its pricing as one of its key initiatives in its turnaround strategy. Other key efforts include ensuring that shelves are stocked because they are often empty, and expanding its offerings to meet customers’ needs.
Last month Target Corp. CEO Brian Cornell said fixing the struggling Canadian unit was a top priority after it lost $1.36-billion in pre-tax earnings since opening 130 stores here since March 2013.
In August, Target Canada reported an 11.4% dip in second-quarter sales at established stores as it worked to improve its position of in-stock goods under Mr. Cornell and its new Canadian president, Mark Schindele.
Target Canada also said it had rectified an earlier oversight which had left 1,000 items out of a routine price checking system against Walmart.
Many of the consumer complaints of higher prices at Target in Canada compared with those at its U.S. stores are for fashion and home decor lines that are only carried at Target, and the Kantar study doesn’t compare those prices at the retailer’s stores here and south of the border.
“Not everybody can go across the border to shop, but a perception of higher prices has been one of their problems,” said Alan Middleton, professor of marketing at York University’s Schulich school of business.
But the content of the Kantar survey’s basket — many of them items a consumer would find in Loblaw and Shoppers Drug Mart — is just as noteworthy as the survey’s findings, he said.
“These survey results are relevant within a very narrow scope,” he said. “Why Target chose to lower prices in grocery is obvious, because they can hope to draw customers in more regularly and then get them to shop upward to the higher-priced items. But it doesn’t address the problem that prompted those perceptions in the first place,” he added, namely people’s observations about lack of selection and prices on Target’s home goods and apparel items, such as C9 sports bras and Converse sneakers, relative to the U.S.
“It’s a limited strategy. Going on pricing looks like it makes sense in the short term to drive up grocery sales and traffic, but I’m not sure it makes sense in terms of securing customers in the long run.”
Source: The Financial Post, The Globe and Mail
Data Breach Spurs Lawsuit on Behalf of Home Depot’s Canadian Customers
A class action lawsuit has been launched last week on behalf of Canadian customers of Home Depot Inc. who may have had their credit and debit cards hacked.
Saskatchewan lawyer Tony Merchant, a long-time class action activist, said he filed the claim against Home Depot on behalf of as many as four million Canadians who have been affected. Home Depot customers could get hit with financial losses and inconvenience, he said, and many will also suffer mental distress because of the worry over whether their personal data has been compromised.
The suit, first filed in the Court of Queen’s Bench for Saskatchewan, will also be filed in other jurisdictions and will cover all Canadian customers, Mr. Merchant said. The representative plaintiff is Martin Knuth, a Regina resident who regularly shops at Home Depot. His credit card was compromised “as a result of the Home Depot security breach,” the claim alleges.
The amount of the claim has not yet been set.
In early September, Home Depot acknowledged that its payment systems was hit by a security breach, affecting customers in Canada and the United States who used credit and debit cards from April onward. The company said no customer would be responsible for any fraudulent charges on their accounts, and promised it would take aggressive steps to protect its customer data going forward.
Mr. Merchant said he does not think he will have any troubled getting the class action suit certified in Canada. “The courts are very open to these privacy breach claims,” he said.
Several class action lawsuits have already been filed in the United States, on behalf of Home Depot customers in Georgia, Illinois and Missouri.
The Canadian lawsuit alleges Home Depot breached its fiduciary duty to keep personal data confidential, and was negligent in allowing the breach. The company also waited too long to warn customers of the problem, the suit alleges.
“They weren’t telling people until [security blogger] Brian Krebs broke the story at the beginning of September,” Mr. Merchant said. “An awful lot of people have spent [money] at Home Depot in the last six months, and every one of them is at risk.”
He noted that in an earlier case against the owners of Winners and HomeSense stores – after a similar data breach – an out-of-court settlement included a payment to all customers as a “worry award.” It also paid back people who had actually suffered financial losses, and reimbursed those who spent money to get extra security for their cards.
Home Depot has offered free identity theft protection and credit monitoring to any customer who used a payment card at a Home Depot store in Canada or the United States since April, but Mr. Merchant said “what they are offering ... is almost nothing and very little in value.”
Some Canadian customers have also complained that the protection offered in this country is inferior to that offered in the United States. For example, the identity theft insurance in the package offered to Canadians – from credit bureau Equifax – has an upper limit of $50,000. In the United States the insurance in the package from AllClear covers up to $1-million.
Home Depot spokeswoman Paula Drake said the $50,000 maximum is the “best available coverage offered by the [credit] bureaus in Canada.” There are “regulatory and market differences,” between the two countries that account for the contrast, she said.
Raymond Vankrimpen, head of the risk management practice at Richter Advisory Group Inc. in Toronto, noted that a portion of the $1-million in coverage available to U.S. residents goes to cover legal fees. “Americans are typically more litigious and so the cost of recovering your identity in the U.S. may in fact cost more,” he said.
Data Breach Larger than Target’s
Meanwhile, Home Depot Inc. said last Thursday that some 56 million payment cards were likely compromised in the cyberattack at its stores, suggesting the hacking attack at the home improvement chain was larger than last year's unprecedented breach at Target.
Home Depot, in providing the first clues to how much the breach would cost, said that so far it has estimated costs of $62 million. But it indicated that costs could reach much higher.
It will take months to determine the full scope of the fraud, which affected Home Depot stores in both the United States and Canada and ran from April to September.
Retailer Target incurred costs of $148 million in its second fiscal quarter related to its breach. Target hackers stole at least 40 million payment card numbers and 70 million other pieces of customer data.
Home Depot said that criminals used unique, custom-built software that had not been seen in previous attacks and was designed to evade detection in its most complete account of what had happened since it first disclosed the breach on Sept. 8.
The company said that the hackers’ method of entry has been closed off, the malware eliminated from its network, and that it had rolled out "enhanced encryption of payment data" to all U.S. stores.
Of the estimated cost so far of $62 million, which covers such items as credit monitoring, increased call center staffing, and legal and professional services, Home Depot said it believes that $27 million of the amount will be paid for by insurers.
But the company said it has not yet estimated the impact of "probable losses" related to the possible need to reimburse banks for fraud and card replacement, as well as covering costs of lawsuits and government investigations.
"Those costs may have a material adverse effect on The Home Depot’s financial results in the fourth quarter and/or future periods," the company said in its statement.
Wesley McGrew, an expert of retail breaches who is an assistant research professor at the department of computer science at Mississippi State University, said that Home Depot is going to be expected to bear the costs related to fraud and payment card replacement.
Banks typically seek to get retailers to cover those costs if there are any indications of shortcomings in their security.
Criminals have frequently used software that evades detection, but retailers are expected to closely monitor their networks using tools that are designed to uncover signs of a crime in progress, McGrew said.
"It’s hard to feel sorry for them when there are things they could have done to improve the security of these transactions," McGrew said.
Hitesh Sheth, chief executive of Vectra Networks, a cybersecurity firm in San Jose, California, said Home Depot's breach exposes a weakness, noting that the company said hackers used unique, custom-built malware.
That "essentially means the technology they are using is only designed to detect malware that has already been used in a previous attack, and that is symptomatic of the retail industry,” Sheth said.
“Retailers need to upgrade to technology that is available and detects behavior of malware that is new because these attacks are not going to stop anytime soon.”
For its fiscal year ending in February, Home Depot revised its earnings estimate to $4.54 per share from $4.52. In addition to the cost related to the breach, it said the estimate includes a pre-tax gain of about $100 million on the sale of 3.6 million common shares of HD Supply stock. The company left its outlook for sales growth for the year at 4.8%.
Source: Reuters, The Globe and Mail
'This is the End' for Sears, Says Credit Suisse
Credit Suisse analyst Gary Balter last week became the latest retail expert to call for struggling department store Sears to liquidate.
In a note to investors, Balter, who has a $20 price target on the company, said recent events at Sears have him singing "This is the end," a nod to The Doors' song, "The End."
By Balter's calculations, keeping up Sears' operations is taking more than $10 a share of value from shareholders each year.
"Let's face facts. Sears is generating negative operating cash flow of between $1 billion and $2 billion [closer to upper end, it looks like] in 2014," Balter wrote. "Unless it sells off real assets while somehow maintaining the cash flow from those assets, this story is not likely to have a happy ending, and that ending continues to depend on suppliers."
Sears shares are currently trading near $29, a decline of more than 40% this year.
Balter's report follows news earlier last week that Sears CEO Eddie Lampert will provide the company with $400 million in a short-term loan. Fitch Ratings, which downgraded the company's rating to 'CC' from 'CCC' last week, said the loan is a "temporary and short-term fix to a much larger need for liquidity infusion, given significant cash burn in the business."
Further, it "indicates how tight liquidity is going into the holiday season, with the need for additional capital to fund inventory build-up."
Balter also pointed to the department store's recent comment that it is not fully committing to apparel buys for Christmas at this time—a comment the analyst said suggests the retailer would be hard-pressed to resupply a popular product.
Fitch issued a separate report the previous week that said Sears' gradually widening credit default swap spreads show market sentiment on the company continues to worsen.
Fitch said Sears needs to generate a minimum of $1 billion in annual earnings between 2014 and 2016, in addition to an estimated $600 million to $700 million in liquidity for working capital needs during the holidays.
In the most recent quarter, Sears posted a net loss of $573 million. In the company's earnings announcement, Lampert said, "Like any transformation, we must first overcome the burden of the initial costs before we can enjoy the benefits."
"We have a large and valuable portfolio of assets that provide us with the flexibility we need to fund our transformation as we proactively work to return Sears Holdings to profitable growth and deliver shareholder value."
Back in May, former Sears executive Steven Dennis said now is the time for the struggling retailer to liquidate.
In a commentary on his blog, Dennis, a former vice president at Sears who exited the company in 2003 after about a decade, listed five reasons why the company should "stop the charade and embrace the inevitable." His points were:
- It doesn't offer a value proposition.
- It's lost its relevance in nearly every major category, while its competitors have gained ground.
- After years of underinvesting in its stores, it has a lot of catching up to do, and it now would be unable to fund the necessary upgrades.
- CEO Eddie Lampert "doesn't know what he is doing," and is investing in the wrong areas, such as the Shop Your Way loyalty program.
- Its valuable assets, including proprietary brands Kenmore and Craftsman and its real estate portfolio, are becoming "less valuable every day."
Dennis joined The Neiman Marcus Group following his exit from Sears and now serves as an advisor at SageBerry Consulting. Dennis said none of his clients compete broadly with Sears. Sears, as a rule, does not comment on the circumstances behind the departure of former employees.
Sears has closed hundreds of stores in the past decade, leaving more than 2,000 stores in its footprint, when accounting for both Sears and Kmart. More closings are expected.
Lampert, who owns about a 50% stake in the company, emphasized on his blog that turnarounds are different than transformations, and the company is taking measures to improve its profitability.
He wrote: "Turnarounds happen when a company succeeds again at doing what it had once done successfully before. Transformations are almost entirely different—they occur when companies adapt their business model to fundamental shifts in technology, competitive landscapes, government policies and regulations, or macro trends to serve their customers [or, in our case, members] in new ways. Over the last decade, incidentally, Sears and Kmart have faced all of the challenges I just listed."
Lampert continued, "Turnarounds are challenging, but transformations are even harder because not everyone sees the direction you're heading in or your destination. After spending our annual meeting with shareholders, associates, and other partners, however, I am hopeful that looking carefully at other companies' transformations sheds more light on the actions we are taking and why."
He also asked people to remember the transformations that took place at Apple, General Dynamics and Eastman Kodak.
"I want to be clear that I am in no way saying that Sears Holdings is just like any of these companies, but there are lessons to be learned from them," he said.
Retail expert Robin Lewis, author of online newsletter The Robin Report, made the argument that Amazon should acquire Sears. He called the idea "win-win" for both companies, as an acquisition would supply the online giant with thousands of distribution centers, while it would give Lampert a "profitable exit strategy."
Source: CNBC
Family Dollar Rejects Dollar General's $9.1-Billion Tender Offer
Family Dollar Stores again rejected last Wednesday a $9.1-billion takeover approach from Dollar General and urged shareholders not to tender their shares to the discount retailer’s bigger rival.
The step, largely formal, prolongs a heated battle over the fate of one of the U.S.’s most prominent dollar stores. Dollar General is looking to derail an agreement that Family Dollar struck to sell itself to a small competitor, Dollar Tree, for $8.5-billion.
In a news release, Family Dollar noted that Dollar General’s offer to buy shares directly from shareholders is a largely symbolic gesture, because it won’t actually purchase the shares unless the two companies reach an agreement.
But Family Dollar reiterated that the offer remains problematic. Combining the two companies, it has consistently argued, would run afoul of antitrust regulators who would be displeased that two of the country’s biggest dollar stores would be combining.
Though Dollar General has raised its offer price and added both a $500-million break-up fee in case a merger is blocked on antitrust grounds and a pledge to divest up to 1,500 stores if necessary, its target insists that such measures are not enough.
“Our board of directors, with the assistance of outside advisers and consultants, reviewed all aspects of Dollar General’s tender offer and concluded unanimously that this highly conditional offer is illusory because, as Dollar General is well aware, the offer cannot close on the terms proposed,” Howard R. Levine, Family Dollar’s chief executive, said in a statement. “Tenders into the Dollar General offer will be meaningless since there is no way that Dollar General can purchase shares that are tendered.”
The rejection has the backing of a major Family Dollar shareholder, the activist hedge fund Trian Partners. Such support could prove important, because such an investor would normally be expected to back a higher-priced takeover offer.
“We are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that,” Edward P. Garden, Trian’s chief investment officer and a Family Dollar board member, said in a statement. “As we have highlighted previously, Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk.”
Source: The New York Times
Costco Canada Switches to MasterCard from AmEx
Costco Wholesale Corp. will switch to accepting MasterCard Inc. rather than American Express Co. credit cards in Canada next year after talks broke down between the U.S. retail giant and AmEx.
Capital One Financial Corp. will soon offer a new co-branded MasterCard for Costco members in this country, serving as both a credit card and a Costco membership card, the companies confirmed last Thursday.
David Sherwood, director of financial planning and investment relations at Costco, said the U.S.-based retailer approached the negotiations with AmEx in the same way it deals with procuring other goods and services. “We go out there and basically try to get the best deal for our members to allow us to operate at the most efficient rate.”
The Costco and AmEx contract expires on Dec. 31. “I would assume we were able to get better terms elsewhere,” Mr. Sherwood said.
The end to a 15-year partnership between Costco Canada and New York-based AmEx suggests a rift between the two companies that have worked closely together, raising questions about whether they will continue to team up for the longer term in the chain’s core U.S. market.
But Costco’s U.S. stores will continue to accept AmEx cards, the company said. The exception is with the TrueEarnings and American Express Platinum Cash Rebate cards issued in Canada.
“The contract was up for renewal” between AmEx and Costco Canada, said AmEx spokesman David Barnes. “We weren’t able to come to terms.”
Costco and AmEx announced in 2010 that they were teaming up to introduce a rewards card for Canadian customers. Costco runs 88 stores in Canada and 468 in the United States and Puerto Rico, with another 107 outlets in seven other countries, its website says.
The Costco relationship represented a “sizable portfolio” for AmEx in Canada, Mr. Barnes said without providing details.
Both companies also have ties to Berkshire Hathaway Inc., which is run by billionaire investor Warren Buffett. Berkshire is AmEx’s biggest investor and its vice-chairman, Charles Munger, has sat on Costco’s board for more than 15 years. Berkshire also has a stake in Issaquah, Wash.-based Costco.
Source: The Globe and Mail
Economic News
Canadian Retail Sales Fall for the First Time in Six Months
Following six consecutive monthly gains, retail sales paused in July, edging down 0.1% to $42.5 billion Statistics Canada reported on Tuesday. Sales declined in 5 of 11 subsectors, representing 55% of retail trade.
Economists had expected a gain of 0.5%.
In volume terms, retail sales were flat in July.
Compared to a year ago, retail sales are 5% higher.
Sales at general merchandise stores decreased 2.7% in July, giving back some of June's gains. Weaker sales were reported by both store types within the subsector, as other general merchandise stores (-3.6%) and department stores (-1.5%) declined. Year-over-year, general merchandise store sales remain up 5.5%.
Sales at food and beverage stores were down 0.8%. Supermarkets and other grocery stores declined 1.1% in July while sales at beer, wine and liquor stores were essentially unchanged from June. Sales are 2.3% higher than a year ago.
Following three consecutive monthly increases, sales at clothing and clothing accessories stores declined 2.3% in July. Lower sales were reported at clothing stores (-2.4%), shoe stores (-3.0%) and jewellery, luggage and leather goods stores (-0.1%).
Sales at gasoline stations declined 0.3% in July, mainly reflecting lower prices at the pump but are up 4.9% from the same month last year.
Sales at motor vehicle and parts dealers advanced for the third time in four months, up 1.6% in July (+8.1% y/y). Sales at new car dealers (+2.5%) more than offset lower sales at other motor vehicle dealers (-5.4%), automotive parts, accessories and tire stores (-1.5%) and used car dealers (-0.1%).
Store types traditionally associated with housing purchases and home renovation showed continued growth in July. Receipts at furniture and home furnishings stores (+4.0%) advanced for the sixth time in seven months and are 7.3% higher from July 2013. Sales at building material and garden equipment and supplies dealers (+0.6%) grew for the fourth consecutive month and 5.5% year-over-year.
Following declines in May and June, sales at electronics and appliance stores increased 0.1% in July but remain down 0.6% from a year ago.
Retail sales were down in four provinces in July. Lower sales in Quebec and, to a lesser extent, British Columbia, accounted for most of the decrease.
Source: Statistics Canada, Reuters
Wholesale Sales Unexpectedly Drop by 0.3%
The value of Canadian wholesale sales in July unexpectedly dropped by 0.3% from June to $52.9 billion, pulled down in part by lower sales of agricultural supplies, Statistics Canada data indicated last Friday.
Analysts expected a 0.6%rise in July after three consecutive month-on-month advances. In volume terms, sales fell by 0.6%.
Declines in five sub sectors, which together represent 81% of wholesale sales, more than offset an increase in the motor vehicle and parts sub sector.
The miscellaneous subsector contributed the most to the decline in July, falling by $256 million or 3.7% to $6.6 billion, the lowest level in four months. The agricultural supplies industry (-8.1%) was the largest contributor to the decline. The colder and wetter spring weather in the Western provinces contributed to higher than normal sales in June and lower than normal sales in July.
Lower sales were also recorded in the other miscellaneous industry (-5.5%) and the paper, paper product and disposable plastic product industry (-3.8%). The other miscellaneous industry includes wholesalers of logs and wood chips, minerals, ores and precious metals, and second-hand goods (excluding machinery and automotive goods) as well as wholesalers not elsewhere classified.
Sales in the food, beverage and tobacco subsector declined 1.1% to $10.3 billion, mostly offsetting the increase recorded in June. Prior to this decline, sales had advanced in seven of the preceding nine months. The food industry (-1.1%) led the decline in July.
The machinery, equipment and supplies subsector decreased 0.7% to $11.0 billion, following three consecutive monthly gains. Lower sales at the other machinery, equipment and supplies industry (-2.5%), down for first time in six months, as well as the farm, lawn and garden machinery and equipment industry (-1.7%), down for the fourth time in five months, accounted for the decline.
For the first time in 2014, the building material and supplies subsector registered a decrease, falling 0.3% to $7.6 billion. The decline in the lumber, millwork, hardware and other building supplies industry (-2.2%), its first in eight months, more than offset the gains recorded elsewhere in the subsector.
The motor vehicle and parts subsector rose 3.1% to $9.4 billion in July, on the strength of higher sales in the motor vehicle industry (+4.4%). Exports and manufacturing sales of motor vehicles also saw strong growth in July.
In July, lower sales were recorded in five provinces. Saskatchewan contributed the most to the decline. Ontario and Quebec, two of the largest provinces in terms of wholesale sales, recorded relatively flat growth.
Inventories recorded a seventh consecutive gain in July, rising 1.0% to $66.5 billion. Gains were recorded in all subsectors.
The largest gain in dollar terms was in the motor vehicle and parts subsector (+2.9%), a second consecutive increase.
The inventory-to-sales ratio increased from 1.24 in June to 1.26 in July.
Source: Statistics Canada, Reuters
Inflation in Canada Holds Steady at 2.1%, But Core Rate Rises
Canadia's annual inflation rate was steady at 2.1% in August, but the closely-watched core rate unexpectedly jumped above the 2% threshold, Statistics Canada data showed last Friday.
The overall rate was in line with analysts' expectations and marked the fourth straight month it has been above the Bank of Canada's 2% target.
Statscan said the major driver for the year-on-year increase in the Consumer Price Index was higher shelter costs, which rose by 2.8% in August from a year earlier, compared to a 3% 12-month gain in July. The increase was led by a 17.9% surge in natural gas prices.
The household operations, furnishings and equipment index rose 3.0% on a year-over-year basis in August, led by a 7.6% increase in the cost of telephone services. In addition, the cost of Internet access services rose in the 12 months to August.
Food prices were up 2.2% in the 12 months to August. The cost of food purchased from stores increased 2.3% on a year-over-year basis, after rising 3.2% the previous month. This deceleration was led by prices for fresh fruit and fresh vegetables, both of which recorded smaller increases in August than in July. At the same time, consumers paid 9.3% more for meat in the 12 months to August. Prices for food purchased from restaurants were up 2.1% compared with the same month a year earlier.
Transportation costs rose 1.2% on a year-over-year basis in August, following a 1.3% increase in July. The purchase of passenger vehicles index advanced 2.9% in the 12 months to August, after rising 1.3% the previous month. Conversely, gasoline prices decreased 0.1% in August compared with the same month a year earlier. This decline followed a 2.1% gain in July.
The index for alcoholic beverages and tobacco products advanced 5.7% in the 12 months to August, following a 4.7% gain in July. This larger increase was led by higher prices for beer purchased from stores, which rose 2.8% year over year in August, after increasing 0.3% the previous month. Consumers also paid more for cigarettes on a year-over-year basis in August.
On a seasonally adjusted monthly basis, the CPI increased 0.1% in August, following a 0.1% decrease in July.
Of the eight major components, half rose and half declined on a seasonally adjusted monthly basis in August.
The seasonally adjusted index for household operations, furnishings and equipment (+1.3%) posted the largest monthly increase in August, followed by the alcoholic beverages and tobacco products index (+0.9%). The indexes for recreation, education and reading, as well as health and personal care also rose on a seasonally adjusted monthly basis.
The seasonally adjusted index for clothing and footwear (-0.4%) recorded the largest decline in August. The indexes for food, shelter and transportation decreased as well.
The Bank of Canada's core rate, which strips out the prices of some volatile items, rose to 2.1% last month, hitting a level last seen in April 2012, from 1.7% in July. Analysts had expected the rate to edge up to 1.8%.
The spike in core inflation was fuelled by higher telephone and passenger vehicles, according to Statscan.
The Bank of Canada is taking a relaxed attitude to the overall inflation rate, which peaked at a 28-month high of 2.4% in June, and predicts it will drop below 2% in the first half of next year.
The central bank said earlier this month that recent data reinforced the view that higher inflation had been attributable to temporary effects "rather than to any change in domestic economic fundamentals."
But other observers have suggested that the acceleration of Canada’s economic growth in recent months, and the strong improvement in demand for Canadian exports, might be creating more lasting inflationary pressures in the economy.
Source: Statistics Canada, Reuters, The Globe and Mail
Rising Home Prices Cause Rude Awakening for Potential Buyers
(Article by Tara Perkins, The Globe and Mail)
Many Canadians shopping for a home are facing a sobering reality check; roughly 40% discover they’re going to have to fork over tens of thousands more than they originally planned.
The phenomenon is most apparent in Toronto, where more than half (57%) of house-hunters say that they’ve realized they’re going to be spending more on a home than they planned once they started looking, according to a new survey conducted for Bank of Montreal. And not just a little more - something in the neighbourhood of $100,000.
But the trend also extends far beyond Canada’s most populous city, with a large proportion of buyers across the country experiencing a rude awakening. It speaks to the degree that prices have risen in recent years. Four-in-ten buyers nationally now expect they’ll spend more than they first wanted to.
More than one-third of buyers in Montreal now expect to pay more than they originally planned (about $48,000 more on average), as do 47% in each of Calgary and Vancouver (more than $80,000 more).
It doesn’t stop there. Almost one-third of buyers in Atlantic Canada expect to pay more, and they’ve bolstered the amount that they plan to spend by about 32%, meaning they now expect to pay about $72,105 more than they did when they began hunting for a home. In Manitoba and Saskatchewan 44% of buyers expect to pay more, to the tune of more than $85,000.
The vast majority of Canadian home-hunters surveyed said prices have gone up since they started looking, and more than 80% said they now have a better understanding of current prices. Fifty-six per cent of them have saved more for a downpayment.
The reality check has prompted more than half of potential buyers to look at housing types that they didn’t plan to consider, or to eliminate their first choice. More are looking at semi-detached homes and townhomes. Three-quarters are worried about the condo market, fearing that it might be overdeveloped or that the units won’t hold their value.
Only five per cent of the potential buyers said that they now expect to spend less than when they first started looking.
Source: The Globe and Mail
Toronto and Vancouver’s Red-Hot Housing Markets Aren’t as ‘Insane’ as They Look, Says
CIBC’s Top Economist (Article by Jonathan Ratner, The Financial Post)
In Toronto, calls for house prices to significantly fall are much like predictions for the Maple Leafs to win the Stanley Cup: They surface every year, but when the results don’t materialize, people are quick to say “wait until next year.”
This analogy from CIBC World Markets chief economist Avery Shenfeld comes as research continues to suggest that some elements of the Canadian housing market are vulnerable to a correction.
New condo supply, fatigue among borrowers and the inevitability of higher mortgage rates are obvious catalysts for such a fall, but Mr. Shenfeld highlighted an important point that investors and homeowners seem to be overlooking: The vast majority of gains have come at the upper end of the price spectrum.
Yes, this applies to the most expensive cities to live in Canada – Vancouver and Toronto – but more notably in their urban cores, as opposed to lower-priced alternatives in the suburbs.
“While perhaps stretched to the limit, that gap actually provides a rationale for the puzzling durability of the price rally: central Toronto and Vancouver increasingly look like Manhattan,” Mr. Shenfeld said in report.
He noted that there is no room to expand the single-family housing stock anywhere near these cities, which translates into long commute times for homeowners.
For Toronto, the economist pointed out that development land beyond the 905 area code (e.g., Markham and Niagara Falls) or in its furthest corners, doesn’t compete with or limit prices in the inner Rosedale or Annex neighbourhoods.
Meanwhile, the mountains and waterways surrounding Vancouver limit single-family housing supply.
“For similar reasons, the price for a rare single family house in Manhattan is even more astronomical relative to average incomes earned in the city,” Mr. Shenfeld said.
Condo supply can still be expanded through densification, and luxury homes in central locations face some risk due to the inability of those in mid-level house to move up.
“But land scarcity, and poor transport from distant suburbs, helps make the insanity of Canada’s house price climb look just a bit less insane,” the economist said.
Source: The Financial Post
Canada’s Aging Population Expected to Head West
(Article by Tavia Grant, The Globe and Mail)
Canada’s population will shift dramatically in the next half century, becoming greyer, more diverse and more concentrated in the four Western provinces.
A portrait of Canada in the next 50 years shows the country’s population could reach up to 63.5 million people by 2063 compared with 35.2 million last year, Statistics Canada projections show.
The country will be considerably older. By next year, the number of seniors in Canada could surpass the number of children. By 2063, the share of seniors in the population will climb to about 25% from 15% currently, with much of that shift taking place over the next 15 years as the baby boomers age. Meantime, the number of seniors over the age of 80 will jump to nearly five million compared with 1.4 million last year, with the number of centenarians soaring ninefold to 62,000.
The shift will exacerbate trends already under way, impacting everything from the country’s labour market to public finances. An older population suggests many will exit the work force or move to reduced hours, with fewer contributing to government revenues. At the same time, health-care costs are poised to swell, particularly as the 80-plus cohort grows, ramping up pressure on governments to find more efficient ways of delivering services.
“We will have slower growth in revenues for governments yet at the same time we have this challenge of dependency in the economy – we’ll have a lot of older people out of the work force needing health care, and not enough sustaining income to keep them happy and in the right levels of health care,” said Pedro Antunes, deputy chief economist at the Conference Board of Canada.
“In many ways, it’s already hit us,” he said, noting that labour-force growth has slowed in Canada since the recession and the participation rate has fallen.
The agency, which publishes population projections about every five years, crunched the numbers on seven scenarios that could unfold in the future, from low-growth to high-growth possibilities. Population projections are based on assumptions of future fertility, life expectancy and migration levels, the agency notes, and based partly on past trends. The range of projections for Canada’s population as a whole is between 40 million and 63.5 million people by 2063.
Immigration will remain the key driver of Canada’s population growth over the next half century, as has been the case since the early 1990s.
The number of seniors over the age of 80 will surge. By 2045, they will account for 9.6% of the population – up from 4.1% last year. And the ranks of people ages 100 years and over in Canada will soar, with more than 62,000 centenarians by 2063 (in the agency’s medium-growth scenario) compared with almost 7,000 last year, as the boomers age and mortality rates decline.
Atlantic Canada is already grappling with these changes. The region has the oldest population in Canada and by 2038, the share of seniors will surpass 30% in Newfoundland, Nova Scotia and New Brunswick. On top of that, several scenarios suggest these provinces will face outright population declines.
“Since our population is not growing, that means our labour force is going to slow and that creates challenges for employers in finding workers to replace the baby boomers as they stop working,” said David Chaundy, senior economist at the Atlantic Provinces Economic Council.
Concretely, that means employers will have to “compete strenuously for labour,” or be proactive in finding and keeping workers – particularly immigrants and young people – by offering training or relocation benefits, or raising wages. Business models may have to change to stay competitive, be it through investing in more computers and technology that reduce the need for workers, or relying more on other firms in other locations, he said.
It’s not all bad news, he adds – an eventual exodus from the labour market spells more opportunities for younger workers. And the region could eventually channel its expertise on coping with an aging population into a business opportunity, advising other jurisdictions on best practices.
Nunavut is expected to have the country’s youngest population, and higher fertility rates mean its population will grow to up to 53,300 by 2038 from 35,600 last year.
In Central Canada, Ontario and Quebec will remain the two most populous provinces in the coming decades. But their demographic weight in the country will likely decline.
The four westernmost provinces will have a growing share of the country’s population – especially Alberta. Population growth in the province will be the highest in the country in the next 25 years, with its population hitting up to 6.8 million people from 4 million last year. By 2038, Alberta's population will likely surpass British Columbia’s.
Saskatchewan is expected to grow, a shift from decade-ago projections of a population decline. Saskatchewan Premier Brad Wall said in a release he believes the province will continue to see strong growth.
“These projections show we are expected to keep growing and that’s a good thing,” Mr. Wall said in a release. “There are many challenges that come with growth, but I would rather deal with those than the challenges of decline our province was facing just a few short years ago.”
Source: The Globe and Mail
Latest U.S. Economic News
U.S. New Home Sales Surge to Six-Year High
Sales of new U.S. single-family homes surged in August and hit their highest level in more than six years, offering confirmation that the housing recovery remains on course.
The Commerce Department said on Wednesday sales jumped 18.0% to a seasonally adjusted annual rate of 504,000 units. That was the highest level since May, 2008, and marked the second straight month of gains.
July’s sales were revised to show a 1.9% gain instead of the previously reported 2.4% drop.
Economists polled by Reuters had forecast new home sales rising to only a 430,000-unit pace last month.
While the new home sales segment accounts for only 9.1% of the U.S. housing market, the increase last month should allay fears of renewed housing weakness after a surprise decline in home resales last month.
A survey last week showed homebuilder sentiment hit its highest level in nearly nine years in September, with builders reporting a sharp pick-up in buyer traffic.
In August, new home sales soared 50% in the West to their highest level since January, 2008.
Sales in the populous South increased 7.8% to their highest level in 10 months. In the Northeast, sales rose 29.2%, but were flat in the Midwest.
Despite the rise in sales, the stock of new houses hit its highest level in four years. At August’s sales pace it would take 4.8 months to clear the supply of houses on the market. That compared to 5.6 months in July.
Six months’ supply is normally considered a healthy balance between supply and demand.
Source: Reuters
U.S. Existing Home Sales Fall, Investors Pulling Back
U.S. home resales unexpectedly fell in August as investors stepped away from the market, but the decline probably does not signal renewed weakness in the housing sector.
The National Association of Realtors (NAR) said on Monday that existing home sales dropped 1.8% to an annual rate of 5.05 million units. The decline followed four straight months of gains and the sales pace was still the second highest for the year.
Economists polled by Reuters had forecast sales increasing to a 5.20 million-unit pace. Compared to August last year, sales were down 5.3%. Sales rose in two of the four regions.
“We continue to expect the U.S. housing recovery to be sustained, and we look for the pace of sales activity to pick-up in the coming months” said Millan Mulraine, deputy chief economist at TD Securities in New York.
Investors who have been propping up the market almost deserted it last month, accounting for only 12% of transactions, the smallest share since November 2009.
They are likely pulling back in anticipation of higher interest rates next year.
While first-time buyers did not step up in August, the Realtors group was optimistic that a strengthening labour market and some easing of lending practices would see their increased participation in the months ahead.
“First-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country,” said NAR chief economist Lawrence Yun.
All cash sales made up 23% of transactions in August, the smallest share since December 2009.
The share of first-time buyers was steady at 29%. A market share of 40% to 45% is considered by economists and real estate agents as ideal.
Housing is steadily regaining its footing after stagnating in the second half of 2013 as interest rates increased and prices surged against the backdrop of a dwindling supply of properties available for sale.
A survey last week showed homebuilder sentiment hit its highest level in nearly nine years in September and builders reported a sharp pick-up in buyer traffic since early summer.
The inventory of unsold homes on the market increased 4.5% from a year-ago to 2.31 million in August.
At August’s sales pace, it would take 5.5 months to clear houses from the market, unchanged from July. A months’ supply of 6 months is viewed as a healthy balance between supply and demand.
The improving supply is helping to restrain price increases. The median home price increased 4.8% from a year ago.
Source: Reuters
Measure of U.S. Economy’s Future Health Slows to 0.2% Gain in August
A gauge designed to predict the U.S. economy’s future health rose in August but at a much slower pace than in July.
The Conference Board said last Friday that its index of leading indicators rose 0.2% in August, the seventh successive increase. But that was much slower than the revised 1.1% gain in July.
“The leading indicators point to an economy that is gaining traction, but most likely won’t repeat its stellar second-quarter performance in the second half,” Conference Board economist Ken Goldstein said.
The U.S. economy, as measured by the gross domestic product, grew at an annual rate of 4.2% in the April-June quarter after going into reverse and contracting at a 2.1% rate in the January-March quarter, a decline that reflected the adverse impacts of a harsh winter.
Many economists say that the U.S. economy is growing at a solid pace of around 3% in the current quarter and will also expand at that rate in the final three months of the year.
For August, the small gain in the leading index came from strength in financial market conditions as measured by low interest rates and a rise in factory orders.
The index is composed of 10 forward-pointing indicators. Three showed strength during the month, four declined and three were unchanged. The biggest negative factor holding the index back was a drop in applications for housing permits.
Source: The Associated Press
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