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Volume 13, Issue 27, July 24, 2013

Inside This Issue:
• CHHMA Spring Conference & AGM To Take Place on April 8, 2014
• Loblaw Profit Increases 14.5% in Second Quarter, Revenue Up 2%
• Loblaw Gains Advantage with Smaller Urban Stores Acquired through Shoppers Deal
• Why Retailers Love Customers Who Shop On Their Smartphones 
• Retail Sales in Canada See Largest Monthly Jump in 3 Years 
• Canadian Wholesale Sales Rise at Fastest Pace in More Than Two Years 
• Inflation in Canada Rises to 1.2% in June, But Price Pressures Remain Tame 
• U.S. New Home Sales Hit 5-Year High, Prices Soar 
• U.S. Home Resales Drop in June, But Prices Surge 

Association News 

CHHMA Spring Conference & AGM To Take Place on April 8, 2014   
Next year’s CHHMA Spring Conference & Annual General Meeting is scheduled for Tuesday, April 8, 2014 at the International Centre (Conference Facility) in Mississauga – so mark your calendars!

The annual event is a value-packed one-day educational conference the offers keynote speakers and presentations on timely topics impacting manufacturers/brand owners.

The Association’s annual general meeting and board elections also take place during the conference as well as the Hardware/Housewares Industry Hall of Fame inductions during the luncheon.

To see a full list of industry and CHHMA events, please go to the Industry Calendar page on the CHHMA website:  

Industry News

Loblaw to Buy Shoppers Drug Mart for $12.4 Billion 
Loblaw Cos. Ltd. sees stronger-than-anticipated growth for the rest of the year as it prepares for the integration of Shoppers Drug Mart Corp.

Canada’s biggest grocery chain posted net profit of $178 million or 63 cents per share in the second quarter ended June 15, up 14.5% from $156 million or 55 cents in the year-earlier period.

Revenue increased by 2% to $7.5 billion from $7.4 billion.

Loblaw said improvements from the successful execution of its strategy in the first half of 2013 should result in mid-single digit growth in operating income for the full year, up from an earlier outlook of modest, low-single digit growth.

“We are pleased with our progress during this quarter. The investments we have made to advance our customer proposition once again translated into improved same-store sales performance in an intense competitive environment,” Loblaw executive chairman Galen G. Weston said in a news release Wednesday.

“At the same time, better mix and good expense management delivered improved earnings. To reflect our year-to-date performance, we are raising our outlook to expect mid-single digit operating income growth for fiscal 2013.”

Mr. Weston said the $12.4 billion acquisition of Shoppers, announced last week, as well as the recent spinoff of the real estate assets, “mark the beginning of a powerful new chapter for Loblaw.”

The Shoppers acquisition is expected to be completed within six to seven months, depending on the pace of the approvals process.

Same-store sales increased 1.1% in the second quarter, while overall retail sales growth was 1.9%, the company said.

Sales growth in food was ‘modest,’ said the company, which has been facing stiff competition in food from a rapid expansion of Walmart in the category this year. Sales in its drugstore were flat and sales in general merchandise declined, outside of apparel.

The earnings-before-interest-taxes-depreciation-and-amortization (EBITDA) margin rose to 6.8% from 6.4% in the quarter.

Operating income rose to $322 million from $290 million in the year-earlier period; the increase was due to a rise in retail operating income of $19 million and an increase in financial services operating income of $13 million.

Included in operating income were an $8 million charge related to the shift of some Ontario conventional stores to “more cost effective and efficient operating terms under collective agreements ratified in 2010,” and a $6 million charge related to the impact of share-based compensation net of equity forwards.

Operating margin was 4%, compared to 3.8% in the same period in 2012.

Loblaw said the $145 million increase in second-quarter revenue was primarily due to growth in the retail segment.

The company also announced today a quarterly dividend of 24 cents per common share.

Source: The Globe & Mail

Loblaw Gains Advantage with Smaller Urban Stores Acquired through Shoppers Deal 

Last week’s purchase of Shoppers Drug Mart by Loblaw Cos. was a move that buys into the small-format store model while also giving the Canadian grocer an edge over rivals by adding downtown stores across the country.

The acquisition will see Loblaw gain a drugstore chain with 1,242 small-format stores, many in inner cities. The downtown stores allow Loblaw to sell more groceries in the Shoppers’ drug stores, while adding more pharmacy items in its food outlets.

“There’s a great space for large one-stop shopping supermarkets or superstores in Canada,” said Loblaw’s chairman Galen G. Weston. “But with the urbanization of the Canadian market, small stores that can offer a really compelling combination of goods and services is a fantastic bolt-on for us.”

The push into the small-format direction is driven by changing consumer habits, as demands on time force consumers to look for more one-stop shopping solutions in their neighbourhoods, without having to drive to bigger retailers. The convenience store industry has already responded by attempting to alter its down-market image and offering more fresh foods. Loblaw has integrated pharmacies, as well as health and beauty products, into its locations. And along with Shoppers, drugstores have increasingly been selling everything from digital cameras and iPods to milk and dry goods, household items, and expanded beauty products.

While some consumers still want to buy the plethora of discounted food and household goods available during a trip to a mass merchant, many of them visit smaller retailers frequently in between those big-box trips.

Many other consumers never step inside the boxes at all, preferring to navigate a smaller space.

The move to the smaller general store format not only helps those retailers to market themselves to busy, younger urban shoppers, but it also addresses Canada’s aging population. Seniors are the fastest-growing demographic group in the country, and prefer to stick closer to home when running errands, said Kenric Tyghe, an analyst at Raymond James Financial Inc. “It’s very much about proximity and convenience.”

Also, as populations shift from the suburbs to cities, Canadian retailers are racing to open smaller-format stores in densely populated areas. More expensive real estate and a scarcity of good locations are two of the challenges facing retailers. Wal-Mart found this out earlier this year when residents of Toronto’s Kensington Market neighborhood collected 75,000 signatures for a petition opposing a new outlet planned by the world’s largest retailer.

“It gives Loblaw prime locations in urban areas where Wal-Mart and Target don’t compete as much,” said Alex Arifuzzaman, a partner of Interstratics Consultants Inc., a Toronto-based retail consulting firm. “They’re getting out of that really hectic competition in the suburbs and the big boxes and now they have a lot of access to the urban locations which are growing.”

More than 80% of Canadians currently live in urban locations and the numbers are on the rise. Toronto, which has more high-rises under construction than anywhere else in North America, is expected to see its population soar to more than 9-million residents by 2036, according to Ontario’s Ministry of Finance, a 44% rise from 2011.

“Loblaw does not currently have a store model that could see it go into downtown Vancouver, for example, point to a spot, and secure a space,” said Jim Smerdon, director of retail and strategic planning at commercial real estate firm Colliers International in Vancouver. “There is virtually no land available. Now, they have a half dozen Shoppers Drug Mart sites in downtown Vancouver that they can start selling their brands through.”

Toronto-based Shoppers’ pharmacies are on average 10,500 square feet, compared with Loblaw’s average size that is six times bigger. Wal-Mart stores average about 180,000 square feet, according to data from Bloomberg Industries.

Loblaw is not alone in pursuing a small-format, general store-like model.

Wal-Mart Stores Inc., which has long marketed its stores as offering everything under one roof at a discount, has been experimenting with smaller formats (less than 60,000 square feet) already in the United States. Its Neighborhood Market and Walmart Express stores are proving competitive against grocery stores, drugstores, and even dollar stores. While its big-box outlets still account for the vast majority of its locations, the company has said the small stores are helping to drive growth, and that 40% of new store openings in fiscal 2014 will be the smaller versions.

Target’s City Target format, at about 40,000 square feet on average, is intended for urban areas as well but has not made its debut in Canada.

Target’s food offerings in Canada do not include fresh fruits and vegetables, while Wal-Mart is adding fresh-food sections to its large-format stores.

Loblaw is already experimenting with smaller stores under its ’The Box’ banner.

Loblaw will boost the food offering in Shoppers stores, including adding a section for fresh food and featuring Loblaw’s private-label brands, Vicente Trius, Loblaw’s president, said on a conference call with analysts.

“Imagine going into the stores and being able to do a very basic, full-grocery shop,” Trius said of the food offerings planned for Shoppers stores.

Shoppers’ private label brands will in turn find their way into Loblaw stores to help boost the grocers’ pharmacy offering.

With Shoppers projecting people over the age of 65 to make up 25% of the Canadian population by 2036, inroads into the pharmacy business, where Wal-Mart and Target also have a presence, was another reason for the acquisition, according to Trius. The combined company will have 125 million prescriptions, or 25% of the Canadian market, he said.

“Drug store retailing is a relatively high-margin business so it makes sense for the grocery retailers to concentrate more of their efforts on their pharmacy,” said Dennis Mitchell, chief investment officer of Toronto-based Sentry Investments Inc. “If they can combine with the best- in-class provider in the country, it makes a lot of sense.”

Source: Bloomberg News, The Globe & Mail

Marketplace Stats & Trends
Why Retailers Love Customers Who Shop On Their Smartphones 
(Article by Susan Krashinsky, The Globe & Mail)
When you shop online, retailers are watching. It’s called traffic-flow analysis: Amazon knows what you looked at first, what you looked at next and what element on the page led you from point A to point B.  When you decide that you don’t really need a second colour in that $60 yoga tank top, Lululemon can see the exact point in your visit that you abandoned that item in your cart.

This kind of intelligence allows for smarter e-commerce sites, designed to make the path from home page to purchase-confirmation screen as smooth as possible for visitors.

But in brick and mortar stores, it’s a different story. Now, retailers are hoping that the electronic device most of us carry at all times, a mobile phone, will soon change that. 

Click here to read the full article.   

Economic News

Retail Sales in Canada See Largest Monthly Jump in 3 Years

Statistics Canada reported on Tuesday that retail sales rose 1.9% to $40.4 billion in May, the biggest month-to-month jump since March 2010. This followed relatively flat sales the previous two months.

The gains were widespread, with higher sales in all 10 provinces and 9 of 11 subsectors representing 94% of total retail trade.

Economists had been expecting a month-to-month increase of 0.4%, according to Thomson Reuters, picking up the pace from April’s increase of 0.1% and a flat March.

In volume terms, retail sales were also up 1.9%, a third consecutive month of growth.

The agency said the biggest increase in dollar terms was in motor vehicles and parts dealers, with a 4.3% increase from April. Sales were up at new car dealers (+3.3%) for a fifth consecutive month, mainly because of higher sales of light trucks. Higher sales at other motor vehicle dealers (+13.1%) more than offset the decline in April. Other motor vehicle dealers include retailers of recreational vehicles, motorcycles and boats. Sales at used car dealers (+3.5%) and automotive parts, accessories and tire stores (+8.8%) were both up from April.

Sales at food and beverage stores rose 1.1%. Supermarkets and other grocery store sales increased 0.7% following declines in March and April. Beer, wine and liquor store sales increased 2.2%, following declines the three previous months. The gain coincided with a later start to the National Hockey League playoffs.

A later start to the spring planting season affected the sales of retailers that sell lawn and garden products. These types of products are mainly sold at building materials and garden equipment and supplies dealers (+3.7%) and general merchandise stores (+1.4%).

The two sectors that fell were at electronics and appliance stores (down 0.8%) and miscellaneous store retailers (down 0.5%). But the declines in May did not offset the sales gains in April.

Retail sales rose in every province in May. The largest gain in dollar terms occurred in Quebec, where sales increased 3.1% and more than offset the declines of the previous two months. Gains were widespread across subsectors.

Higher sales at new car dealers as well as beer, wine and liquor stores contributed to a 1.8% increase in sales at Ontario retailers.

Sales gains in Alberta (+1.6%) were led by higher sales at new car dealers and gas stations.

Retailers in Saskatchewan reported a 5.0% sales gain in May. Higher sales in April and May more than offset the sales declines of the previous four months. Retailers in this province were strongly affected by the delay in the start of the spring planting season.

Nova Scotia (+1.4%) reported a third consecutive monthly sales increase in May.

Sales in New Brunswick (+0.7%) were up for a fifth consecutive month.

May was far better for retailers than economists had been expecting.

BMO economist Benjamin Reitzes said the strong showing in May suggests the economy may do better in the second quarter than anticipated by the Bank of Canada in its latest forecast.

However, Reitzes said the June results could be affected by the Calgary flood and Quebec construction strike.

“The surprisingly strong gain in retail sales, coupled good readings for wholesale trade, housing starts and home sales, suggests that May real GDP growth could be as high as 0.4%. That suggests there’s some upside to our call for 1.4% annualized growth in Q2 — the Bank of Canada’s 1% forecast looks quite light,” Reitzes wrote in a commentary.

The surprise jump also helped cool worries about the damage the Alberta floods and Quebec construction strikes would do to the Canadian economy. Both combined could take a 0.4% chunk out of the Canadian economy in June, said Krishen Rangasamy, economist with National Bank Financial.

But Mr. Rangasamy points out that with the blockbuster retail numbers in May, the Canadian economy is still well on track to beat the 1% growth the Bank of Canada is forecasting for the second quarter.

“Even assuming a subsequent sharp 0.4% drop in June output, the largest contraction in four years to take into account the Calgary floods and Quebec strikes in the construction sector, Q2 GDP would still be on track to grow around 1.5% annualized,” said Mr. Rangasamy. “Consumers seem to be doing much better than expected as evidenced by discretionary retail spending which is now at a new record.”

Source: Statistics Canada, The Canadian Press

Canadian Wholesale Sales Rise at Fastest Pace in More Than Two Years  
Canadian wholesale sales rose at the fastest pace in more than two years in May, reaching a record on sales of fertilizer and food.
Wholesale sales rose 2.3% to $50.3 billion in May, Statistics Canada said last Thursday, the largest rate of growth since the beginning of 2011. The increase was largely due to higher sales in the agricultural supplies industry and the food industry.

In volume terms, wholesale sales were up 2.4%.

Statistics Canada also revised higher its estimate of the April wholesale sales gain to 0.4% from an earlier 0.2%.

Wholesale sales have increased 0.8% over the past 12 months.

“It was a good number, no doubt about that,” said Krishen Rangasamy, senior economist at National Bank Financial, adding Canada isn’t “out of the woods because domestic demand remains soft” along with exports.

Sales increased in all subsectors in May. The miscellaneous subsector and the food, beverage and tobacco subsector accounted for more than 70% of the growth.

Sales in the miscellaneous subsector (+6.7%) were led by a 19.6% increase in the agricultural supplies industry, which recorded its six consecutive gain. The May advance in sales coincided with a higher than usual increase in fertilizer sales by manufacturers.

The food, beverage and tobacco subsector was up 3.9% as a result of higher sales in the food industry (+4.2%), which accounts for nearly 90% of the subsector's sales. The increase followed a year of relatively flat sales.

Sales in the motor vehicle and parts subsector rose 1.4%, largely because of an increase in the new motor vehicle parts and accessories industry (+2.9%), which recorded its first advance in three months. The motor vehicle industry posted a 0.9% gain.

In May, nine provinces posted advances in wholesale sales.

Wholesalers in Ontario contributed the most to the national increase, followed by wholesalers in Manitoba and Saskatchewan.

Ontario registered a 2.7% rise in wholesale sales. There were increases in several subsectors, particularly in the machinery, equipment and supplies subsector and the miscellaneous subsector.

Sales rose 9.2% in Manitoba, mainly as a result of higher sales in the agricultural supplies industry, which accounts for almost a quarter of the province's wholesale sales.

Saskatchewan posted a 5.0% gain, its fifth increase in six months.

The only decline occurred in Prince Edward Island, where sales were down 2.8%.

Inventories were unchanged at $61.8 billion in May, after rising 0.5% in April.

Declines, mainly in the miscellaneous subsector (-2.1%) and the machinery, equipment and supplies subsector (-1.5%), were offset by 1.7% increases in the personal and household goods subsector and the motor vehicle and parts subsector.

The inventory-to-sales ratio changed from 1.26 in April to 1.23 in May.

Source: Statistics Canada, Bloomberg News

Inflation in Canada Rises to 1.2% in June, But Price Pressures Remain Tame
Consumer prices picked up speed last month, fueled by higher the cost of gasoline and cars, but that is unlikely to nudge Canada’s monetary policymakers any closer to a change in interest rates.

The annual rate of inflation was 1.2% in June, up from 0.7% the previous month, but in line with economists’ forecasts and matching the level last seen in February.

Statistics Canada said last Friday said its Consumer Price Index (CPI), which has been at or below 1% since March, was pushed higher in June by a rebound in prices at the pumps and higher costs for passenger vehicles.

Compared with June last year, gasoline prices were up 4.6%. This followed a 1.5% decrease in May. Gasoline prices increased in the 12 months to June in all provinces, with Manitoba and Alberta posting the largest gains.

Prices for the purchase of passenger vehicles rose 2.0% in the 12 months to June, after declining 0.5% in May. The year-over-year increase in June was mainly attributable to smaller monthly price declines in June 2013 compared with the same month last year.

Consumer prices rose in six of the eight major components in the 12 months to June. The exceptions were health and personal care as well as recreation, education and reading. In addition to transportation, the shelter and food components led the increase in the CPI in June.

Shelter costs rose 1.2% in the 12 months to June, after increasing 1.3% in May. Natural gas prices and rent increased on a year-over-year basis in June, while mortgage interest cost decreased 3.8%.

Food prices increased 1.2% year over year in June, following a 1.3% rise in May. Compared with June 2012, consumers paid 1.3% more for food purchased from stores, as prices rose for fresh vegetables (+5.1%) and meat (+2.2%). In contrast, prices for sugar and confectionery declined 4.3%.

Consumers also paid 1.1% more for food purchased from restaurants.

Consumer prices rose in nine provinces in the 12 months to June, with the largest increase occurring in Manitoba. The exception was British Columbia, where prices declined on a year-over-year basis.

On a seasonally adjusted monthly basis, the CPI increased 0.3% in June, after rising 0.2% in May.

The seasonally adjusted indexes for six of the eight major components increased in June. The two exceptions were alcoholic beverages and tobacco products, which declined 0.1%, and clothing and footwear, which posted no change. The transportation index rose 1.6% in June, following a 0.2% increase in May.

The Bank of Canada's core index rose 1.3% in the 12 months to June, following a 1.1% increase in May.

On a monthly basis, the seasonally adjusted core index increased 0.2% in June, after posting no change in May.

Douglas Porter, chief economist at BMO Capital Markets, said the inflation numbers “reinforces two main messages for Canadian inflation — it has picked up from its extreme lows, but it remains quite benign at barely above 1%.”

“Fundamentally, this is why the Bank of Canada can be so very leisurely in its plan to ‘renormalize’ interest rates,” he said.

The Bank of Canada expects consumer prices to remain subdued for the time being, with inflation likely remaining below its target of 2% until mid-2015. Policymakers at the bank are forecasting economic growth of 1.8% this year, followed by 2.7% in both 2014 and 2015.

That moderate growth and weak inflation — along with lingering concerns over risks to the global economy — are likely to keep the central bank on the sidelines until at least the latter part of 2014, according to economists.

CIBC’s chief economist Avery Shenfeld said Friday’ report “suggests that we might be en route to inflation readings that are a bit closer to the Bank of Canada’s 2% target.”

The Bank of Canada’s trendsetting interest rate has been at a near-record low 1% since September 2010. Policymakers last Wednesday reiterated their stance to hold borrowing costs at that level.

Source: Statistics Canada, The Financial Post

U.S. New Home Sales Hit 5-Year High, Prices Soar
Sales of new U.S. single-family homes vaulted to a five-year high in June, showing little signs of slowing in the face of higher mortgage rates.

The Commerce Department said on Wednesday sales increased 8.3% to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008.

Sales increased 1.3% in May. 

Economists polled by Reuters had expected new home sales to rise to a 482,000-unit rate last month.

Compared with June last year, sales were up 38.1%, the largest increase since January 1992.

The third straight month of gains in new home sales, which are measured when contracts are signed, suggested the U.S. housing market was gaining more muscle and should allay concerns that higher mortgage rates could slow down momentum.

Mortgage rates have spiked in anticipation of the U.S. Federal Reserve starting to taper its generous monetary stimulus later this year. Rates still remain low and Fed Chairman Ben Bernanke last week expressed optimism the housing market recovery would continue.

Last month, the inventory of new homes on the market increased 1.3% to 161,000, the highest since August 2011, as builders continue to ramp up production to meet the growing demand.

Still, supply remains tight, putting upward pressure on prices. The median new home price increased 7.4% from a year ago.

At June’s sales pace it would take 3.9 months to clear the houses on the market, down from 4.2 months in May. A supply of 6.0 months is normally considered as a healthy balance between supply and demand.

Sales last month rose in three regions, but fell in the Midwest.

Source: Reuters

U.S. Home Resales Drop in June, But Prices Surge
U.S. home resales unexpectedly fell in June after two straight months of hefty increases, but a surge in prices to a five-year high suggested the housing market recovery remained on course.

The National Association of Realtors (NAR) said on Monday that U.S. home sales fell 1.2% to an annual rate of 5.08 million units. Still, sales remained the second highest since November, 2009.

May’s sales pace was revised down to 5.14 million units from the previously reported 5.18 million units.  

Economists polled by Reuters had expected sales to rise to a 5.25 million unit pace in June.

In the 12 months through June, sales were 15.2% higher. The median price for a previously owned home soared 13.5% from a year ago to $214,200, the highest since June 2008.

The number of houses for sale at the end of last month were the fewest for any June since 2001 as rising prices depleted the number of cheaper houses on the market.

The NAR said a spike in mortgage rates, in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year, had probably dampened sales in June.

“What’s holding sales down is just that there’re just not a lot of homes for sale,” Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “We’re not expecting really strong numbers for the rest of the year even though the housing market is getting hot. What you’re seeing is this pent-up demand show up in higher prices, not in higher sales.” He projected a June sales rate of 5.12 million.

The number of properties on the market increased 1.9% to 2.19 million, the fewest for any June since 2001. At the current sales pace, it would take 5.2 months to sell those houses compared with 5 months at the end of May.

“Momentum still appears to be strong,” NAR chief economist Lawrence Yun said at a news conference as the figures were released. “The inventory shortage is continuing to push prices higher.”

The shortage was particularly acute at lower price points as price increase push homes out of reach of first-time buyers, he said.

Source: Bloomberg News, Reuters

 Upcoming CHHMA Events 

Industry Memorial Golf Classic
Tuesday, October 1, 2013
Blue Springs Golf Club, Acton, Ontario

Industry Cocktail
Date TBA, 2013
Location TBA, Montreal, Quebec

Canada Night
Date TBA, March, 2014
InterContinental Hotel, Chicago, Illinois

CHHMA Spring Conference & AGM
Tuesday, April 8, 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 or call Pam Winter at (416) 282-0022 ext.21.


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"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:, or call at (416) 282-0022, ext. 34. CHHMA is located at 1335 Morningside Ave., Suite 101, Scarborough, ON, M1B 5M4

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