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Volume 15, Issue 10, March 11, 2015

Inside This Issue:

• Newly Appointed CEO of Groupe BMR, Pascal Houle, to Speak at CHHMA Breakfast Seminar Next Week
• Gain Some Valuable Business Insight at the CHHMA Spring Conference & AGM
• Register Now for Maple Leaf Night in Las Vegas
• CHHMA Ontario Golf Tournament Set for May 26 at Angus Glen G.C.
• Registration Now Open for CHHMA Quebec Golf Tournament – May 28
• Consider a Special Vision Care Benefit for your Employees
• Retailers Expect to Raise Prices, Feeling Pinch of Weak Loonie
• Sears Canada to Sell and Lease Back Three More of its Stores
• Target Corp. to Lay Off 1,700, Eliminate 1,400 Jobs as Part of Restructuring
• Deal for 11 Target Canada Store Leases Approved; Court to Review $1.9 Billion Debt Property Claim
• Loblaw to Open 50 New Stores this Year as part of $1.2 Billion Investment
• Costco’s Second Quarter Profit Tops Estimates
• Nordstrom Treads Carefully with Launch of Second Canadian Store
• IMF Raises Concerns Again About Canada’s Housing Market
• Canadian Housing Starts Fall Sharply in February
• Building Permits in Canada Drop 12.9% on Weak Non-Residential Plans
• Consumer Confidence Amongst Canadians Declines in February
• Poll Finds a Majority of Canadians Pessimistic About Economy
• U.S. Labour Market Flexes Muscles in February

Association News

Newly Appointed CEO of Groupe BMR, Pascal Houle, to Speak at CHHMA Breakfast Seminar Next Week 

The CHHMA is pleased to be presenting Mr. Pascal Houle from Groupe BMR inc. as our guest speaker at a CHHMA Breakfast Seminar next Tuesday, March 17, 2015 at the Hôtel Holiday Inn Montreal-Longueuil, 900 Rue St. Charles Est, Longueuil, QC J4H 3Y2.

Last week, François Dupont, Executive Vice-President, Retail & Innovation at La Coop fédérée, announced the appointment of Mr. Houle as CEO of BMR. Pascal will have under his responsibility the hardware and material activities of La Coop fédérée, which operates its franchises under the BMR and Unimat banners.

Mr. Houle has worked within La Coop network since 1998, starting as hardware director for La Coop des Appalaches and following as management advisor at La Coop fédérée. In
2004, he became director of hardware, materials and petroleum products at La Coop des Bois-Francs before being appointed general manager of the same cooperative which has sales of nearly $237 million. Pascal joined Groupe BMR as vice-president, retail, in 2013, before being appointed executive vice-president. He holds a bachelors degree in business administration from the University of Laval and is a certified management accountant.

Join us as Mr. Houle will discuss the changes and plans for BMR/La Coop fédérée in 2015, followed by a Question and Answer Period. (Mr. Houle’s presentation will be in French).

Mr. Houle will also be accompanied by members of his management team. 

The price to attend the breakfast is $75 for CHHMA members and $95 for non-members (plus taxes).

Click here for all the details and to register.  

Gain Some Valuable Business Insight at the CHHMA Spring Conference & AGM

This year’s CHHMA Spring Conference & Annual General Meeting is being held on Wednesday, April 8th at the International Centre Conference Facility in Mississauga, Ontario.

 Keynote presentations include:

Craig Alexander, Senior Vice President and Chief Economist for TD Bank Group, will once again kick off the conference with his always interesting and informative outlook of the Canadian, U.S. and Global economies.Find out where interest rates, the Canadian dollar and the housing market are heading and other key factors of the economy plus the risk factors that need to be considered.

Award Winning Marketing, Sales and Communication Expert, Media Commentator & Entrepreneur, Tony Chapman, will pass on his career lessons during his topic “Own It” where he will show how you can overcome adversity, road blocks and rules to positively engage and persuade all who matter and turn any interaction (meetings, presentations etc.) to your advantage.

Monique Macarico, a Social Media Consultant & Strategist, will discuss how the Big 3 in Social Media (Facebook, Twitter, LinkedIn) are impacting how manufacturers land the big retail accounts.Discover what retailers expect and how social media has become a critical element to getting your products on their shelves.

Consumer, Retail & Shopping Center Expert Anthony Stokan, will close the conference with a look at “What Brands and Retailers Must Do Today to Meet the Consumer Expectations of Tomorrow!”  See what the implications of e-commerce are and the retail categories that will be most impacted; how social media is changing the relationship of brands with consumers; and why buying attitudes and behaviour differ with millennials, generation y and boomers.

As well, Mr. Bryan Gilbart, Vice President of Marketing & Sales,Envirogard/Rainfresh Water Filters and Mr. Paul Straus, President, Home Hardware Stores Limited, will be inducted into the Industry Hall of Fame during the conference luncheon.Some key retailer executives will be invited to attend the luncheon and afternoon presentation by Mr. Stokan.

For full details and to register, click here.   

Register Now for Maple Leaf Night in Las Vegas   

Maple Leaf Night is taking place this year on the evening of Tuesday, May 5th at the Mirage Hotel & Casino in Las Vegas.This popular social event is open to CHHMA members and their retail customers in town for the National Hardware Show (May 5-7), which is celebrating its 70th anniversary this year.

Sponsorship is $750 CDN and entitles companies to corporate identification on all tickets, letterheads and event signage.It also entitles your company to one complimentary ticket for the host who will participate in the receiving line and two additional complimentary sponsor tickets.

Additional sponsor tickets can also be purchased for a reduced price of $110 CDN.

Regular individual tickets are $175 CDN or $225 CDN at the door.

Retailers/customers are invited to attend complimentary on behalf of the sponsors.

Click here for full details and to register. 

CHHMA Ontario Golf Tournament Set for May 26 at Angus Glen G.C.

The 46th Annual Ontario Golf Tournament (in support of the CHHMA Scholarship Program) will take place at the Angus Glen Golf Club in Markham, Ontario on Tuesday, May 26, 7:45 a.m. shotgun start. This year’s tournament will be limited to only 144 golfers on a first come, first serve basis.

Members attending the CHHMA Spring Conference & AGM on April 8th will be able to register early for the tournament.

The event is open to CHHMA members and their invited customers.  It includes breakfast, golf, an executive lunch, awards and prizes.

Click here for an Early Bird registration form if you have registered for the conference.

Full registration will commence after the Spring Conference & AGM.

So register soon and we hope you to see you there at one of the industry’s event highlights of the year!

Registration Now Open for CHHMA Quebec Golf Tournament – May 28

This year’s CHHMA Quebec Classique de golf / Golf Classic is once again being held at the excellent Club de golf Le Fontainebleau in Blainville, Quebec on Thursday, May 28th, limit of 144 golfers.

Registration and brunch will start at 9:00 a.m., with an 11:00 a.m. shotgun start.  After golf, there will be dinner with wine followed by prize presentations.

In order to maintain the most reasonable cost possible, the tournament depends on company sponsors, so please consider sponsoring a hole while registering.

Click here for full details and to register now:   French Registration       English Registration

There’s always a great turn-out from the customer and vendor side and we hope you can make it to this year’s event.

Consider a Special Vision Care Benefit for your Employees

Why let your employees pay Retail for their glasses and contacts when you can get them for Wholesale?

If your plan’s current Vision Care benefit is $225 or more every two years, the CHHMA Benefit Program can provide your employees with a pair of glasses EVERY year.

For more information on this innovative new plan benefit, please contact:

Nigel Ottley, Broker
Benefits Architect Group
(416) 934-1660

Working Together for your Benefit 

Industry News

Retailers Expect to Raise Prices, Feeling Pinch of Weak Loonie

(Article by Marina Strauss, The Globe and Mail)

A declining Canadian dollar is keeping many retail executives awake at night as they grapple with rising costs that could force them to increase prices – and scare away customers.

That’s the takeaway from an internal Retail Council of Canada survey that forecasts overall sales gains in 2015 but “impossible cost pressures” as a result of a weak loonie that could squeeze profit margins.

The research found 70% of respondents said last month they would have to raise retail prices by between 1 and 5%, “with most mentioning increases toward the top end of the range,” the report said. Another 18% expect price increases of more than 5%.

Retailers buy much of their inventory overseas or south of the border in U.S. currency, which has strengthened considerably in the past year, making imported goods more expensive. The value of the Canadian dollar has dropped almost 16% against the greenback since the start of 2014.

“In the Chinese calendar, this may be the year of the sheep, but for retailers it will be the year of the roller coaster, if not the house of horrors,” said the report, which is meant for council members only and was obtained by The Globe and Mail.

The dollar’s devaluation comes amid sagging oil prices, which threaten to hurt business in once fast-growing retail markets, such as Alberta.

Domestic merchants anticipate a bit of relief from the impending exit of rival Target Canada. Consumers are also likely to go cross-border shopping less often and will benefit from cheaper gas.

But retailers cannot ignore the harsh realities of a weaker loonie. Many were counting on riding it out last year, turning a deaf ear to suppliers’ warnings of higher wholesale prices tied to the depreciating dollar, said Augustin Manchon, a veteran pricing specialist and president of consultancy Manchon & Co.

Vendors are now pushing through higher prices, and retailers are expected to pass on the increases to shoppers, he said. “Consumers are going to feel it soon – in some categories, it’s going to be dramatic,” he said, referring specifically to flights, vacation packages, cars, clothes and food.

RONA inc. hasn’t implemented price increases because of the exchange rate but that will change soon, chief executive officer Robert Sawyer said last month.

In the coming season, “yes, there’s going to be inflation,” he told analysts. “But today, we cannot feel a huge amount of price change at store level. … For sure, it’s going to come, but we didn’t feel it yet.”

Mastermind Toys, the country’s largest specialty toy chain, expects to raise some prices between 1 and 5%, mostly in the lower end of the range, president Humphrey Kadaner said.

Mastermind’s economies of scale help give it an edge in negotiating with suppliers for better prices or even improvements in products, he said. It recently raised the price of its Rainbow Loom kit almost 12% to $18.99 from $16.99 last year. At the same time, the supplier upgraded the product by replacing the plastic hook with a more functional metal-tipped one, a change the retailer had encouraged, he said. The chain purchases about one-third of its merchandise in U.S. dollars, he said.

Dean McCann, chief financial officer of Canadian Tire Corp. Ltd., also referred to the “headwinds” of the weaker loonie, noting that a sustained drop in value “can be expected to have an increasing impact over 2015.”

“We expect to be impacted by the effects of the decline in the Canadian dollar, but the degree is difficult to predict and I’m certainly no economist,” he told analysts last month. “That said, we know that, like all retailers buying products overseas, we will have to factor the higher exchange costs into decisions about procurement, pricing and supply chain.”

Mr. McCann said the company’s hedging would help offset the pain of a weaker loonie while other factors would come into play in determining profit margins. “Our merchants have done a very good job managing all the inputs into cost and margin to date.”

Already, food prices have seen sharp gains, although not only because of the dollar.  Overall consumer prices rose 1% in January from a year earlier, with food inflation up 4.6%, the largest gain since November, 2011, Statistics Canada said.

“At some point, we expect some cost inflation pressures,” Eric La Flèche, CEO of grocer Metro Inc., said in late January. “We will be treated fairly by the suppliers and we will be competitive.”

The council’s report said retailers expect to raise prices mostly in the second half of 2015, which could “amplify the trend toward online shopping, where price is the critical variable.”

Click here to read the rest of the article.

Source: The Globe and Mail

Sears Canada to Sell and Lease Back Three More of its Stores

Sears Canada Inc. announced today that it has entered into an agreement with Concord Pacific Group of Companies to sell and lease back three of its properties for $140 million subject to certain adjustments. The after-tax proceeds, including adjustments, are currently estimated to be approximately $130 million.

The locations include store space and adjacent property located at the Metropolis at Metrotown in Burnaby, B.C., Cottonwood Mall in Chilliwack, B.C. and North Hill Shopping Centre in Calgary, Alberta. The transaction is scheduled to close on or about June 8, 2015, subject to satisfaction of customary closing conditions.

Sears will continue to operate the stores located at these shopping centres under long-term leases and there is no impact on customers or Sears team members in these locations.

"The agreement with Concord is a great way for Sears Canada to create value from its network without adversely impacting operations," said Ron Boire, President and Chief Executive Officer, Sears Canada Inc. "This transaction will strengthen our financial position as we continue to implement initiatives designed to make Sears successful. We look forward to continuing to serve our loyal customers in the Burnaby, Chilliwack and North Hill communities in the locations with which they have become familiar over several decades."

Source: Sears Canada

Target Corp. to Lay Off 1,700, Eliminate 1,400 Jobs as Part of Restructuring

Target Corp. said on Tuesday that it will lay off 1,700 workers and permanently close out another 1,400 open positions.

The announcement puts a number on last week’s announcement that the U.S. retailer would eliminate several thousand jobs as part of a restructuring aimed at saving $2-billion in costs over the next two years.

Target spokeswoman Molly Snyder says the cuts will come primarily at headquarters locations in the Minneapolis area, where the company employs about 13,500 people.

The U.S. job cuts follow Target’s decision to pull out of Canada, which will shed about 17,600 employees once the process is complete, following a disastrous foray into the company’s first international market.

The cost-cutting forms a key plank of a revival plan outlined last week by Chief Executive Officer Brian Cornell, who has sought to narrow the retailer’s focus to a handful of product lines where Target believes it has an edge on quality and price while also investing to catch up with rivals online.

Cornell said Target’s management needs streamlining and he wants to change the corporate culture from one focused on process to one that meets the demand of customers. Target said it was revamping its merchandise, in part to attract both Millennials and Hispanics, seen as important to driving future sales growth.

“We know that to compete today speed and simplicity are critically important,” Cornell told a meeting of analysts in New York.

“Executing on this plan will translate to growth.”

Target also said it would invest US$1 billion in technology and to upgrade its supply chain. It expects profit margin, as measured by earnings before interest, tax, depreciation and amortization, to hold steady at between 9.5% to 10% over the next five years, from 9.5% last year.

In addition to making the decision to pull out of Canada, Cornell has also halved the threshold on free shipping, undercutting Wal-Mart and others in the war for online customers, and is focusing investment on a handful of “signature” categories, including apparel, home goods and beauty products. Cornell outlined plans to improving Target’s offering of organic and other food offerings to boost its grocery business, which accounts for one-fifth of overall sales.

For the current fiscal year ending January 2016, the company said it expected adjusted earnings per share, which excludes data breach costs and other expenses, of between US$4.45 and US$4.65, compared with the US$4.27 per share it earned last year and the market consensus for US$4.51, according to Thomson Reuters.

It projected same-store sales growth of 1.5 to 2.5% this fiscal year and total sales growth of 2 to 3%.

Some of the growth will come from smaller-sized stores. Of the 15 new stores Target plans to open this year, eight will be a convenience store format called Target Express, highlighting its push to capture demand in urban centres.

The company also said it had the capacity to buy back up to US$2 billion worth of its own shares this fiscal year, and looks to repurchase US$3 billion annually from the following year and beyond.

Source: The Associated Press, Reuters

Deal for 11 Target Canada Store Leases Approved; Court to Review $1.9 Billion Debt Property Claim

Landlords paid $138 million before taxes to buy back 11 properties from Target Canada as it winds down operations at 133 stores across Canada.

The deal was announced earlier this month and discussed in last week’s newsletter, but the price paid was sealed by the court until the deal officially closed, for competitive reasons.

The transaction between Target Canada and the landlords, including Oxford Properties and Ivanhoé Cambridge, two of Canada’s largest commercial real-estate companies, closed last Friday.

Target will turn back the leases to the 11 properties, renting them back for as long as needed to complete the ongoing liquidation sale.

Under the agreement, Target pharmacists are allowed to keep operating in the spaces until March 30, unless the stores they are based in close before that date.
Store leases will be transferred back to landlords as the stores are closed.

Target has not made public a timetable for store closures.

Numerous other retailers have indicated interest in getting into some of the 133 locations that will be coming to market as Target shuts down, including Walmart and Canadian Tire and a discount fitness centre chain.

“The unsecured creditors are pleased to have these additional funds available for distribution to the creditors. We would be pleased if the balance of the lease portfolio were sold at the same price per store as this most recent transaction,” said Lou Brzezinski, a Blaney McMurtry lawyer representing creditors owed an estimated $10 million.

Meanwhile, an Ontario court has put a spotlight on a controversial $1.9-billion debt that insolvent Target Canada says it owes its own property company – and which other creditors fear will “swamp” their own claims.

Justice Geoffrey Morawetz told Ontario Superior Court last Thursday that it will seek an open and thorough review of the $1.9-billion inter-company claim – and all other ones – by the court-appointed monitor.

“I agree this has to be a very full, transparent process, not run by Target Canada,” Justice Morawetz said after a lawyer for some suppliers warned the $1.9-billion claim could overtake others.

The fight over the $1.9-billion claim comes as creditors race to try to recover what they can in the retailer’s insolvency process, which has left suppliers alone with an estimated $400-million of claims.

In the bankruptcy process, the $1.9-billion inter-company claim makes Target Canada’s property firm the chain’s single biggest creditor so far, threatening the recoveries of others.

Still, the $1.9-billion claim will not be the only intercompany claim to surface in the insolvency proceedings, a lawyer for Target Canada said.

Tracy Sandler, partner at Osler Hoskin & Harcourt LLP which represents Target Canada, said in a court document the monitor will file a report outlining the nature and amounts of all inter-company claims as part of the wider process. At that point, all stakeholders will be able to respond, she said.

She disagreed with some suppliers’ contention that the $1.9-billion claim changes the landscape of the insolvency proceedings. She said Target Canada had called out in its initial filing that there would be an inter-company claim tied to its property company.

Mr. Brzezinski, the lawyer representing some suppliers, said he plans to challenge the $1.9-billion and other inter-company claims. As well, he will seek to have the $1.9-billion claim subordinated behind other unsecured creditors’ claims, he said.

At the start of the insolvency process, an affiliate of parent Target Corp. agreed to subordinate to other unsecured creditors $3.1-billion it is owed by Target Canada.  But it has not said it would subordinate the $1.9-billion claim to other creditors.

In court, the judge agreed the monitor will prepare a report when all the inter-company claims are submitted for court approval. “The creditors will have an opportunity to seek any remedy or relief with respect to the inter-company claims,” the court said.

Source: The Toronto Star, The Globe and Mail

Loblaw to Open 50 New Stores this Year as part of $1.2 Billion Investment

Canada’s largest supermarket chain has big plans for expansion this year, as it increases its footprint in the competitive grocery market.

Loblaw Companies Ltd. said on Monday that it will build 50 new stores and renovate or improve more than 100 existing stores in 2015. The additions will be across the country, and Loblaw estimates it will create about 5,000 jobs at its corporate and independently owned stores.

The company, which operates several banners including Loblaws, No Frills, Fortinos and Shoppers Drug Mart, will also look to make more investments in its e-commerce offering, supply chain and IT infrastructure.

Lobaw will continue to expand the company’s “click and collect” e-commerce pilot program, where shoppers can order groceries online and get them delivered to their waiting vehicles at stores. The pilot is operating at six locations in the greater Toronto area.

Loblaw spokesperson Kevin Groh said the program was “showing promise.”

The total amount Loblaw plans to spend in 2015 on these initiatives is expected to top $1.2-billion.

“True to our strategy, our investment will create better access to fresh food, wellness solutions closer to home, e-commerce convenience, and a family of stores that elevate grocery, pharmacy, apparel and banking experiences,” said Galen G. Weston, executive chairman and president at Loblaw Companies, in a statement.

Some of the in-store improvements will concentrate on Loblaw’s Joe Fresh discount clothing line, which the company plan to add in 50 more grocery stores this year.

It will also look to renovate Shoppers’ locations acquired in a blockbuster $12.4-billion deal announced in July, 2013. Since completing the purchase, Loblaw has been steadily introducing its No Name and President’s Choice brand products, along with fresh food, in some locations to the pharmacy stores.

To date, there are more than 800 items, such as baby food and its PC Decadent cookies, sold in Shoppers stores countrywide.

Loblaw and other Canadian retailers will benefit from Target’s decision to close all its Canadian stores but Wal-Mart Canada remains a major competitor.

While analysts believe Loblaw, alongside Walmart, will pick up some locations being vacated by Target, Groh said Monday’s announcement didn’t include any current Target locations.

“We do have a team that’s looking at that separately,” he said.

Wal-Mart Canada recently announced it plans to expand seven stores and open two new ones this fiscal year. Wal-Mart will also convert 20 of its Canadian stores into super centres by adding a grocery section.

Wal-Mart Canada estimates the cost at $230-million, with an additional investment of $75-million to expand its distribution network and $35-million on e-commerce initiatives.

Groh said the company views competition in the Canadian grocery market “still heavy,” but noted that the pace of retailers opening or building new stores has actually slowed compared to previous years.

Source: The Canadian Press, Global News

Costco’s Second Quarter Profit Tops Estimates

Costco Wholesale Corp. posted second-quarter that topped analysts’ estimates as sales outpaced discount rivals such as Wal-Mart Stores Inc.

Net income rose 29% to $598-million, or $1.35 a share, from $463-million, or $1.05, a year earlier, the company reported last Thursday. The average of 25 analysts’ projections compiled by Bloomberg was $1.18.

Costco has outperformed Wal-Mart and Target Corp. recently. Sales at Costco stores open a year or more increased 8% in the quarter, excluding changes in gasoline prices and foreign-currency exchange rates. In its most recent quarter, Wal-Mart reported a 1.5% increase in U.S. same-store sales, while Target posted a 3.2% gain.

Sales in the quarter ended Feb. 15 rose 4.4% to $27.5-billion. Revenue from membership fees advanced 5.8% to $582-million.

The stronger dollar took a toll on international same-store sales, which fell 2% when including the impact of currency fluctuations and gas-price deflation. They rose 8% without those effects.

Source: Bloomberg News

Nordstrom Treads Carefully with Launch of Second Canadian Store
(Article by Marina Strauss, The Globe and Mail)

Upscale U.S. retailer Nordstrom Inc. has taken a cautious approach to its launch in Canada, even at times overstocking its single storein Calgary, to ensure it doesn’t disappoint customers.

“We probably, because of our sensitivity, were a little guilty internally of maybe even having too much inventory,” Blake Nordstrom, president of Nordstrom, said in an interview with the Globe and Mail last week.  “That’s put a little pressure on the margins. We’d rather err that way.”

Nordstrom is treading carefully in Canada, opening its second store last Friday in Ottawa, another one in the fall in Vancouver and six in all by 2017. Industry watchers have roundly praised the offerings and look of the Calgary outlet, which opened in September, but the go-slow strategy has its costs: The Seattle-based company predicts tens of millions of dollars in annual operating losses before it can scale up to earn profits.

Nordstrom executives are “taking their time in order to make sure they get it right,” said Dorothy Lakner, managing director and retail analyst at Topeka Capital Markets in New York. Nordstrom is testing the waters in smaller markets and the efforts seem to be paying off in drawing customers, she said.

Mr. Nordstrom said the Calgary store’s sales per square foot – an important measure of retail productivity – exceed the U.S. chain’s average of $372 (U.S.) for its regular stores in 2013, although he didn’t provide specific figures.

After delaying the launch here of its discount Rack stores, which generated $553 sales per square foot in 2013, the retailer will introduce them in Canada beginning in the fall of 2017, he said. It eventually plans 15 or more Rack outlets.

The stakes are high. In 2014, Nordstrom posted an operating loss of $32-million for its Canadian start-up and this year, it expects the loss to almost double to $60-million, chief financial officer Mike Koppel said recently.

It anticipates another $60-million of operating losses in 2016 before the red ink starts to recede in 2017. But executives haven’t yet said when the Canadian division will be in the black. “It’s a sizable commitment to open these stores,” Mr. Nordstrom said.

The retailer has taken the opposite route that U.S. discounter Target Corp. followed in entering this country, the latter having racked up an after-tax loss of more than $4-billion last year. It is now preparing to shut all 133 of its stores. Target opened most of its outlets here quickly in 2013 and suffered from supply chain snags, which led to empty shelves. Shoppers often complained prices were too high.

Comparing the two chains is “apples and oranges and inappropriate,” Mr. Nordstrom said. “There are huge differences. They opened over 100 stores at once. That’s quite a difficult feat. We opened one. We’re focused on one store at a time, six stores in total. We’re doing our best to open those properly.”

Nordstrom’s Ottawa store will cater to its downtown shoppers with more space for men’s wear, a shoeshine booth and an outdoor patio for its restaurant, he said. Men’s clothing sales, which are strong in its Calgary store, probably benefit from a relatively wide range of prices, including some more accessible ones, he said.

And now that it has more confidence in its supply chain, it doesn’t plan to overstock the Ottawa store, spokeswoman Brooke White said. It keeps extra inventory of many basics, such as socks and underwear, at its third-party distribution centre, she said.

Nordstrom is expanding in Ottawa just as Holt Renfrew & Co., Canada's dominant luxury retailer, closes its store there. But at the same time, the U.S. retailer faces a more crowded market as Holt Renfrew invests in its other locations, including a new men’s store, while Saks Fifth Avenue, now owned by Hudson’s Bay Co., will open its first stores in Canada starting next year.

There has been talk that the tony U.S. Bloomingdale’s is looking at a Toronto site for a Canadian launch in 2018. Spokeswoman Anne Keating, however, said it is “always exploring opportunities for Bloomingdale’s. There is no plan to open in Toronto.”

Source: The Globe and Mail

 Economic News

IMF Raises Concerns Again About Canada’s Housing Market

The International Monetary Fund (IMF) has raised an alarm about Canadian real estate in a report that says Ottawa’s efforts to tame the market have only been partially effective.

As Canada’s economy absorbs the impact of a 50% decline in oil prices, its two main vulnerable areas remain its overheated housing markets and high household debt, says the report by Hamid Faruqee and Andrea Pescatori.

Though household debt appears to have stabilized recently, it has risen to historical highs of 150% of disposable income in the past decade — one of the highest among member countries of the Organization for Economic Cooperation and Development, the report notes.

At the same time, house prices nationally have risen more than 60% led by Toronto, Calgary and Vancouver, the latter ranked the second least affordable market in the world next to Hong Kong.

But the IMF said with weaker trade, growth and the prospects of a U.S. rate hike, Canada’s overvalued housing market may be cooling off.

“There have been some recent signs that home listings to sales are rising noticeably in oil-rich Alberta, and we will need to keep an eye on the risk of a hard landing,” the report said.

The steps Canada has taken to tighten mortgage lending (lower amortization periods, higher down payments) have only been partially effective, says the IMF.

“A possible sign of “leakage” from tighter financial rules in Canada … involves the expanding role of uninsured mortgages.”

These loans, which require a 20% down payment and are not subject to regulatory tightening, now comprise the bulk of new mortgages and are fuelling housing demand, the report said.“If financial risks start rising again, policymakers may need to take further action to tighten rules on these loans.”

The IMF urges Canada to reduce taxpayers’ exposure to the risks of the housing market by reforming the government’s role in mortgage insurance through the Canada Mortgage and Housing Corporation.

“Limiting the federal backstop would increase private sector risk sharing and can further encourage prudence,” it said.

The IMF reiterated its call for Canada to collect more data on its housing market and to centralize oversight of the financial sector. As it stands, regulation remains fractured among the Department of Finance, the Office of the Superintendent of Financial Institutions, the Canada Mortgage and Housing Corporation and provincial governments all playing separate roles in regulating the housing the market.

Regulatory leaders meet regularly as part of Ottawa’s Senior Advisory Committee, but that is an informal body the IMF says should become more formalized.

“Providing a mandate for macro-prudential oversight of the financial system as a whole to a single entity would strengthen accountability and reinforce policy makers’ ability to identify and respond to future potential crises,” wrote IMF officials.

“Such a body should have participation broad enough to ‘connect the dots’ and form a complete and integrated view of systemic risks with powers to collect the required data.”

Source: The Financial Post, The Globe and Mail

Canadian Housing Starts Fall Sharply in February

Canadian housing starts fell much more sharply than expected in February, a move that may have been aggravated by severe winter weather, data showed on Monday.

The latest report from the Canadian Mortgage and Housing Corporation (CMHC) showed the seasonally adjusted annualized rate (SAAR) of housing starts fell 16.4% to 156,276 units last month from a downwardly revised 187,025 in January. That fell short of the 180,000 economists had expected.

January had previously been reported as 187,276 units.

While Canadian economic growth has been hurt by a sharp drop in the price of oil, many parts of Canada were also hit by severe winter weather last month that may have affected the data.

“The winter’s chill casts doubt on how much we should read into the dive in Canadian housing starts in February. The 156.3K level, down from 187K in January, was well below what the recent trend in permits (and unused permits) would have suggested,” CIBC economist Avery Shenfeld said in a note to clients.

“February isn’t in raw, unadjusted terms an important month for home building, which is a further reason to downplay this particular month’s figures.”

The CMHC said the six-month moving average of starts slipped 3.5% to 182,137 units in February, from 188,761 in January.

“The trend in housing starts decreased for a fifth consecutive month in February and reflects a decreasing trend in multiple starts,” said Bob Dugan, CMHC’s chief economist. “The declining trend in multiple starts is helping to gradually erode the inventory of completed and unsold units, which is high compared to historical levels.”

The SAAR of urban starts decreased 18.2% to 140,722 in February, from 171,950 in January. The decrease in February reflects broad based declines in eight of the ten provinces. The decrease was led by multiple urban starts, which reached 86,214 units in February down 25.1% from 115,123 in January. Single-detached urban starts decreased 4.1% to 54,508 units in February from 56,827 the previous month.

Rural starts were estimated at a seasonally adjusted annual rate of 15,554 units, up 3.2% from 15,075.

Source: CMHC, Reuters

Building Permits in Canada Drop 12.9% on Weak Non-Residential Plans

The total value of building permits issued by Canadian municipalities fell 12.9% to $6.1 billion in January, following a revised 6.1% increase in December. Lower construction intentions for non-residential buildings in Alberta, British Columbia and Ontario were responsible for much of the national decline Statistics Canada reported last Friday.

Market analysts had forecast a 4.3% decline for January.

In the residential sector, the value of permits declined 7.0% to $4.1 billion, following a 1.5% increase in December. Decreases were registered in every province, except Saskatchewan, as a result of lower construction intentions for multi-family dwellings. Ontario, Quebec, British Columbia and Manitoba posted the largest declines. Saskatchewan posted an increase in the value of both single and multi-family dwelling permits.

The value of permits for multi-family dwellings declined 21.0% to $1.5 billion in January, a fourth consecutive monthly decline. This marked the lowest level for the component since March 2013. The decrease in January was the result of lower construction intentions in nine provinces, with Ontario registering by far the largest decline. Saskatchewan was the lone province to post an increase.

Municipalities issued building permits for single-family dwellings worth $2.6 billion in January, up 3.5% from December. This was the second consecutive monthly advance. Increases were reported in four provinces, led by Ontario and Quebec.

Canadian municipalities approved the construction of 14,888 new dwellings, down 7.5% from the previous month. The decline was the result of a 12.9% decrease in the number of multi-family dwellings to 8,510 units. Conversely, the number of single-family dwellings increased 0.9% to 6,378 units.

Construction intentions in the non-residential sector fell 22.8% to $2.0 billion in January, following a 15.0% increase the previous month. Decreases were recorded in eight provinces, with Alberta, British Columbia and Ontario accounting for most of the drop. Quebec (+54.3%) registered the largest increase.

Canadian municipalities issued institutional building permits worth $387 million in January, down 49.8% from December. This followed a 15.2% increase the previous month. The value of institutional building permits was down in six provinces, with Alberta and, to a lesser extent, British Columbia accounting for much of the monthly decrease.  The decline at the national level was the result of lower construction intentions for educational institutions, medical facilities as well as nursing homes and retirement residences. Ontario posted the largest gain in the value of institutional building permits.

The value of commercial building permits fell 8.0% to $1.3 billion, following a 15.1% increase in December. This was the result of lower construction intentions for a variety of commercial buildings, including hotels and restaurants, warehouses and office buildings. Declines were recorded in seven provinces, with British Columbia, Alberta and Ontario posting the largest decreases. Quebec (+110.6%) registered the largest increase in the commercial component.

In the industrial component, the value of permits was down 22.8% in January to $337 million, following a 14.2% increase the previous month. The decrease was mainly attributable to lower construction intentions for transportation-related buildings and, to a lesser extent, manufacturing plants in several provinces. Gains were registered in four provinces in this component, led by Quebec.

Regionally, the total value of permits was down in eight provinces in January, with Alberta, British Columbia and Ontario registering the largest declines.

Source: Statistics Canada, Reuters

Consumer Confidence Amongst Canadians Declines in February
(Article by Madhavi Acharya-Tom Yew, The Toronto Star)

Worries about future job prospects pulled Canadian consumer confidence down in February.

The Index of Consumer Confidence fell 11.4 points to 95.6 last month, with residents in Ontario, Atlantic Canada, and Alberta showing the most pessimistic outlook.

The monthly survey, published by the Conference Board of Canada, comes as the impact of lower crude oil prices is being felt through slower economic growth across Canada, outweighing the benefits of lower gasoline prices.

The decline in February comes as after strong monthly gains in December and January said Julie Adès, senior economist, national forecasting at the Conference Board.

Those gains were likely the result of the sharp drop in oil prices, which lead to a decline in prices at the gasoline pump, putting more disposable income in the pockets of consumers, she added.

“The decline in consumer confidence in February could simply mean that consumers have adjusted to their lower fuel prices and the excitement related to lower fuel prices has receded,” Adès said.

The share of respondents expecting fewer jobs going forward jumped in February, rising to 39.6% from 30%, the Conference Board said.

At the same time, the proportion of respondents expecting more jobs fell to 7.7% from 9.7%.

The increased pessimism about the state of the job market was most evident in Ontario, Alberta, Saskatchewan and Manitoba, the Conference Board said.

February’s pessimism aside, consumer outlook on the labour market has been on an upward trend since the end of 2012, Adès said.

“During the past year employment growth has been very limited in Canada.  This is something that may be in the minds of many Canadian consumers,” she said.

The share of respondents who said they were financially worse off now than they were six months ago rose to 23% from 20.9% in February, the Conference Board said.

At the same time, the proportion of respondents who said they were better off six months ago declined slightly to 16.7% from 17.3%.

The increased pessimism about current finances was most felt in Ontario, British Columbia, Alberta, and Atlantic Canada, the Conference Board said.

The percentage of respondents who said they expect to be financially better off six months from now fell slightly to 23.5% from 24.1%, the Conference Board said.

Meanwhile, the proportion of respondents who expected to be worse off increased to 16.5% from 14.3%.

Consumers in Alberta, Ontario, Saskatchewan and Manitoba, and Atlantic Canada were the most pessimistic.

Respondents were also more pessimistic about whether this is a good time to make a major purchase, the Conference Board found.

The share of respondents saying it is a bad time to do so rose to 42.8% from 38.8%. Again, residents of Atlantic Canada, Ontario, Alberta, and British Columbia had a bleaker outlook.

This month’s survey was conducted between Feb. 2 and Feb. 13.

Source: The Toronto Star

Poll Finds a Majority of Canadians Pessimistic About Economy 

Canadians are more pessimistic about the economy than they have been since late 2009, and are cutting back their spending as a result, another recent survey suggests.

A recent poll conducted by Toronto advertising agency Bensimon Byrne showed that 55% of those who responded think the economy is in decline. That’s the first time negative sentiment has outweighed positive views in the agency’s quarterly survey since November, 2009.

While a large majority of Canadians were understandably discouraged about the state of the economy during the recession, those with optimistic views have outnumbered the pessimists for the past five years.

Essentially “Canadians are feeling tapped out,” said Bensimon Byrne president Jack Bensimon. Several years of a limping economy has taken its toll, he added, as people deal with stagnating wages, higher costs of necessities, and high debt levels.

90% of those surveyed said the cost of living is increasing faster than their incomes.

The sudden drop in oil prices, and the resultant fall in the Canadian dollar, has also put people on edge, Mr. Bensimon said. Even though many people will benefit from lower gasoline prices, they have been taken aback by the quick change in some key numbers. “A shock is a shock, and it reminds people of how precarious everything is,” he said. “People feel anxious about the future because unexpected things are happening.”

As a result of their pessimistic views, Canadians at all income levels are planning to reduce their spending, the poll suggests. That’s a move that could potentially dent the economy further.

Those surveyed plan to spend less than they did last year on almost all “discretionary” items, such as restaurant meals, liquor, cosmetics and vacations. They do, however, plan to spend more on essentials such as groceries, electricity, Internet fees and car maintenance.

“The increasing cost of essentials is crowding out discretionary spending on non-essentials,” Mr. Bensimon said. That could have a significant impact on the marketers who are his clients, and for many companies that count on consumer spending.

The worries about the economy could also have a significant impact on the federal election campaign later this year, Mr. Bensimon said, especially as all three major parties are courting the middle class. Significantly, his firm’s polling shows that health care has fallen behind economic issues – including the cost of living, retirement saving and income inequality – as key issues that people are concerned with.  “Two-thirds of Canadians think that Canada needs a different perspective on economic development,” he said.

Source: The Globe and Mail

U.S. Labour Market Flexes Muscles in February

U.S. employment accelerated in February and the jobless rate fell to a more than 6-1/2 year low of 5.5%, signs that could encourage the Federal Reserve to consider hiking interest rates in June.

Non-farm payrolls rose 295,000 last month after rising 239,000 in January, the Labor Department said last Friday. It was the 12th straight monthly gain above 200,000. The decline in the unemployment rate from 5.7% in January took it to its lowest level since May 2008.

The data suggested the U.S job market continued to strengthen, although the drop in the jobless rate largely reflected people leaving the labour force. Average hourly earnings rose by three cents last month.

Still, over the past 12 months, 3.3 million more Americans have gotten jobs. More jobs and lower gas prices have led many consumers to step up spending. That’s boosting the economy, offsetting sluggish economies overseas and giving employers the confidence to hire.

Economists polled by Reuters had forecast a 240,000 increase in payrolls after a previously reported 257,000 rise in January. They had forecast the jobless rate falling one-tenth of a percentage point to 5.6%.

Fed officials are monitoring pay closely to help determine when enough pressure has built in the jobs market to merit higher borrowing costs to keep the economy from overheating.

The closely followed employment report was released a little more than a week before the U.S. central bank’s March 17-18 policy meeting. Many economists expect the Fed could signal its openness to a June interest rate lift-off by dropping a pledge to be “patient” in considering a hike.

Source: Reuters, The Associated Press


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