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CHHMA NEWS

CHHMA - EYE ON OUR INDUSTRY
Volume 15, Issue 44, November 25, 2015

Inside This Issue:

• Register Now for the Industry Cocktail (December 10th) in Montreal
• CHHMA is Pleased to Announce the Industry Hall of Fame 2016 Inductees
• Sears Canada Faces Another $100-Million Class Action Lawsuit from its Dealers
• HBC Announces More Discount Saks OFF 5th Stores
• RioCan REIT Reaches $132-Million Deal with Target Regarding Leases
• Wal-Mart Pulls Cyber Monday Forward to Sunday, Record Industry Sales Expected
• Black Friday or Boxing Day? Where Canadians Can Get the Best Deals
• U.S. Retailers Give Shoppers New Reasons to Use Mobile Phones in Stores
• La Coop Fédérée Acquires the Majority of Assets of Co-op Atlantic’s Agricultural Division
• Lowe’s Introduces Updated Iris Platform
• Is the Loonie’s Crash Finally Over?
• Canada’s Retail Sales Growth Could Take Deep Cut Amid Oil Price Slump
• Slower Growth New Economic Reality, Bank of Canada Says
• Lower Gas Prices Leads to Surprise Fall in Canada’s September Retail Sales
• Canada’s Inflation Rate Steady in October as Energy Prices Weigh
• Latest U.S. Economic News

Association News

Register Now for the Industry Cocktail (December 10th) in Montreal

This year’s Industry Cocktail is taking place on Thursday, December 10th from 5:30 p.m. to 8:30 p.m., at the Bar Dame de Coeur at the Casino de Montreal.

The location offers a fun and relaxing atmosphere where you can enjoy some wonderful food, drinks and conversation with fellow vendors and retailers (including BMR, RONA, TIM-BR Mart, etc,) from the industry while enjoying the festive season together.

Click here for further information and registration.  
 


CHHMA is Pleased to Announce the Industry Hall of Fame 2016 Inductees

On Tuesday, CHHMA President Vaughn Crofford was pleased to announce the 2016 Hardware & Housewares Industry Hall of Fame inductees.

The Hall of Fame was established in 1984 to recognize the achievements of our industry’s leaders and pioneers. Since that time 60 industry icons, inventors, business founders and builders from the retail and manufacturing sectors have received the honour.

In this, the 32nd year, the CHHMA is honoured to serve as the custodian of the hall and is pleased to announce that three deserving industry veterans: Ms. Laurie O’Halloran founder of Home Style Magazine, Mr. Bill Calisina of Bissell Canada, and Mr. James Mumby of Dynamic Paint Products will be inducted on April 12, 2016 at an industry luncheon sponsored by the CHHMA.

The luncheon will be held in conjunction with the annual CHHMA member Spring Conference and is included in the conference package. Tickets for the Hall of Fame Lunch will also be available for purchase individually. Further details and registration info will be available over the coming months.

To view the entire list of those previously inducted into the Hall of Fame, or the criteria to nominate someone for next
year’s award, visit our website at https://www.chhma.ca/Public/Hall-of-Fame



Industry News

Sears Canada Faces Another $100-Million Class Action Lawsuit from its Dealers

Sears Hometown store dealers have filed a second $100-million class action suit against Sears Canada Inc., its biggest shareholders and board of directors, alleging they approved hundreds of millions of dollars in special dividends in 2013 that would only benefit the big shareholders.

Sears Canada decided to liquidate valuable long-term leases “rather than reinvesting these funds to offset the large and growing operating losses and attempt to turn the company around,” says the statement of claim filed last month in Ontario Superior Court.

The class action, which has not yet been certified, names U.S. retailer Sears Holdings Corp. — which until late 2014 owned 51% of Sears Canada, and the U.S. retailer’s majority owner, the hedge fund ESL Investments Inc., controlled by Sears’ Holdings chairman and CEO Eddie Lampert.

“The primary purpose of these steps was to siphon money out of Canada by paying substantial dividends to Sears Holdings and ESL,” the suit alleges.

The suit notes that in the third quarter of 2013 reported on Nov. 19 of that year, Sears Canada posted a net loss of $48.8 million.  “Nevertheless on that same day, despite these losses, the directors declared an extraordinary cash dividend of $5 per share” to shareholders of all common shares, a payout of $509 million. “The primary beneficiaries of the extraordinary dividend were Holdings and ESL,” the claim says.

“Sears (Canada) was slashing its operating budget which would deprive it of the ability to effect a turnaround of its operations, and would continue to do so in the future.”

Sears Canada’s board of directors approved the half-billion payout despite knowing the hometown dealers had filed a $100-million class action earlier in 2013, alleging Sears Canada and its owners hurt their businesses by changing its commission structures and diverting sales away from dealers and towards its own website, Sears.ca.

Counsel for the plaintiff in that class action, certified by an Ontario Superior Court judge a year ago, had informed Sears Canada’s counsel days before the dividend was issued in 2013 that its board of directors would be jointly and individually liable if Sears Canada were unable to satisfy a potential future judgment against the retailer in the class action.

The new claim says the extraordinary dividend put pressure on the retailer that it could not afford, the suit alleges, and in doing so was “oppressive and unfairly prejudicial to and unfairly disregarded the interests” of the class action, which violates a section of the Canada Business Corporations Act.

In the second quarter ended Aug. 1, Sears Canada’s revenue fell 9.1% from the comparable period last year but the retailer posted a profit of $13.5 million or 13 cents per share, thanks to a $67.2 million pre-tax gain from the sale and leaseback of three properties.

“It is important for Sears Canada to maintain ample liquidity to afford its suppliers confidence in its ongoing viability as a retailer, given that it generated negative operating earnings before interest, taxes, depreciation and amortization in 2014 and in the first half of fiscal 2015,” Keith Howlett, analyst at Desjardins Securities, wrote in a recent research note.

The company had cash of $209 million at the end of the second quarter and essentially no debt, the analyst added.

Howlett believes the retailer will keep selling off its leases.

“Sears Canada will need to continue to monetize its assets for as long as its retail operations are consuming cash,” he said. “We continue to view Sears Canada as a speculative situation.”

Sears Canada used to have 271 dealer stores, but more than a quarter of them have closed since 2013, the suit says. There are currently 177 Hometown stores, down from 222 a year ago. The Hometown Dealer businesses are similar to franchises, though dealers do not pay Sears Canada a franchise fee to be in the store network. Dealers pay for all leases, employee and insurance costs, store fixtures and upkeep.

Source: Article by Hollie Shaw, The Financial Post.



HBC Announces More Discount Saks OFF 5th Stores

Hudson’s Bay will convert its two outlet locations in Canada into Saks Fifth Avenue OFF 5th stores, the department store retailer announced on Tuesday.

The existing 25,000 square foot Hudson’s Bay Outlet store, which opened in 2013 at Toronto Premium Outlets in Halton Hills, will be closed after the holidays and reopen as an OFF 5th in the spring.

The Hudson’s Bay Outlet in the Montreal suburb of Mirabel, which opened in 2014, will also be closed after the holidays, to be replaced by a 26,000 square foot OFF 5th at the same location, anchoring the Premium Outlets Montreal.

An OFF 5th in a 33,000 square foot space in the lower level of the existing Hudson’s Bay store in downtown Ottawa was also announced.

The openings are part of OFF 5th’s North American expansion plan to open up to 25 locations across Canada by 2018.

OFF 5th has previously announced plans for stores at Tanger Outlets in Ottawa, Vaughan Mills in Toronto and Outlet Collection at Niagara at Niagara-on-the-Lake, opening in the spring of 2016.

A store is slated to open at CrossIron Mills in Calgary in the fall.

Toronto Premium Outlets and Premium Outlets Montreal are owned and operated by Simon Property Group and Smart REIT.

Source: The Toronto Star 



RioCan REIT Reaches $132-Million Deal with Target Regarding Leases

RioCan Real Estate Investment Trust has reached a deal with Target Corp. regarding leases the retailer disclaimed as part of its retreat from the Canadian market.

The real estate trust says Target has paid $132 million, including $92 million which belongs to RioCan, under the agreement.  In return, RioCan and its partners have released Target from its obligations.

RioCan says the settlement cash will be used to mitigate losses caused by Target Canada’s departure.

When Target Canada announced it would close all of its Canadian stores, RioCan had 26 locations that were under lease to the retailer.

Seven locations were assigned to new tenants, while RioCan has been working to fill the remaining 19 properties representing some two million square feet.

The trust has been splitting up many of the former Target stores into smaller units and leasing those locations to new tenants.

RioCan said it has signed 14 leases totalling approximately 448,000 square feet and two conditional offers to lease space totalling 50,000 square feet.

In addition, the trust said it is advanced talks for another 16 leases.

Source: The Canadian Press 



Wal-Mart Pulls Cyber Monday Forward to Sunday, Record Industry Sales Expected

Wal-Mart Stores Inc. has decided that Cyber Monday, the biggest online shopping day of the year, should not start on a Monday anymore.

The retailer will, for the first time this year, launch all its Cyber Monday deals on the Sunday after Thanksgiving rather than the early hours of Monday morning as in previous years.

Cyber Monday’s origins trace back more than a decade when people started using the high-speed Internet access at their workplaces to purchase things they saw but did not buy during trips to the shopping mall over the weekend after U.S. Thanksgiving, which falls on the fourth Thursday in November.

Now, with Internet access readily available, the logic of limiting the event to a weekday no longer holds, said Fernando Madeira, chief executive of Walmart.com.

“The customers have changed but Cyber Monday hasn’t changed with them,” Madeira told Reuters. “Now everyone has Internet.”

Wal-Mart had a handful of ‘teaser’ deals on Sunday last year but this is the first time it will offer all of its Cyber Monday promotions the day before. It will launch 2,000 online-only specials at 8 p.m. Eastern U.S. time on Sunday, Nov. 29, up from 500 such deals last year.

The move shows how retailers are looking to stretch what were once single-day shopping events in a bid to capture demand. A number of retailers are promoting deals for ‘Black Friday’ – the day after Thanksgiving and traditionally one of the busiest shopping days – weeks in advance.

The early Cyber Monday start also comes as retailers wage a bruising battle for online demand with Amazon.com Inc, which is several times larger than Wal-Mart in e-commerce sales and is growing at a faster rate.

Industry-wide Cyber Monday sales in the U.S. will likely reach $3-billion for the first time in 2015, up 12% from last year, according to projections by Adobe. While Cyber Monday is expected to remain the biggest single day in terms of online revenue, Black

Friday is expected to close the gap, with sales expected to rise 15% to $2.7-billion, Adobe said.

Source: Reuters



Black Friday or Boxing Day? Where Canadians Can Get the Best Deals

About 1.2 millions Canadians will book off sick from work to shop on Black Friday, but a new study suggests they’ll get slightly better deals if they can wait until Boxing Day.

Colliers International, in a first of its kind look at the so-called deals on these major retail holidays, studied 44 products on flyers for nine national Canadian chain retailers in 2014 and compared prices between the two big shopping days.

The company found better prices on Boxing Day for 36% of the products, while Black Friday offered a steeper discount for only 16% of products.

“Black Friday sale prices, on both sides of the border, are often touted as the lowest prices of year,” Colliers says in its report, released Monday. “For Canadians, however, the lowest prices of the year have been traditionally found at Boxing Day or Boxing Week sales immediately following Christmas.”

James Smerdon, the vice-president and director, retail consulting with Colliers, said his company took flyers that were coming to the doors of Canadians last year and started comparing prices looking for “like to like” products wherever they could find them.

“The deals are marginally better on Boxing Day unless you are looking at big ticket items and then (the deals) get better on Black Friday,” said Smerdon.

For the purposes of the study, the retailers used were Staples, Sears, Best Buy, The Bay, JYSK, Home Depot, London Drugs, Walmart and Future Shop. Of the 44 products in the survey, 21 were discounted equally for all the retailers.

However, the overall discounts were almost the same. On Boxing Day, consumers received 31% off the regular price, while on Black Friday the average discount is 30%.

Boxing Day is the big winner on cheaper merchandise, items originally priced at $100 or less. Post-Christmas, those items sell for 35% less compared with only 27% less on Black Friday.  Merchandise original priced at more than $100, gets a 31% cut on Black Friday versus 30% on Boxing Day.

On the major product front, appliances were discounted by an average of 32% on Boxing Day versus 29% on Black Friday.  Electronics were discounted by 29% on Boxing days versus 27% on Black Friday.

Of course, the real advantage goes to Black Friday because it actually occurs before Christmas making it more compatible with gift-guying. “(Boxing Day) works if you can encourage your family to delay Christmas,” Smerdon said.

IPG Mediabrands provided the study that 1.2 million Canadians would call in sick this coming Friday, although it included Cyber Monday, Nov. 30, when many people look for deals online, in that figure. Another 6.4 million will take a vacation day to take advantage of the sales in the coming week for a holiday not even officially recognized in Canada, IPG said.

“It’s a pretty chunky number,” said Loraine Cordery of IPG Mediabrands. “We think 19.3 million Canadians will be shopping that weekend and that’s a significant portion of the population.”

She said the company’s survey found there is an attitude that some of the sales Friday were “worth the risk” of taking the time off.

“They want to give their full attention to the sale,” Cordery said. “They don’t want to be squeezing it in between work or before or after.”

Cordery said it’s only been in the last few years that Black Friday has taken off as a Canadian concept. In the past Canadians would head to the U.S. for sales on Friday, but the skidding loonie has changed that. IPG found only 15% of Canadians will shop in the U.S. this year on Black Friday, down 37% from a year ago.

The same survey found 23% of Canadians believe this year the deals will be just as good in Canada as in the U.S. on Black Friday, compared to 14% a year ago. “The perception towards the deals you can get in Canada is changing for the better for the Canadian retailers,” Cordery said.

Source: The Financial Post, Reuters



U.S. Retailers Give Shoppers New Reasons to Use Mobile Phones in Stores

At some Macy’s outlets this holiday season, shoppers who download the retailer’s app will be able to use their smart phones to guide them through the store to products they’re seeking.

At JCPenney, customers will be able to take a snapshot of, for example, boots worn by a person passing by and quickly find out if the store has similar ones in stock. And Staples is testing an app that will allow sales clerks to let customers know how the store’s prices match up against Amazon and other rivals.

Hoping to claw back market share from online rivals – and tired of watching customers use their phones to find better deals than those offered in stores – brick and mortar retailers are trying to give shoppers different reasons to use their phones while doing holiday shopping.

The new apps will allow customers to easily order out-of-stock items for home delivery, to check store prices and even to summon a clerk.

But the retailers’ efforts will face two significant challenges in the looming holiday season: getting customers to embrace the new technology, which is still sometimes glitchy and dependent on in-store systems, and getting them to trust that stores can match the Web’s prices and convenience.

Retail purchases by mobile phone have increased by 34% in the last year, according to IBM, which estimates that more than 40% of the online traffic and about 20% of sales this Thanksgiving weekend will come from smart phones.

A Reuters/Ipsos poll of more than 3,000 respondents this month found that about half of those surveyed said they would use their mobile phones while shopping in stores this holiday season, for such things as making price comparisons, taking photos or researching products. Last year, only about 42% of respondents said they would use their phones while shopping.

Companies that don’t make mobile work are playing a “very dangerous” game, said Jay Henderson, head of IBM’s cloud-based marketing platform. “Retailers that can’t deliver a more personalized experience on mobile devices will start losing customers to businesses that can,” he said.

In addition to its pilot program guiding customers to products within stores, and a photo program similar to JCPenney’s, Macy’s has taken inspiration from dating app Tinder, recommending products to customers online who swipe one way to like an item and the other to reject it.

JCPenney’s app can be used to scan barcodes to pull up product information or order out of stock items, and it saves digital coupons – two increasingly common offerings in retailer apps.

“We look at using phones in stores as an enhancement to shopping,” said Kate Coultas, a representative with JCPenney which is heavily focused on mobile this year.

Stores are trying to make customer service easier, too.

Best Buy’s app now lets shoppers call, text or email a representative while in stores.

Target Corp is testing an in-store “digital service ambassador” in 25 Los Angeles stores to help customers use Target apps.

Ulta Beauty is testing an app that will allow clerks to access customer information and point them to products they might like.

Faisal Masud, executive vice president of global e-commerce at Staples, said his company knows that it must satisfy the desires of its customers to find low prices. The company, like many others, will match online and in-store prices of competitors, including Amazon, Best Buy and Office Depot.

Customers “have a phone that is basically a super computer, and they will find it somewhere else” for less if they can, he said.

Companies offering web apps and in-store technologies will also have to grapple with keeping the new apps and systems working and up to date. That means ensuring that WiFi in stores works, and that terminals function.

Recent visits to a Staples store in New York City found that a kiosk set up to allow people to order online wasn’t functioning, and at a JCPenney store in the city, the Wifi didn’t work.

Both companies said the problems encountered were unusual and that they have backup systems in place.

“Poorly executed plans can be worse than no mobile strategy at all,” said Perry Kramer, vice president at Boston Retail Partners. “The dangers are losing those customers for the rest of the year or for a long time.”

Source: Reuters 




La Coop Fédérée Acquires the Majority of Assets of Co-op Atlantic’s Agricultural Division

La Coop fédérée, through its Agri-business Division, announced last week the signing of a purchase agreement for the majority of Co-op Atlantic’s agricultural assets, including feed mills in Moncton, New Brunswick, in Truro and New Minas, Nova Scotia, the Farm Supply and General Merchandising division as well as the sector of activities related to grain marketing. This acquisition is conditional upon a decision from the Competition Bureau. The terms of the transaction will not be made public.

“La Coop fédérée is pursuing an already well-established relationship with Co-op Atlantic and producers in the Maritimes. This will therefore ensure that the tradition of agricultural cooperation with the Atlantic Provinces will be followed,” states Denis Richard, President of La Coop fédérée.

“It is clearly good news for La Coop fédérée, but also for the population of the Maritime Provinces. By acquiring the majority of the agricultural assets from Co-op Atlantic, our intention is to continue to operate the activities in the sectors acquired and to offer quality agricultural products and services to the farmers in that region and to all current clients,” adds Mr. Richard.

La Coop fédérée would like to make note that during the interval, the usual points of contact will remain the same.

La Coop fédérée is the largest agri-food organization in Quebec.  It is owned by more than 100,000 members grouped within 98 cooperatives located in several provinces and it is present throughout the agri-food chain. As a wholesaler, La Coop fédérée provides farmers with all the goods and services necessary for their operations. Its activities are divided into three sectors: agri-business (livestock and crop productions, and marketing grains under the Elite and La Coop brands), retail and innovation (energy, hardware and farm machinery under the Sonic, Unimat and BMR brands) and meat processing (under the Olymel, Flamingo and Lafleur brands). La Coop fédérée employs 10,000 people and its revenues reach $5.4-billion. Including its affiliated cooperatives, La Coop fédérée has more than 16,000 employees with combined revenues of $9.1-billion.

Source: La Coop fédérée 



Lowe’s Introduces Updated Iris Platform

Lowe's Companies, Inc. announced last week the next generation of its Iris smart home solution, built with Microsoft Azure's cloud technology.
This latest version of Iris enhances Lowe's smart home offering with new functionality and faster performance and includes updated software and hardware that make Iris simpler, more intuitive and more personalized to let people automate the lights, locks, cameras and even pet doors in their homes.

Available online at IrisbyLowes.com and in stores nationwide, the new generation of Iris provides consumers with unmatched productivity to more easily manage, monitor and maintain their homes in an open, secure environment.

The chain store also wants to rebrand “from a home improvement retailer to a home improvement company,” says Mick Koster, who leads Lowe’s Iris home systems. That means the company plans to focus more on installing connected home products, as well as focus on providing recommendations to consumers related to home services like electricians and plumbers.

The latest version of the Iris hub costs $59.99, down from $99.99. The price is $10 more than the corresponding Wink hub sold at rival Home Depot stores.

Lowe’s is also reducing the number of premium plans it offers for the Iris hub from three to two. One is a paid plan costing $9.99 monthly that allows users to notify up to six people when an event occurs, create conditional rules for the devices (if my garage door opens, turn on the porch light), and store video for up to two weeks.

The other is a free plan that lets users get notifications sent to their own phone, let users remotely control their gadgets, and stores video for 24 hours.

Lowe’s was early in the home automation when it introduced the Iris platform in 2012. Since then, the company has pulled together a compelling array of connected devices that work with the hub.

Some have not been a huge fan of the Iris platform because the free features and the number of compatible devices felt too limited. Other options from SmartThings and other Do-It-Yourself hubs out there offered more.

With the upgrade, Lowe’s has addressed some of those concerns. It works with 75 devices that are branded with the Lowe’s Iris name, up from a couple dozen. It also operates with Bluetooth, which means that it will likely add coming Bluetooth light bulbs and some of the new connected locks over time.

The hub also supports the AllJoyn standard, which means it should work with a surprising array of other devices outside of the hub. For example LG TVs support AllJoyn so an Iris hub might be able to one day send a message that an Iris water sensor noticed a leak to an LG TV in the house, letting someone get a message that their home was in danger of flooding even while immersed in watching the big game.

And from a functionality and use perspective, the Iris platform does have good customer support and fairly intuitive software.

What’s more interesting, is where Lowe’s intends to take the Iris platform and its retail strategy as consumers become more willing to purchase connected products. “Obviously we are a DIY focused retailer, and we continue making Iris more intuitive and simpler to manage on your own,” said Koster.”But we want to integrate more smart tech into other categories where it is relevant.”

That might start with the addition of more obscure devices outside the Iris platform such as Wi-Fi enabled water heaters.

Lowe’s plan is to sell services in addition to the Iris hub like home security monitoring, which costs $9.99 monthly. The idea is transform Lowe’s beyond its roots as a home improvement retailer into a company homeowners can go to directly for fixing problems with their homes.

Koster cites Lowe’s involvement with Porch.com last year, as an example of this mindset. Porch.com offers recommendations to homeowners seeking services like plumbers or electricians.

As more complicated devices such as water flow measurement sensors are offered, they require professional installation which Lowe’s could offer through Porch.com. Koster views connected devices, not as whiz-bang gadgets, but as devices that improves the home itself.

“As connectivity becomes omnipresent, that becomes just another check in the box of features, so we have look at how it adds to the value of our brand and the device,” Koster says.

He declined to say how much money Lowe’s currently makes from Iris or from selling connected home devices. But he clearly thinks it will rise considering his interest in the market.

Overall, he said that he expects prices for connected products to decline, so consumers won’t have to spend $250 for a connected thermostat forever. That’s good news for mainstream consumers who are interested in the technology.

Of course, it’s also potentially good news for Lowe’s, which wants to help install and manage connected devices for customers.

Source: Lowe’s Companies, Inc., Fortune       



Economic News

Is the Loonie’s Crash Finally Over?

Traders are positioning themselves for what could be the last leg down in the Canadian dollar’s three-year collapse.

They’re paying the biggest premium since September for options contracts that protect against currency swings expiring a month from now than for similar contracts that expire three months out, as oil suddenly threatens to fall below $40 per barrel again and the U.S. Federal Reserve looks set to raise interest rates in a matter of weeks. The last time the premium for 30-day protection spiked this high the currency ended up falling to an 11-year low before month’s end.

The options market is lining up with the consensus forecast of economists, who also see weakness in the short term followed by stabilization and ultimately gains into 2016. For many, the Fed’s first interest-rate increase in almost a decade and the most recent surge in oil inventories could mark the last stage of the Canadian dollar’s 25%, three-year slide.

“That’s going to be the trough for the Canadian dollar,” Krishen Rangasamy, said senior economist at National Bank Financial in Montreal.  “We’re now closer than ever to a Fed hike and if you look at history, when the Fed starts hiking rates, the U.S. dollar doesn’t do well, because it’s already priced in. The option market is thinking like us.”

The premium for one-month volatility options against the U.S. dollar compared to three-month contracts surged to 77 basis points, or 0.77 per centage point, last week, the most since Sept 2. On Sept. 29 the Canadian dollar fell to $1.3457 per U.S. dollar, its lowest level since 2004.

At the same time hedge funds and other speculators are boosting their bets against the Canadian dollar by the most in almost four months. New wagers for the currency to fall against its U.S. peer outnumbered those for it to gain by 10,445 positions the week ending Nov. 17, the biggest seven day surge in net-short positions since July, according to data from the Washington-based Commodity Futures Trading Commission.

Forecasters see the Canadian dollar weakening to $1.35 per U.S. dollar in the first three months of next year, and then strengthening to $1.32 by year end, according to the median estimate of a Bloomberg survey.  The loonie slipped 0.3% Monday to $1.3387.

Combine that with a supply glut that’s renewed downward pressure on crude-oil prices, one of Canada’s biggest exports, and the two main factors that have driven the currency down the last two years look to be coming to a head once more.

“There is potential for a big drop in December,” Greg Anderson, global head of foreign-exchange strategy at Bank of Montreal, said by phone from New York.  “We don’t need to drop lower in oil, we just need to hang here, and if we do that’s probably a negative for the Canadian dollar that has not been fully priced in. And then there’s the Fed rate hike.”

Anderson sees the Canadian dollar’s trough lasting longer — stretching through a second Fed rate increase he’s calling for in March that’ll put the U.S. benchmark interest rate above Canada’s for the first time since 2007 — and removing the small remaining yield benefit investors might have had holding the loonie. By the end of 2016 he predicts the currency will stabilize.

“I do think we’re near the end,” he said.

History also suggests the arrival of higher rates in the U.S. could mark the end of the loonie’s rout.

An index tracking the greenback against 10 major peers strengthened an average of 9% during the six to nine months before the past three Federal Reserve rate-rise cycles, according to data compiled by Bloomberg. After the increases actually got under way it was a downhill ride, with the six-month drop in the U.S. dollar against everyone else averaging about 6%.

For David Rosenberg, chief economist at asset manager Gluskin Sheff & Associates, the wild card the market is most worried about is oil, with U.S. stockpiles persisting above historical averages longer than anyone expected.

“That’s why you have that protection,” he said from Toronto.  “It’s really about the view the Canadian dollar could have another down leg here.”

Rosenberg still senses the great depreciation’s last gasp, and predicts the currency strengthening to $1.30 in about six months.

Source: Bloomberg News
 



Canada’s Retail Sales Growth Could Take Deep Cut Amid Oil Price Slump

The oil slump in Alberta and Saskatchewan is threatening to slice national retail sales growth this year by more than half from 2014.

Overall retail sales are expected to rise just 2% to $515.32-billion in 2015 from the previous year compared with a 4.6% increase in 2014, pinched by oil troubles in Alberta and Saskatchewan, says a recently released Colliers International forecast for Canada.

“If you’re looking at the economic performance of the retail sector as a whole, it’s taking a hit this year, for sure,” David Bell, senior consultant of planning and retail consulting at Colliers in Vancouver, said in an interview with the Globe and Mail. “It’s really being dragged down by Alberta and Saskatchewan.”

After several stellar years in those provinces, retailers ranging from Canadian Tire Corp. Ltd., Loblaw Cos. Ltd. and RONA inc. are feeling the effects of oil-squeezed regions, particularly those in Alberta.

The difficulties now risk hurting retailers’ business in the crucial holiday season in those provinces, and nationally, for the total year, forcing merchants to count more heavily on spending in healthier provinces, including British Columbia and Ontario.

Galen G. Weston, executive chairman of Loblaw, said last week that the retailer is “seeing indications of an increasingly deteriorating economic environment” in Alberta.

“We see that specifically in the oil towns, where you’ve had shutting down of big projects and increased layoffs,” he said, adding Loblaw’s discount stores can benefit from the downturn. “We also see some indications now of things beginning to turn through our financial services products. Nothing dramatic at this point, but it’s starting to turn.”

Canadian Tire, which sells everything from auto parts to apparel, this month highlighted weakness in its Alberta retail segment.

“It is clear that Alberta is going through hard times right now,” Michael Medline, chief executive officer at Canadian Tire, told analysts. “… Alberta is going to be weak for a while. What we’re seeing is great strength in other places.”

While both Loblaw and Canadian Tire fared well overall, Canadian Tire’s clothing chain Mark’s (its smallest division) took a hit in its third quarter. Its high-margin industrial-wear sales, which are significantly tied to the oil sector, slipped 0.2% at existing stores, pinching the bottom line as Mark’s shifted to selling more lower-margin casual apparel.

RONA also suffered in Alberta in its third quarter, with declining sales most noticeable in its smaller stores in that province, and particularly in the lumber and other building-materials aisles, Robert Sawyer, chief executive officer of RONA, said this month. “It’s really Alberta that drove the West down,” chief financial officer Dominique Boies added.

Luxury men’s clothier Harry Rosen Inc. is finding that Alberta is its most difficult market, said chief executive officer Larry Rosen.  Year-to-date sales dropped 10% at its two Calgary stores and are flat in the one in Edmonton, he said. Its nationwide year-to-date sales rose 4% compared with an 8% uptick in 2014, he said.

“Now, in fairness, Calgary has been the strongest growth market over the last five years, so negative growth this year is not the end of the world when we look at it in context of the longer-term trend,” Mr. Rosen said, also pointing to provincial income-tax increases.

“We view down cycles as [an] opportunity to gain market share as usually there is attrition in the retail market.” He added he is “still optimistic for a reasonable holiday season nationally.”

The Colliers report says over the past several years oil-driven Alberta and Saskatchewan have consistently performed strongly in the retail field. “The precipitous drop in oil prices starting in late 2014 has, however, had a dramatic negative impact on retail spending in these same retail growth-leading provinces.”

The anticipated 2015 retail performance “must be considered tepid at best,” it says.

The Colliers research is based on Statistics Canada’s seasonally unadjusted retail-sales figures, Mr. Bell said. He noted Alberta is feeling the squeeze of depressed automobile and gas sales, which combined make up more than 43% of the province’s total retail spending (while in Ontario and B.C. they are closer to one-third).

For December, the prime holiday gift-selling period, Colliers still expects consumers to spend more than they did a year earlier: National retail sales will rise 4.5%, just slightly less than the 4.67% increase last December, it predicts. Healthier gains in British Columbia and Ontario (which together account for almost half of the country’s sales) are expected to offset weakness in Alberta and Saskatchewan, Mr. Bell said.

For December, Colliers predicts spending willrise 1.53% to $7.34-billion in Alberta and 2.92% to $1.71-billion in Saskatchewan.

“We’re in a trough right now and consumers do respond when there’s employment contraction and wage growth has slowed or halted,” he said. “Consumer confidence drops pretty quickly,” Mr. Bell said.

The national Retail Report Canada, co-authored by James Smerdon, vice-president of Colliers’s retail consulting, also found that among Black Friday and Boxing Day discounts in 2014, almost half were marked down equally, while 36 per cent were offered at a greater discount on Boxing Day and 16 per cent were discounted more on Black Friday.

Black Friday, which is on Nov. 27, is a big shopping day in the United States and has been imported to Canada in recent years. It is the day after the U.S. Thanksgiving holiday when American retailers offer hot deals to kick off the wider holiday shopping season.

Source: Article by Marina Strauss, The Globe and Mail    



Slower Growth New Economic Reality, Bank of Canada Says

That’s the conclusion of a Bank of Canada research report released last Thursday titled ‘Is Slower Growth the New Normal in Advanced Economies’?

“Over all, there is increasing evidence that growth in advanced economies may remain slow in the immediate future compared to its pre-[financial] crisis average, as a result of a combination of cyclical and structural factors,” according to authors Abeer Reza and Subrata Sarker.

The cyclical factors – including households and governments getting their debts under control – will eventually ease, according to the report contained in the autumn edition of the Bank of Canada Review.

But longer-term factors, including the aging population, will continue to put downward pressure on growth.

The economy typically bounced back faster from recessions. But that did not happen after the Great Recession and the financial crisis of 2008-09. Instead, growth averaged just 1.4% a year in advanced economies between 2010 and 2014, down from an average 3.6% a year from 1985 to 2007.

“Growth has continually disappointed and forecasters have regularly adjusted their forecasts downward,” the report said.

The most significant longer-term problem is the slowing growth rate of the working-age population as the baby-boom generation retires. In Japan, the working-age population is already shrinking.

The report pointed out that later retirement and increased participation by women have in the past helped offset demographic trends.

“There is likely less scope for these trends to continue,” according to the report.

“Unless these demographic forces are offset by rising productivity or higher immigration, they will result in slower potential growth for any given rate of labour productivity.”

The report, however, pointed out that monetary policy is already adapting to the new reality. And the authors reject the notion the economies are headed for lasting stagnation.

“Even though a decline in potential growth may reduce the neutral [interest] rate in many economies, monetary policy makers still have ample room to manoeuvre.”

Source: Article by Barrie McKenna, The Globe and Mail 



Lower Gas Prices Leads to Surprise Fall in Canada’s September Retail Sales

Canadian retail sales posted their first decline in five months in September, led by cheaper gasoline.

Sales decreased 0.5% to $43.3-billion, Statistics Canada said last Friday. Economists surveyed by Bloomberg News had forecast a 0.1% increase, based on the median of 18 projections.

Spending remains close to a record high in a year were consumers are threatened by record debt burdens and incomes hurt by a drop in crude oil prices.

Excluding price changes, sales rose 0.1% in September. That so-called volume measure of sales is a better indication of retail’s contribution to economic growth.

Sales in September were 1.2% higher than a year earlier, Statistics Canada reported.

Sales at gasoline stations declined 3.7% in September to their lowest level since January 2015, reflecting lower prices at the pump. According to the Consumer Price Index, unadjusted gasoline prices declined 7.9% in September compared with August. Year over year sales at gasoline stations are down 14.6%.

Canadian retail sales still decline outside of gasoline, with sales falling in eight of 11 categories representing 60% of retail trade.

Following seven consecutive monthly advances, sales at motor vehicle and parts dealers were down 0.5% in September, partly offsetting August's gains. The overall subsector decline was due in large part to weaker sales at new car dealers (-0.6%) and, to a much lesser extent, automotive parts, accessories and tire stores (-1.4%). Higher sales were reported at other motor vehicle dealers (+2.0%).Overall, the sector is up 4.7% from September 2014.

Sales were down at sporting goods, hobby, book and music stores (-3.3%) from weaker sales at sporting goods stores but remain up 0.1% from a year ago.

Sales at clothing and clothing accessories stores fell 1.2% in September. For the second consecutive month, lower receipts were posted at both clothing stores (-0.8%) and shoe stores (-2.8%). Jewellery, luggage and leather goods stores (-2.3%) also reported lower sales in September.Year over year sales are up 6.3%.

Receipts at furniture and home furnishings stores (-1.2%) decreased for the second time in three months. September's decline was attributable to lower sales at home furnishings stores (-1.8%) and furniture stores (-0.9%).Sales in this category still remains up 5.2%.

General merchandise stores sales were up for the fourth time in five months, rising 1.2% (2.7% y/y).

Sales at building material and garden equipment and supplies dealers advanced 0.4%, though the level of sales remained below the all-time high recorded in May.Over the past 12 months, sales are 5.2% higher.

Receipts at food and beverage stores edged up 0.1% in September and 1.5% year over year. The main contributors to the gain were supermarkets and other grocery stores (+0.2%) and specialty food stores (+0.6%). Sales at beer, wine and liquor stores were relatively unchanged. Lower receipts were reported at convenience stores (-1.8%).

Sales at electronics and appliance stores were down 0.1% for the month and are down 1.5% from September 2014.

Source: Statistics Canada, Bloomberg News     




Canada’s Inflation Rate Steady in October as Energy Prices Weigh

Canada’s annual inflation rate held steady at a tame 1.0% in October, as a general rising tide for consumer prices continued to be suppressed by slumping energy costs.

Statistics Canada reported last Friday that its Consumer Price Index (CPI) edged up 0.1% in October over September, despite gains in most major categories, including a 0.4% rise in food prices and a 0.3% increase in shelter costs. But gasoline prices slid 2% month over month, and were down 17% compared with a year earlier.

Excluding the energy sector, CPI was up 0.2% month over month, and 2.1% year over year, the statistical agency said.

The Bank of Canada’s core inflation measure, which excludes the eight most volatile components of CPI including fuels and many food products, rose a much more brisk 0.3% for the month. Nevertheless, the annual rate remained unchanged at 2.1%, just slightly above the central bank’s 2% target rate that serves as its primary guide for interest rate policy. But the central bank has cautioned repeatedly that the core rate is being elevated by the effects of the sharp declines in the Canadian dollar over the past year or so, which it considers largely transitory.

“The offsetting forces of ongoing softness in gasoline prices and the upward pressure from a weak Canadian dollar are holding inflation trends at a standstill,” said Benjamin Reitzes, senior BMO economist, in a research note.

Economists noted that the deep impact of energy’s slump in Canada’s inflation rate is about to subside. That’s because much of oil’s decline came nearly a year ago, and will thus soon disappear from year-over-year comparisons.

“That drag will fade very quickly,” said David Madani, Canada economist for U.K.-based Capital Economics. “We estimate that gasoline inflation will be back to zero in December. That change will add a full percentage point to headline inflation, which could rise above the 2% mark by early next year.”

On the other hand, the year-over-year inflationary effects of the Canadian dollar’s fall may also have peaked, argued Royal Bank of Canada assistant chief economist Dawn Desjardins.

“Given that the largest declines in the currency on a year-over-year basis occurred in the third quarter, the extent of the impact is likely to begin to wane as we exit 2015,” she said in a research report.

While she agreed that the inflation rate looks destined to rise quickly to around 2% “starting early next year,” she argued that the increase won’t sway the Bank of Canada from what is likely to be a lengthy stand-pat position on its key interest rate, which it reduced to 0.5% in July.

“Even with inflation running around the 2% target, we expect the Bank [of Canada] to maintain the current level of monetary policy stimulus, in order to ensure the economy grows at a strong enough pace to eliminate excess supply and reduce any downside risks to inflation holding at the target over the medium term,” she said. “Accordingly, we anticipate the bank will hold the overnight rate at 0.5% until late 2016, at which time concerns about the inflation rate moving above target will become more prevalent.”

Statscan also reported that retail sales slumped 0.5% in September from August, well below the modest 0.1% increase that economists had expected. As with the inflation numbers, retail sales were depressed by a weak gasoline prices, which fell 3.7% cent in the month.  Excluding gas stations, retail sales were down 0.1% in the month.

Eight of 11 segments, representing 60% of the retail sector, posted month-over-month declines, but much of the weakness was a function of lower prices. Retail sales on a volume basis – excluding price effects – were up 0.1%.

Food prices were up 4.1% year over year in October, after increasing 3.5% in September. This acceleration was attributable to higher prices for food purchased from stores, which increased 4.6% year over year in October, after rising 3.9% the previous month. Prices for fresh fruit increased more in the 12 months to October (+13.0%) than in September (+8.5%). In addition, the dairy products index increased year over year in October, following a decrease the previous month. Prices for food purchased from restaurants were up 2.7% year over year.

The index for recreation, education and reading rose 1.9% in the 12 months to October, following a 2.5% increase in September. This deceleration was partly attributable to the traveller accommodation index, which was up 4.8% year over year in October, after rising 10.8% the previous month.

The shelter index was up 1.1% on a year-over-year basis in October, matching the rise in September. The natural gas index decreased 10.9% in the 12 months to October, after declining 4.4% the previous month. Conversely, property taxes rose 3.0% on a year-over-year basis, after being up 2.2% year over year since last October.

The transportation index declined 3.2% year over year in October, after decreasing 3.5% in September. This smaller year-over-year decline was mainly attributable to gasoline prices, which fell 2.0% on a month-over-month basis in October, a smaller monthly decrease than the index recorded in the same month last year.

Source: Statistics Canada, The Globe and Mail       



Latest U.S. Economic News
       

U.S. Consumer Spending Tepid; Savings Near 3-Year High
U.S. consumer spending barely rose in October as households took advantage of rising incomes to boost savings to their highest level in nearly three years, pointing to moderate economic growth in the fourth quarter.

The Commerce Department said on Wednesday consumer spending edged up 0.1% after a similar increase in September.

That suggests consumer spending, which accounts for more than two-thirds of U.S. economic activity, has slowed from the third quarter’s brisk 3.0% annual pace.

The tepid rise in consumer spending could combine with an anticipated drag on the U.S. economy from an ongoing inventory reduction to hold the economy to around a 2% growth rate in the fourth quarter. The government reported on Tuesday that the economy expanded at a 2.1% rate in the third quarter.

Economists polled by Reuters had forecast consumer spending rising 0.3% last month. When adjusted for inflation, consumer spending gained 0.1% in October after rising by the same margin in September.

Personal income increased 0.4% last month, accelerating after a 0.2% gain in September. Wages and salaries shot up 0.6%, the largest increase since May. With income outpacing spending, savings rose, which could boost consumer spending in the coming months.

Savings increased to $761.9-billion last month, the highest level since December 2012, from $722.9-billion in September.

There was still no sign of inflation, which has persistently run below the Federal Reserve’s 2% target.

A price index for consumer spending ticked up 0.1% after declining in September for the first time since January. In the 12 months through October, the personal consumption expenditures (PCE) price index was up 0.2% after a similar rise in September.

Excluding food and energy, prices were unchanged after rising by 0.2% in September. The so-called core PCE price index rose 1.3% in the 12 months through October, for the 10th straight month.

Source: Reuters

Inventories Boost U.S. GDP, May Drag on Fourth-Quarter Growth
The U.S. economy grew at a healthier clip in the third quarter than initially thought, but strong inventory accumulation by businesses could temper expectations of an acceleration in growth in the final three months of the year.

The Commerce Department on Tuesday said the nation’s GDP grew at a 2.1% annual pace, not the 1.5% rate it reported last month. It said efforts by businesses to reduce an inventory bloat had not been as aggressive as previously believed.

Still, the pace of economic growth, which was also boosted by upward revisions to business spending on equipment, suggests a resilience that could help give the Federal Reserve confidence to raise interest rates next month. While consumer spending was revised down a bit, its pace remained brisk.

“This is a sturdy second GDP print for the third quarter when looking past the inventory swings,” said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.

“Importantly, domestic demand in the U.S. economy remains very solid, something that will surely give comfort to the Fed as it ponders its next move.”

When measured from the income side, the U.S. economy grew at a sturdy 3.1% clip, the fastest in a year and an acceleration from the second quarter’s 2.2% pace.

The third-quarter’s respectable expansion should set up the U.S. economy to achieve at least 2% growth in the second half of the year, around its long-run potential. In the wake of robust job growth in October and strong domestic demand, the Fed is expected to raise rates at its Dec. 15-16 policy meeting.

The GDP revision was in line with economists’ expectations.

Large Inventory Accumulation

Businesses accumulated $90.2-billion (U.S.) worth of inventories in the third quarter, instead of the $56.8-billion reported last month. Businesses amassed more than $100-billion worth of inventories in each of the prior two quarters.

As a result, the change in inventories chopped off 0.59 percentage point from third-quarter GDP growth, rather than the 1.44 percentage points the government reported in October.

That, however, suggests inventories could be a drag on fourth-quarter growth.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.0% rate, down from the 3.2% rate estimated last month. The downward revisions mostly reflected weak outlays on communication services and utilities.

A measure of private domestic demand, which excludes trade, inventories and government spending, was revised down to a still sturdy 3.1% pace from the previously 3.2% rate.

Though there are signs consumer spending slowed early in the fourth quarter, it is likely to remain supported by a tightening labour market, rising house prices, which are raising household wealth, as well as low inflation.

Growth in exports, which have been hurt by a strong dollar and sluggish global demand, were revised to show a slower 0.9 rate of increase. With imports rising at a slightly faster pace than previously reported, that left a trade deficit that subtracted 0.22 percentage point from GDP growth.

Trade was previously reported to have had a neutral impact on GDP growth.

Deep spending cuts by energy firms following a collapse in oil prices continued to weigh on growth. Spending on mining exploration, wells and shafts tumbled at a 47.1% rate, rather than the 46.9% pace reported last month.

Investment in non-residential structures contracted at a 7.1% pace, instead of the previously reported 4.0% rate.  However, business spending on equipment was revised up to a 9.5% rate from a 5.3% pace.

The Commerce Department also reported that corporate profits after tax fell at a 1.6% rate in the third quarter after rising at a 2.6% pace in the second quarter. Profits, which have been undercut by the dollar’s strength and lower oil prices, were down 8.1% from a year ago, the biggest decline since the fourth quarter of 2008.

Source: Reuters

U.S. Home Prices Rise Faster in September, Beat Forecast
Annualized U.S. single-family home prices rose in September at a faster pace than in August and above market expectations, a closely watched survey showed on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 5.5% in September on a year-over-year basis compared with 5.1% in the year to August. It was above the 5.1% estimate from a Reuters poll of economists.

“The general economy appeared to slow slightly earlier in the fall, but is now showing renewed strength. With unemployment at 5% and hints of higher inflation in the CPI, most analysts expect the Federal Reserve to raise its fed funds target range to 25 to 50 basis points, the first increase since 2006,” said David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.

“While this will make news, it is not likely to push mortgage rates far above the recent level of 4% on 30 year conventional loans. In the last year, mortgage rates have moved in a narrow range as home prices have risen; it will take much more from the Fed to slow home price gains.”

Source: Reuters

U.S. Home Sales Fall; Prices Push Higher
U.S. home resales fell more than expected in October, with large declines in regions which have experienced the biggest price gains, suggesting some softening in the pace of the housing market recovery after strong gains early this year.

Despite last month’s drop, U.S. housing remains on firmer footing and sales are on track to be the best in eight years.

“This is the same pattern of tight inventory and low first-time buyers that we’ve seen for several years now. We’re up nicely on units and price from a year ago, so the market is in good position to improve steadily from here,” said Stephen Phillips, president of Berkshire Hathaway HomeServices in Irvine, California.

The National Association of Realtors (NAR) said on Monday existing U.S. home sales declined 3.4% to an annual rate of 5.36 million units. September’s sales pace was unrevised at 5.55 million units and was the second highest since 2007.

The decline in sales was expected after contracts to purchase previously owned homes fell for two straight months.

The weak sales come on the heels of reports last week showing a drop in housing starts in October and a dip in confidence among home builders. Economists had forecast sales falling to a rate of 5.40 million units last month.

Sales were up 3.9% from a year ago and sales held above their average for the year.

U.S. housing is being supported by a strengthening labour market, which is boosting household formation by encouraging young adults to leave parental homes. It, however, remains constrained by a persistent shortage of houses for sale, which has driven up prices and sidelined first-time buyers.

Sales dropped 8.7% in the West and fell 3.2% in the South. According to the Realtors group, these two regions have experienced large price increases due to tight inventory.

Sales slipped 0.8% in the Midwest and were unchanged in the Northeast.

The NAR said there has been a significant decline in sales on the lower end of the market from a year ago.

Last month, the stock of unsold homes on the market fell 2.3% from September to 2.14 million units. Supply was down 4.5% from a year ago, a worrying sign as housing heads into a quiet season, the NAR said.

At October’s sales pace, it would take 4.8 months to clear the stock of houses on the market, up from 4.7 months in September.

With inventories tight, the median house price increased 5.8% from a year ago to $219,600. October’s price increase marked the 44th straight month of year-on-year gains.      

Source:  Reuters  

  

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