Class 7 :The Rise of the Canadian Consumer and Canadian Retail

Class 7: Government in the Economy Outcomes Expected Able to discuss nature of competition in Canadian Retailing Able to discuss role of the Canadas Major Retailers Able to discuss the future of Canadian Retailing to Canadas economy

Class 7 :The Rise of the Canadian Consumer and Canadian Retail

Important Information Replacement Mid-term to be held in class on Oct. 27 th from 10-11:15 AM in TEL006 – 2 short answers + 1 essay question. – Total weighting will be 20% – Final exam weight to be changed to 45% – Covers classes 1-5 – Closed Book Group Assignment will be moved to Week 9 Nov 10 th. No Class on Nov. 3 due to co-curricular week.

The Concepts of Capitalism Refers to an economic system where the means of production, or capital, is owned primarily by individuals. Economic decisions are made by market forces.

The Concept of Capitalism Focus is on an open system of: Pricing Profits and Losses Private Property Ownership Capital Movement

Nature of Competitiveness

THE CONCEPT OF COMPETITIVENESS … the ability to design, produce and market goods and services, the price and non-price characteristics of which form a more attractive package than those of competitors … the ability to design, produce and market goods and services, the price and non-price characteristics of which form a more attractive package than those of competitors From: The World Competitiveness Report, World Economic Forum and the International Management Development Institute From: The World Competitiveness Report, World Economic Forum and the International Management Development Institute Copyright © Captus Press Inc., 2009

Perfect Competition 1. There are many sellers of the product so that no individual seller produces a significant share of the quantity available to the market. 2. All firms produce exactly the same product. The products of all firms are similar. 3. All buyers given full information about the market. 4. Productive resources are perfectly mobile.

The Practical Significance of Perfect Competition A large number of small firms and many buyers do not possess the power to influence the behavior of the participants in the marketplace. That power is thoroughly dispersed throughout the marketplace. Rarely exists in the real world.

Desirable Conditions for Workable Competition 1. A market structure with at least two buyers and two sellers, but preferably more 2. A mixture of large and small firms 3. No collusion or coercion among sellers

Desirable Conditions for Workable Competition 4. As much market information as possibly is available to buyers and sellers 5. No barriers to entry and exit

Canadian Retail Profile

Canada Retail Expenses

Chain vs Non-Chain Stores

Department Stores Department stores became the source of new trends and innovations in architecture and engineering, such as escalators, elevators, air conditioning, electric lighting, steel frame construction, and fire-proofing, to the general public. In their heyday department stores were the biggest importers, the largest employers, and had the greatest sales volumes of any sector. Thanks to the department store and innovations like credit, mail order and catalogue sales, distribution chain, inventory control, visual presentation and media promotion developed rapidly.

Department Stores It helped spur mass production and gave rise to the culture of consumption and "fashion". It also turned out to be a great force for social change. Credit democratized consumption by allowing those of limited means the ability to pay for purchases over time. Now, anyone could manage to acquire goods previously available only to the well- to-do. But it is democratization of another kind - namely, the development of women's rights - that is perhaps the department stores' most lasting legacy. Department stores were one of the first places in which a woman could find a job outside of the home, and helped to further break down barriers and promote womens equality.

happened-to-eatons.html Eatons Case

Key Players Timothy Eaton John Craig Eaton Robert Young Eaton John David Eaton Edgar Burton General Robert Wood H.H. Stevens R.B. Bennett

Context at Start of Case Time Period ? What was going on ? What was Eatons position ? Who was running the company ? What was there strategy ?

Eatons 21

Eaton – The Entrepreneur Founder? Line of business Why was he successful - Key Success Factors Innovations?

Traditional supply chain Raw materials SuppliersBuyersStoresCustomers 27 June 2011Alison Kemper ADMS

Vertical integration Raw materials FactoriesCataloguesCustomers 27 June 2011Alison Kemper ADMS

Vertical Integration: Benefits and Risks A secure source of raw materials or distribution channels. Protection of and control over valuable assets. Access to new business opportunities Simplified procurement and administrative procedures. Benefits Risks Costs and expenses associated with increased overhead and capital expenditures Loss of flexibility resulting from large investments. Problems associated with unbalanced capacities along the value chain. Additional administrative costs associated with managing a more complex set of activities.

Eaton – Early Effective Management What was Eatons succession strategy for company leadership What was Managements strategy Was it successful? Why?

Competitive Scene 19 th Century Who were Eatons rivals early on?

Simpsons

Simpsons was started in 1858 in Newmarket as a dry goods store. Eventually moved to Toronto in Simpsons moved into 178 Yonge St. the former first Eaton store. This is the site of the current HBC flagship store immediately south of the Eatons Centre. Simpsons and Eatons were major competitors, located across the street from one another. The crosswalk at that location was the busiest in Canada as people went back and forth to shop at both stores.

Simpsons Simpsons partnered with Sears in 1952 to create a new catalogue and retail chain separate from the Simpsons chain. No stores of this partnership, called Simpsons- Sears, could be constructed within 25 of current Simpsons stores. Simpsons could not create new stores outside of Toronto, Montreal, Halifax, Regina and London.

Simpsons Simpsons was purchased by the Hudsons Bay Company in The partnership with Sears was ended by this, with Sears acquiring the Simpsons-Sears chain. HBC continued to operate Simpsons as its own brand until The HBC flagship store at Yonge and Queen is the largest department store in Canada, and at one time had the largest cosmetics section of any department store in the world.

Hudsons Bay Company

Formed by Royal Charter in May, 1670 granting the lands of the Hudson Bay watershed to the company. Was once the largest landowner in the world, owning 15% of the North American continent. Forts were built throughout the area. Natives would bring furs to the forts in exchange for goods produced in England (knives, kettles, blankets). Eventually expanded along rivers deeper into the West, with outposts eventually growing into cities (Winnipeg, Calgary and Edmonton)

Hudsons Bay Company Merged with the North West Company in 1821 and had spread to the Pacific Northwest and the North. As the fur trade waned in the 19 th century, started turning more and more to retail operations. HBC sold much of its land holdings over to the new country being formed and found new clients with the rise of the Gold Rush.

Hudsons Bay Company In 1912, opened its first department stores in Victoria, Vancouver, Edmonton, Calgary, Saskatoon and Winnipeg. Became a truly Canadian company in Diversified its product offering and purchased many different competitors (Zellers, Simpsons, K-Mart).

The Changing Retail Landscape in the 20 th Century Economic Political Competitive Social Technological

THE ECONOMY: THE GREAT DEPRESSION

WHAT HAPPENED? 38

27 June 2011Alison Kemper ADMS Economic

Depression Impact on employment in Canada

What do you do in a Depression? If you are a government? A business owner? A minimum wage worker?

Government P.M. Richard Bennett H.H. Stevens Minister of Trade and Commerce 1934 What was the issue? What did the government do? Why did they act?

Farmers and Progressives Free traders Anti-National Policy Anti business interests. Allied with socialist groups until in power, then allied with the Liberals 43

Conservatives Early 1930s protect industry and obtain imperial preference 44

Conservatives In 1935 he called for – more progressive taxation system, – a maximum work week, – a minimum wage, – closer regulation of working conditions, – unemployment insurance, – health and accident insurance, – a revised old-age pension and – agricultural support programs). Defeated shortly thereafter 45

LiberalsMackenzie King Maintain support among such ideologically opposed groups as western free-trade farmers and protectionist manufacturers in central Canada; His shrewd recognition of the importance of sustaining Québec support, especially during WWII; His talent for attracting to his Cabinet strong ministers with regional power bases and making the best use of their abilities and connections; His success in presenting a progressive face to the electorate by gradually initiating social-welfare programs while mollifying the business community. 46

Price Spreads Commission 1934 Stevens was responsible for the striking of the Royal Commission on Price Spreads and Mass Buying attacking corporate interests accusing them of price fixing and called for radical reform. Royal Commission on Price Spreads and Mass Buyingprice fixing Stevens saw Department stores destroying manufacturers and forcing workers to live on subsistent wages especially young women Stevens tried to destroy public image of big department stores by blaming them for social evils of the time. Eatons financials were exposed showing many employees making less than minimum wage H.H. Stevens Minister of Trade and Commerce 1934

Women in the workforce 27 June 2011Alison Kemper ADMS

Women in the Work Force: Increased participation From the 1880s on, women's participation rate in the Canadian workforce climbed steadily along with increased immigration, industrial expansion, and thetransformation of agricultural and home production to workshop and factory production. In 1891, women made up about 11 per cent of the total workforce; by 1902: Women working in textile factories make up 13% of the labour force; most are single (when women married, they were forced to resign). 1921, partcipation had increased to 15 per cent.

27 June 2011Alison Kemper ADMS 1010 Data source: Labour Force Participation

27 June 2011Alison Kemper ADMS Bob Russell, "A Fair or a Minimum Wage? Women Workers, The State, and The Origins of Wage Regulation in Western Canada," LabouriU Travail 28 (Fall 1991)

Michael E Porter's five forces of competitive position 27 June 2011Alison Kemper ADMS

Is Wal-mart Good for America 8:45

Video – Strategy vs Responsibility Does the lowest price justify the consequence Power of the Retailer Eggs in One Basket Does Supplier have any Power Is it right?

Price Spreads Com. Eatons Reaction What did Eatons do? What was the outcome? Robert Young Eaton President Eatons

Eatons and Corporate Interest Groups While many benevolent and charitable interest groups do exist, perhaps the most influential and best funded interest groups are those run by the business community.

Why do they lobby? Business have a great deal of common interests that they may work together. These include, political stability, legal rights, macro-economic stability, lowering taxes, and access to foreign markets. They also have areas of conflicting interests These include seeking competitive advantages over rivals, regulatory approval, tax differentials, drug approvals, government contract, trade exemptions and legislative advantages In the areas of common interest business are usually represented by umbrella groups such as the Ontario Chamber of Commerce or the Association of Canadian Bankers. In the areas of conflicting interests companies often seek advice from either an in house government relations specialist or an outside government relations firm.

How do they operate? Interest groups use a great deal of money and resources to effect public policy change. These dollars are derived from two sources. 1. Donations and grants from their members or monies from the broader community. 2. Government support, through tax deductions or otherwise. 3. Corporate Profits

How do they operate? They directly lobby government on an almost daily basis. They contribute to the making and implementing of public policy. They are viewed by governments in general as spokespeople for a segment of the electorate. Whether you know it or not, some interest group is speaking for you.

Objective: Influence Public Policy Public policy development and legislation is by and large a public process. Legislation is tabled in the house or legislature, and is debated in committees. The object of a government relations specialist is in introduce his opinions and thoughts into this process, often prior to it becoming debated in the public realm. This can be targeted at many different entities in government.

Targets for Influence Governments Cabinet Political Parties Public Servants Voters

How Interest Groups Try to Influence Public Policy Direct Influence Techniques Direct Lobbying Stimulation of the Grass Roots Direct Action Activities Litigation Coalition Building (Retailers)

How Interest Groups Try to Influence Public Policy Indirect Techniques Media and Public Relations Advocacy Advertising Think Tanks Election Related Activities Doing Favors

Persuasion The first tool that interest groups manifest is to try to persuade government to pursue the policies that they advocate. They hope that the force of logical and well prepared arguments will be enough to persuade reluctant public policy administrators that their proposals should be adopted. Failing that they will look to the public for support.

Persuasion The effectiveness of persuasion depends largely on the organization 1. Persistence 2. Reputation 3. Extensive knowledge of the issue at hand 4. Extensive financial resources 5. Continuity

What is it they seek to influence? New statutes or amendments to legislation Regulations Decisions by regulatory agencies, AGCO, CRTC Cabinet Decisions Ministerial statements Annual Budget Loans and loan guarantees Procurement contracts Appointments to government commissions Trade agreements

Direct Techniques: Lobbying A lobbyist is one who seeks to influence public policy. More informal than formal. They often go unnoticed working behind the scenes. They often get what they want, and yet do not cause a ripple in Parliament. They often know more about government than do public administrators or politicians. Prefer to be known as government relations specialists or advisors in public affairs.

Tools of the Lobbyist Most government relations work is done behind the scenes in informal settings. Lunches, dinners, golf games, and nights out are the stock in trade of the lobbyist. Why is this?

The best approach to lobbying Draw attention to elements of public policy that are inconsistent with prior commitments or policies of the government. Draw attention to elements of public policy that are consistent with prior commitments of policies of the government. Persuade government to soften the impact of legislation that will damage or destroy the business of the industry in question.

Contact vs. Content It is said that there are two types of lobbyists. Contact and Content. Each is useful in their own right. Contact lobbyists are able to put a client in contact with a decision maker. They are usually political, but are light on policy. Content lobbyists are usually larger firms who are much better at developing a policy strategy.

Government Negotiation is Unique 1. Government can force people to do what they might not want to do. (pay taxes) 2. Governments are more sensitive to public opinion than business. 3. Government has a very complex approval structure. (Minister, cabinet, legislature) 4. The goals of a government are often more complex than business. 5. Government are careful about precedent. 6. Governments are constrained by statute.

27 June 2011Alison Kemper ADMS A New Retail Age World War II Impact on Industry? Why? Post War Changes to Economic Landscape What changes to Retail Landscape Eatons Strategy

Competition Scene Changes Simpsons/Sears JV – How was it structured – What were the roles – What made it different from Eatons

General Robert Wood Chairman of Sears-Roebuck Sears - Philosophy

Corporate Strategies Sharing Activities Is a value activity that is based on using the same facilities, services processes and systems in a company to get benefits of scale.

Sharing Activities Corporations can also achieve synergy by sharing tangible and value-creating activities across their business units – Common manufacturing facilities – Distribution channels – Sales forces Sharing activities provide two payoffs – Cost savings – Revenue enhancements

Cost Savings through Sharing Activities Most common type of synergy Savings obtained through – Eliminating duplicate jobs – Eliminating duplicate facilities – Eliminating related expenses Savings may be offset by – Greater costs of coordinating shared activities – Costs of compromising design or performance of a shared activity

Changing Retail Landscape of Post War Canada How were downtown stores perceived? Suburbs began to grow, Why? What changes were taking in society? What impact did technology have?

27 June 2011Alison Kemper ADMS Economic

Consumerism A social and economic order that encourages the purchase of goods and services in ever-greater amounts. It is the concept that an ever-expanding consumption of goods is advantageous to the economy.

What is Consumerism? Economic theory that individual consumers drive the market. Any purchase or exchange of goods beyond the fulfillment of a persons basic needs is at the heart of consumerism. Mass consumption drives consumerism.

Consumerism Because these are goods we do not need (we want them, but do not need them) there is a certain new element that comes into play: – The enjoyment of a good and the pleasure it brings to the consumer. – The brand recognition of a good; Is it well made? Expensive? Enjoyed by those I admire? – Advertising and Marketing play a large roll in consumerism. Advent of Credit Cards co-incided with the rise of consumerism

Popular brands

Problems with Consumerism The demand for unnecessary products can cause problems as consumers get into debt trying to emulate those above them. The quest for the newest and best creates turnover of products, which can increase waste created by products, uses up limited resources quicker creating new products, contributing to global warming and other environmental disturbances. Societal malaise as people are never happy, always wanting more. Consumption of goods becomes a never ending quest.

Competition Scene Changes Simpsons-Sears – How did their business strategy work? Eatons – How did their business strategy work?

End Game

Canadas Changing Retail Future

The US Retail Invasion and its impact on Canada In 1985, there were only 10 US based retailers operating in Canada. By 2003, this number had grown to of the top 20 retailers in Canada were US owned. US firms make up 75% of foreign-owned retail operations in Canada.

Impact of the Canadian Dollar on Retail Canadians have always enjoyed cross- border shopping – Prices in Canada are often higher than those in the US, due in part to such differences as tax structures or the economies of scale enjoyed by retailers in the larger US market. Canadian consumers get even better deals when our dollar is high.

Impact of the Canadian Dollar on Retail A high dollar also makes travel to the US a cheaper proposition for Canadians. All around, the strength of the Canadian dollar determines the purchasing power of Canadians. The fluctuating dollar can affect prices at home, but often there is a lag time as inventory was purchased when the dollar was at a different value.

Future Impact of Globalization on Canadian Retail The Internet will further erode Canadian bricks and mortar stores. – Amazon.ca vs Indigo-Chapters.

Next Week: Week 8 Readings for Week 8: The Bank of Canada: Financial Institutions, laws and policies in Canada – The founding of the bank – The independence of the Bank – Why monetary policy matters Why monetary policy matters – David Olive on James Coyne David Olive on James Coyne – Jack Laytons big mistake re the Bank of Canada Jack Laytons big mistake re the Bank of Canada – US Federal Reserve Bank and Politics US Federal Reserve Bank and Politics Group Assignment – Will be Held Week 9