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

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 Canada’s Major Retailers

• Able to discuss the future of Canadian Retailing to Canada’s economy

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

Important Information

Replacement Mid-term to be held in class on Oct. 27th 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 10th.

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 THE CONCEPT OF COMPETITIVENESSCOMPETITIVENESS

“… “… the ability to design, produce and market the ability to design, produce and market goods and services, the price and non-price goods and services, the price and non-price characteristics of which form a more attractive characteristics of which form a more attractive package than those of competitors”package than those of competitors”

From:From: The World Competitiveness Report, The World Competitiveness Report, World Economic Forum and the World Economic Forum and the International Management Development InstituteInternational Management Development Institute

Copyright © Captus Press Inc., 2009 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 women’s equality.

http://www.cbc.ca/archives/categories/economy-business/consumer-goods/eatons-a-canadian-institution-1/what-happened-to-eatons.html

Eaton’s 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 Eaton’s 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

27 June 2011 Alison Kemper ADMS 101023

Vertical integration

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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 Eaton’s succession strategy for company leadership

What was Management’s strategy Was it successful? Why?

Competitive Scene 19th Century

Who were Eaton’s rivals early on?

Simpsons

Simpsons

Simpsons was started in 1858 in Newmarket as a dry goods store.

Eventually moved to Toronto in 1872. 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 Eaton’s Centre.

Simpsons and Eaton’s 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 Hudson’s Bay Company in 1978.

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 1991.

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.

Hudson’s Bay Company

Hudson’s 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)

Hudson’s 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 19th 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.

Hudson’s Bay Company

In 1912, opened its first department stores in Victoria, Vancouver, Edmonton, Calgary, Saskatoon and Winnipeg.

Became a truly Canadian company in 1970. Diversified its product offering and purchased

many different competitors (Zellers, Simpsons, K-Mart).

The Changing Retail Landscape in the 20th Century

Economic Political Competitive Social Technological

THE ECONOMY: THE GREAT DEPRESSION 1929-1939

37

WHAT HAPPENED?

38

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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 Bennett1930-35

H.H. StevensMinister 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 1930’s—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 thereafter45

Liberals—Mackenzie 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.

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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.

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.

Eaton’s financials were exposed showing many employees making less than minimum wage

H.H. StevensMinister of Trade and

Commerce 1934

Women in the workforce

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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 1010Data source: http://www.statcan.gc.ca/pub/11-516-x/sectiond/4057750-eng.htm

Labour Force Participation

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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). 59-88.

Michael E Porter's five forces of competitive position

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“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. Eaton’s Reaction

What did Eaton’s do? What was the outcome?

Robert Young EatonPresident Eaton’s

1922-1942

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. Persistence2. Reputation 3. Extensive knowledge of

the issue at hand4. Extensive financial

resources5. 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.

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A New Retail Age

• World War II• Impact on Industry? Why?

• Post War - 1945-1952• Changes to Economic Landscape • What changes to Retail Landscape• Eaton’s Strategy

Competition Scene Changes

Simpson’s/Sears JV– How was it

structured– What were the roles– What made it

different from Eatons

General Robert WoodChairman of Sears-Roebuck

1939-1954

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?

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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 person’s 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?

Eaton’s – How did their business

strategy work?

End Game

Canada’s 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 185. 11 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– David Olive on James Coyne– Jack Layton’s big mistake re the Bank of Canada– US Federal Reserve Bank and Politics

Group Assignment – Will be Held Week 9