Category: Economic World News

Despite sales growth and increased traffic to its stores, Ikea Canada is still looking at major changes, exploring new store concepts that don’t require an afternoon spent wandering through its maze-like showrooms.

Chief executive officer Marsha Smith said Wednesday the furniture giant is trying to stay ahead of massive shifts in consumer preference.

And that labyrinth showroom, she said, “isn’t for everyone.”

“We are exploring new concepts,” she said, pointing to the new Ikea Planning Studio project in the U.K., which skips the large showroom in favour of in-store consultations between customers and staff.

“I mean, we had 30 million visitors last year. So, happy we’re doing something right. But of course, you can’t stay the same.”

The retailer is also looking at starting a program to let customers bring in their old Ikea furniture to trade for a gift card, if staff deems it to be in good enough condition. The sell-back program — which would essentially turn Ikea’s As-Is section into a second-hand store — is a main part of Ikea’s attempt at extending the lifespan of its furniture and eliminate waste.

Ikea saw eight per cent growth in Canada with $2.39 billion in sales in 2018, according to an annual report released Thursday. Among the report’s highlights: a 10 per cent jump in online visitors to 104 million, $241.57 million in online sales and 2.2 million meat ball plates.

“Of course, we are in a rapidly changing retail environment. So we’re very proud that we managed to have a year where we had eight per cent growth,” Smith said.

The Canadian furniture retail market has seen the expansion of such online retailers as Wayfair, and especially Amazon, which is upending consumer expectations across the retail industry.

“I think the biggest challenge, in a word, is Amazon,” said Maureen Atkinson, a consultant at Toronto-based retail consulting firm J.C. Williams Group, adding that the expansion of the online e-commerce behemoth is “one key driver that is keeping retailers awake at night.”

“It’s very hard for retailers to keep up with them, never mind try to outwit them.”

I think the biggest challenge, in a word, is Amazon. (It’s the) one key driver that is keeping retailers awake at night

In 2018, Ikea opened stores in Halifax and Quebec City, but backed away from plans to open a store in London, Ont. The London store was part of a years-old expansion plan that now needs to be re-evaluated within the current retail climate, Smith said.

“I think it would be very irresponsible that we just continue with that plan without constantly re-evaluating,” she said. “Life in retail is changing all around us. Consumer expectation is changing. It certainly was not anything to do with the area. It’s more about what the consumers want.”

What many consumers don’t want is the kind of do-it-yourself project that is at Ikea’s core. “We are moving a bit towards a ‘do-it-for-me’ society,” Smith said. Ikea has responded by partnering with the online platform TaskRabbit to connect Ikea customers with freelancers who can assemble their purchases. The project launched in Toronto last month, with plans to expand to Vancouver later this month.

“Having just 14 stores (in Canada) but still managing to be the market leader is something that we’re really proud of,” Smith said. “But, that said, I think it’s important that we do still continue to explore new formats.”

• Email: jedmiston@nationalpost.com | Twitter: jakeedmiston

OTTAWA — Canada is pushing back against U.S. attempts to change the text of its September trade pact and the issue may have to be referred to ministers to settle, a Canadian source with direct knowledge of the matter said on Thursday. “Some of the stuff they (the Americans) have been putting forward is not at all what we agreed to,” said the source, who requested anonymity given the sensitivity of the situation. Although the source said Ottawa did not feel the problem would wreck the new U.S.-Mexico-Canada agreement (USMCA), the affair shows that tensions remain after a stressful 13-month negotiation.

The United States and Canada reached a last-gasp deal on USMCA at the end of September, guaranteeing that free trade between the three nations would continue. Officials are now fine-tuning the wording on the deal intended to replace the North American Free Trade Agreement. “We are having discussions around the interpretation of a variety of things,” said the Canadian source. No one was immediately available for comment in the office of U.S. Trade Representative Robert Lighthizer, who led the negotiations for Washington. Adam Austen, a spokesman for Foreign Minister Chrystia Freeland, said it “is normal after an agreement-in-principle is concluded for all countries to work together to ensure the text is accurate.” As part of the USMCA, Canada agreed that British Columbia would stop its practice of only allowing local wines to be stocked in supermarkets. The source said the United States was trying to broaden that clause to cover wine sales in the provinces of Ontario and Quebec. The two sides are also at odds over elements of Ottawa’s promise to offer more access to U.S. dairy producers.

(It) is normal after an agreement-in-principle is concluded for all countries to work together to ensure the text is accurate

Spokesman for Foreign Minister Chrystia Freeland

The source said it was not abnormal that nations would seek to “push a little bit further in terms of the text” at this stage of a trade negotiation. The USMCA must be ratified by all three nations before it comes into force. U.S. President Donald Trump had threatened to walk away from NAFTA unless major changes were made. Another area of contention are the tariffs on Canadian steel and aluminum that Trump imposed in June. Freeland told reporters at a steel plant in Hamilton, Ont. on Thursday that she would be meeting Lighthizer in the next few weeks to discuss the matter. She reiterated that Ottawa does not think the tariffs and the USMCA are connected.

Canada’s chief statistician says a controversial “pilot project” involving the collection of customer data from banks will not go ahead until the anxieties about the effort are addressed. Anil Arora told the Senate of Canada’s banking, trade and commerce committee on Thursday that the proposal has not yet been implemented and that no related data has been harvested by Statistics Canada. “I can assure you that we will not proceed with this project until we have addressed the privacy concerns expressed by Canadians by working cooperatively with the privacy commissioner and with the financial institutions,” Arora said.

The flurry of concern over the StatsCan proposal began when Global News reported in late October that the agency was asking several banks for information on the financial transactions of hundreds of thousands of Canadian households. After the report was published, Arora said in a statement that the traditional ways of gathering information, “are no longer sufficient to accurately measure Canada’s economy and societal changes.” Arora added that more than three-quarters of purchases are made online by Canadians, and that Statistics Canada “has to have access to these data” in order to provide quality statistics in certain areas, such as housing and debt. The chief statistician continued to defend the need for quality stats on Thursday, noting there is wide use of the agency’s information. He noted that, “while the notion of 500,000 addresses may seem large,” there are more than 14 million households in Canada. Arora also stated at the end of October that they had already worked with the Office of the Privacy Commissioner of Canada during the planning of the project, but that he had invited the commissioner to provide additional recommendations on the effort. Soon after, the privacy commissioner’s office announced an investigation into StatsCan, saying they had received complaints about the agency “and its collection of personal information from private sector organizations.” But when the privacy commissioner appeared before the committee on Thursday, the watchdog said the potential size of the pilot project was relatively new knowledge. “Before these complaints, we had discussions about administrative data collection in general, about certain pilot projects in general, but not about numbers until very recently,” said Daniel Therrien, the privacy commissioner. Neil Parmenter, the president and chief executive officer of the Canadian Bankers Association, told the committee that the group and its members “have been clear that we have serious concerns over the privacy implications of the StatsCan transaction-level data request.”

(The CBA has) been clear that we have serious concerns over the privacy implications of the StatsCan transaction-level data request

Neil Parmenter, Canadian Bankers Association

Parmenter, like Arora, stressed that no customer-transaction data or other personal information had been transferred to StatsCan, although he added later that some financial institutions had received “compel letters.” The CBA, he said, was also encouraged that the privacy commissioner was reviewing the request. “Trust and confidence of the Canadian public is critical,” Parmenter said. “As such, the banking sector continues to emphasize the central importance of protecting the privacy and security of customer financial data and personal information.” The issue has also become a political football, with the Senate banking committee saying it would hold “at least” one hearing on the subject. Collection of banking data has become a topic of debate in the House of Commons as well. Conservative opposition leader Andrew Scheer declared on Wednesday that, “the only thing Canadians want to hear from the Prime Minister is that he is cancelling the project.” Prime Minister Justin Trudeau fired back by saying that the government understands the need for reliable data, but also prioritizing the protection of privacy. “That is why this data that Statistics Canada collects is anonymized, is subject to stringent controls,” Trudeau added. “Indeed, this is the pilot project it is working on now, which has not even rolled out yet.” • Email:
gzochodne@nationalpost.com | Twitter:
GeoffZochodne

Freshii Inc., the ambitious Canadian restaurant chain that has frequently touted its rapid global expansion, is backing away from plans to nearly double its stable of franchises by next year after the company’s same-store sales decreased in the third quarter. Chief Executive Officer Matthew Corrin said Freshii was withdrawing its outlook for 2019 — which included plans to add roughly 320 stores to an existing 431— after issues with permits and lease negotiations in different markets around the world delayed store openings. The announcement, which came as the company reported disappointing earnings for the quarter, sent shares tumbling more than 50 per cent Thursday.

Without the pressure to open new locations, Corrin said he can be more disciplined in fixing or closing the “bottom 10 per cent” of stores that he believes to be the culprit behind the steep drop in the company’s same-store sales growth, which registered at -0.8 per cent in the quarter, down from 5.1 per cent a year prior. Freshii, which Corrin founded in 2005, has been growing rapidly; since its initial public offering in January 2017, the chain has doubled in size, and now has franchises in 17 countries. Corrin now says he is certain that only 175 new stores would open in the next “several quarters” — far from the previous plan, which would have seen Freshii reach 760 stores by next year. In its third-quarter report, Freshii said it opened 18 stores and closed eight. It saw a net loss of US$400,000 — up from US$500,000 a year earlier — with system-wide sales growing 26 per cent to US$45.8 million. “We’re frustrated by it,” Corrin said of the decline in same-store sales. “We’re not satisfied.” “Historically, we’ve been … (way) ahead of the industry average.” Corrin promised that closing stores or swapping out underperforming franchisees would bring about a quick turnaround. While he didn’t say how many stores he would close, he suggested a portion of the bottom 10 per cent would “likely go away in the next number of quarters.”

We’re frustrated by it. Historically, we’ve been … (way) ahead of the industry average

CEO Matthew Corrin

“I think the point of ending guidance today is to not tell you what you should expect in the future,” Corrin told an analyst who asked about future store closures during a conference call Thursday morning. “Our base is getting bigger, so the bottom 10 per cent gets bigger inevitably.” In a report Thursday, analysts at CIBC were unconvinced by Corrin’s plans to change Freshii’s direction, pointing to its stagnant menu and a glut of rivals in the fast-casual health-food industry as other potential reasons for the decline in same-store growth. Investors appeared to have “lost confidence in management’s ability to quickly right the ship,” the CIBC report said. Freshii stock on Thursday dropped as much as 51 per cent, to $1.95, before rebounding to close at $2.63, down 34 per cent for the day.

Bombardier’s ongoing turnaround was dogged Thursday by old worries about the firm’s balance sheet as a lower cash flow projection cast doubt over the debt-strapped firm’s prospects. Bombardier announced plans to cut 5,000 jobs — including 2,500 in Quebec and 500 in Ontario — and to sell both its turboprop unit and a training business as it continues to strive for a future in trains and luxury jets. The company also unexpectedly altered its cash flow guidance, suggesting it will only break even in 2018 after the proceeds of a $625 million land sale are included. Though the previous goal was to break even without this injection, Bombardier chief executive Alain Bellemare cited a need for working capital at the company’s rail business for altering the target.

“During the earnings and cash flow building phase of our turnaround, we will continue to be proactive in focusing and streamlining the organization, and disciplined in the allocation of capital,” Bellemare said. The market did not share the CEO’s enthusiasm, sending shares of the aerospace firm tumbling. The stock fell a steep 24.5 per cent, closing at $2.41 per share in Toronto, as the cash flow issue drove new concerns about Bellemare’s mission to reshape the Montreal based firm. For investors the unexpected shift pressed on an old nerve, said David Tyerman, transportation and industrials analyst with Cormark Securities. “Bombardier has had problems historically and the problem is often that their balance sheet gets into trouble because they chew up a lot of cash,” he said. “So this is tapping into a long-standing concern. It did come out of the blue and with a company that has a fair bit of debt. It’s a sensitive issue.” Bombardier is carrying $9.5 billion in adjusted debt, much of it built up through cost overruns and delays tied to the development of its Global 7500 private jet and the C-Series narrow-body airliner. “Investors won’t like the big chop to cash flow guide, which raises questions (regarding) management credibility and ability to complete a successful turnaround,” Cai von Rumohr, an analyst with Cowen Equity Research wrote in a note to clients. Bellemare is pursuing an aggressive strategy in a bid to build Bombardier’s future around trains and private planes. The firm ceded 50.1 per cent of the C-Series airliner to European giant Airbus Group SE earlier this year and the long-range Global 7500 business jet is set to debut next month. It has also slashed costs, selling off non-core assets and streamlining processes. The asset sales announced yesterday will bring in about $900 million. The company still holds its CRJ regional jet program, where it will focus on reducing costs while exploring “strategic options” for the future, the company said. The turnaround drive has brought with it thousands of job cuts. The latest round, announced yesterday, will yield annual savings of $250 million by 2021, the company said. “This is very bad news, it sends a worrisome message about the future of the industry,” Renaud Gagne, head of the Unifor labor union’s Quebec branch, said in a statement. “We are in the dark as far as what comes next.” Since Bellemare took the reins in 2015, the company has improved its profitability and made strides toward its 2020 objectives, analysts say. Bombardier’s profit margin (EBIT margin) on its rail division rose to 9.3 per cent last year compared with 5.6 per cent in 2015. Meantime, the profit margin in its business jet division rose to 8.4 per cent from 4.4 per cent over the same period. “From a business jet standpoint Bombardier appears to be in a much better position now compared to a few years ago,” Daniel Hall, senior valuations analyst with FlightAscend Consultancy said in an email. “Speaking to the market, there is definitely a lot more confidence with Bombardier — they are also in better shape with regards to delivery numbers and orders.”

Bombardier is better able to compete with the smaller firms in the luxury jet business than it was with aerospace giants like Airbus Group, said Tyerman. The segment also holds more room for growth for the firm, he added, pointing to the much higher profit margins of competing firms such as Gulfstream Aerospace Corp. Its rail division operates in a different competitive landscape, facing a much larger competitor in China’s CRRC Corp. And it could soon be up against another larger firm if German industrial group Siemens AG and French rival Alstom SA follow through on plans for a merger, though that problem is unlikely to emerge for several years, Tyerman said. “They’ve done a lot of good stuff but this is a company with a lot of debt,” Tyerman said. “It’s like a homeowner who makes a lot of money but has a massive mortgage. You’re still only a short way away from disaster. That’s the big issue here.” • Email: npowell@nationalpost.com | Twitter: Naomi_Powell