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1010 Class 6: The Rise of the Canadian Consumer and Retail. 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.

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what is consumerism
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.
  • While consumerism has always exists as long as there was civilization, the Industrial Revolution changes the theory of consumerism.
industrial revolution and consumerism
Industrial Revolution and Consumerism
  • Industrial Revolution leads to an increase in the production of goods by moving from production by individual artisans to lesser skilled workers using machines to increase total output.
    • Greater output=more goods available
    • More goods available=lower prices for goods
    • Lower prices=more people can afford to purchase
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.
consumerism1
Consumerism
  • Businesses have begun to target wealthier consumers because that is where the largest profit margin exists.
    • Luxury goods are consumerism at its extreme.
    • Not-so-wealthy consumers want to purchase similar goods to show the appearance of wealth.
    • People wish to emulate those in a higher socio-economic strata than they are in.
problems with consumerism
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.
department stores
Department Stores
  • The first department store ever was opened in England in 1734.
  • In North America they evolved from dry goods establishments, i.e. businesses selling fabric, patterns, and sewing notions such as thread, ribbons and lace.
  • The rise of the department store was an urban phenomenon. As cities grew, larger numbers of customers dictated a broadening of items for sale. Roads and rapid transit such as trains, subways and streetcars, converged on downtown areas, concentrating populations and encouraging retailers to locate there.
department stores1
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 stores2
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.
history of canadian retail
History of Canadian Retail
  • Hudson’s Bay Company
  • Eatons
  • Simpsons
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 company1
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 company2
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).
eaton s
Eaton’s
  • Eaton’s was founded in Toronto in 1869 by Timothy Eaton.
  • The original store was a dry goods and haberdashery at 178 Yonge St. and had a staff of 4. Moved to 190 Yonge St in 1883.
  • Continued to grow; by 1911, Eaton’s employed over 17,500 people and by 1919 covered over 60 acres of space between Yonge and Bay, north of Queen St (coincidently, the current location of the Eaton Centre).
eaton s1
Eaton’s
  • Expanded into the West with its catalogue business.
  • They opened a store in Winnipeg to handle the western business.
  • This department store was considered the most profitable in the world, with locals spending 50% of their retail dollars in this store.
  • By the 1930’s, Eaton’s controlled over 60% of all department store sales.
eaton s2
Eaton’s
  • Eaton’s started its catalogue business in 1884.
  • As the department store was an urban phenomena, the catalogue business allowed them to access rural consumers by offering them products they would otherwise not have access to.
eaton s3
Eaton’s
  • By the 1950’s, Eaton’s was the largest and most successful retail organization in the British Empire.
  • Things started to change in the 1970’s and 1980’s:
    • The catalogue was discontinued, as 60% of the population now lived within 30 minutes of an Eaton’s store.
    • Suburban retail development allowed Sears, Hudson’s Bay and Zellers to take some of its market share.
    • Poor decisions by the family eventually led to Eaton’s filing for bankruptcy in 1997, when it was bought by Sears Canada.
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.
simpsons1
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.
simpsons2
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.
retailers as a cultural institution
Retailers as a Cultural Institution
  • Hudson’s Bay Company is synonymous with Canada:
    • Fur trade was of major importance to the development of Canada.
    • Would the English have been as interested in the lands held by the French without this venture into the fur trade?
    • Much of the exploration of the Canadian West was done by Hudson’s Bay Company traders.
    • Hudson’s Bay Company is the oldest publically traded company in the English speaking world.
two approaches to running the economy
Two Approaches to Running the Economy
  • The other camp argues for tax cuts and a reduction of governments role in the running of citizens lives.
  • This they argue is the only way to achieve productivity.
  • One camp favors government intervention believing politicians and bureaucrats can orchestrate the economy from above.
the mixed economy of canada
The Mixed Economy of Canada
  • Governments enact a wide range of laws
  • They establish crown corporations
  • Deliver and array of services and financial aid packages
  • Purchase goods and services.
government control
Government Control
  • Compared to the United States, Canadian governments control approximately 7 to 8 percent more of the G.D.P.
contributing factors to the growth of government
Contributing Factors to the Growth of Government
  • Growing industrialization
  • Inflation
  • Urbanization
  • Ideological changes
  • Technological changes
  • Federal provincial fiscal arrangements
  • The nature of the bureaucratic structure.
  • Rising incomes
what do you do in a depression
What do you do in a Depression?
  • If you are a government?
  • A business owner?
  • A minimum wage worker?
farmers and progressives
Farmers and Progressives
  • Free traders
  • Anti-National Policy
  • Anti business interests.
  • Allied with socialist groups until in power, then allied with the Liberals
conservatives
Conservatives
  • Early 1930’s—protect industry and obtain imperial preference
conservatives1
Conservatives

44

  • 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
liberals mackenzie king
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.
increased participation in workforce
Increased participation in workforce
  • From the 1880s on, women's participation rate in the Canadian workforce
  • climbed steadily along with increased immigration, industrial expansion, and the
  • transformation of agricultural and home production to workshop and factory
  • production. In 1891, women made up about 11 per cent of the total workforce; by
  • 1921, this had increased to 15 per cent, and by 1951, women composed 22 per cent
  • of the workforce.
political response to lowered standards of living
Political Response to Lowered Standards of Living
  • Why did RB Bennett not act to improve the economy?
  • Why the Royal Commission on Price Spreads?
  • Does it happen now?
  • http://www.cbc.ca/news/business/story/2011/05/12/clement-gasoline-prices.html
eatons and corporate interest groups
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
Why do they lobby?
  • Business have a great deal of common interests that they may work together on.
  • These include, political stability, legal rights, macro-economic stability, lowering taxes, and access to foreign markets.
  • 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.
why do they lobby1
Why do they lobby?
  • Business also have conflicting interests that they may work against each other together on.
  • These include seeking competitive advantages over rivals, regulatory approval, tax differentials, drug approvals, government contract, trade exemptions and legislative advantages.
  • 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
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.
  • Donations and grants from their members or monies from the broader community.
  • Government support, through tax deductions or otherwise.
how do they operate1
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
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
Targets for Influence
  • Governments
  • Cabinet
  • Political Parties
  • Public Servants
  • Voters
how interest groups try to influence public policy
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 policy1
How Interest Groups Try to Influence Public Policy
  • Indirect Techniques
  • Media and Public Relations
  • Advocacy Advertising
  • Think Tanks
  • Election Related Activities
  • Doing Favors
persuasion
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.
persuasion1
Persuasion

The effectiveness of persuasion depends largely on the organization

  • Persistence
  • Reputation
  • Extensive knowledge of the issue at hand
  • Extensive financial resources
  • Continuity
what is it they seek to influence
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 lobbing
Direct Techniques: Lobbing
  • 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
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
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.
how is this done
How is this done
  • We recall from earlier discussions that public policy in Canada is multifaceted. The creation of policy can emerge from many different sources.
  • The first thing that an effective GR professional must do is determine the source of new policy and what action or outcome is preferable to his client.
contact vs content
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.
how is this done1
How is this done
  • Ultimately a successful advocacy campaign is a negotiating process.
  • How the lobby defines and plans its negotiating strategy will dramatically effect the outcome.
  • The advocate needs to understand that government negotiations differ from business negotiations in several ways.
government negotiation is unique
Government Negotiation is Unique
  • Government can force people to do what they might not want to do. (pay taxes)
  • Governments are more sensitive to public opinion than business.
  • Government has a very complex approval structure. (Minister, cabinet, legislature)
  • The goals of a government are often more complex than business.
  • Government are careful about precedent.
  • Governments are constrained by statute.
what does a business do when consumers dry up
What does a business do when consumers dry up?
  • Drop prices
  • Reduce inventories
  • Cheaper inputs
  • Layoffs
vertical integration
Vertical Integration

Benefits

Secure source of supply of raw materials

Secure distribution channels

Protection and control over assets and services

Access to new business opportunities and technologies

Simplified procurement and administrative procedures

vertical integration1
Vertical Integration

Risks

Costs and expenses associated with increased overhead and capital expenditures

Loss of flexibility resulting from inability to respond quickly to changes in the external environment

Problems associated with unbalanced’ capacities or unfilled demand along the value chain

Additional administrative costs

Business 1

Business 2

Dependency

vertical integration benefits and risks
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.
vertical integration2
Vertical Integration

In making decisions associated with vertical integration, four issues should be considered:

Are we satisfied with the quality of the value that our present suppliers and distributors are providing?

Are there activities in our industry value chain presently being outsourced or performed independently by others that are a viable source of future profits?

Is there a high level of stability in the demand for the organization’s products?

How high is the proportion of additional production capacity actually absorbed by existing products or by the prospects of new and similar products?

what about modern retail
What about Modern Retail?

http://www.pbs.org/wgbh/pages/frontline/shows/walmart/view/

the us retail invasion and its impact on canada
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.
the us retail invasion and its impact on canada1
The US Retail Invasion and its impact on Canada
  • US retail introduced the concept of the “Big Box” store to Canada.
  • The growth of big box stores has been facilitated by the arrival of several major U.S. retailers in Canada since 1994, including Best Buy, Old Navy, Home Depot, Wal-Mart, Staples and Winners.
  • US retailers saw Canada as an untapped market, with more potential for expansion than in the oversaturated US market.
the us retail invasion and its impact on canada2
The US Retail Invasion and its impact on Canada
  • US expansion into Canada put pressure on Canadian firms to compete.
  • Larger companies have larger buying power. Strong US retailers in the US marketplace have an advantage over Canadian-only retailers.
  • Similar to the examples given in Week 5 with the auto sector.
  • Canadian firms have to become innovative if they are to survive.
walmart changes canadian retail
Walmart changes Canadian Retail
  • Walmart was a real game changer for Canadian retail.
    • Came to Canada in 1994 when it purchased Woolco.
    • Woolco was an American company owned by Woolworth that was operating in Canada.
    • Purchased the 122 stores and made its presence known in Canada.
    • As of 2002, Walmart controlled 38% of the Canadian department store market.
walmart changes canadian retail1
Walmart changes Canadian Retail
  • Walmart’s introduction of “Everyday low prices” caused Canadian retailers to change their tactics.
  • Canadian retailers would rely on weekly fliers, lost-leaders and specials to draw people into their stores.
  • As Canadian stores switched to this model, consumers benefited from lower pricing.
future of us retail expansion into canada
Future of US Retail Expansion into Canada
  • http://www.collierscanada.com/en/News/2011/Drew-Keddy-US-Retail-Invasion-June-8
impact of the canadian dollar on retail
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 retail1
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
Future Impact of Globalization on Canadian Retail
  • Globalization will continue to introduce new retailers to Canada
    • H&M – Sweden
    • Sephora – France
    • The Sony Store – Japan
    • Zara – Spain
future impact of globalization on canadian retail1
Future Impact of Globalization on Canadian Retail
  • The Internet will further erode Canadian bricks and mortar stores.
    • Amazon.ca vs Indigo-Chapters.
future impact of globalization on canadian retail2
Future Impact of Globalization on Canadian Retail
  • The Hudson’s Bay Company was purchased in 2006 by American billionaire Jerry Zucker.
  • After Zucker’s death, the ownership of HBC was transferred to the NRDC Equity Partners in New York.
  • This Canadian icon is now owned by Americans.
  • Other Canadian companies are now owned by American firms:
    • Future Shop owned by Best Buy.
    • La Senza owned by Victoria’s Secret.
  • Will this trend continue? What does it mean for the future of Canadian retail? Will Canadian businesses slowly be replaced by foreign firms as was the case in the auto sector?
group work eaton s from the great depression to the challenge from simpsons sears
Group Work: Eaton’s: From the Great Depression to the Challenge from Simpsons-Sears
  • In your opinion, how did R.Y. Eaton handle the Price Spread Commission? Would you have handled the situation differently, and, if so, how?
  • How could Eaton’s have used its dominant position after the war to maintain and enhance its market position?
  • As a consultant to John David Eaton, what competitive strategy would you have recommended that he take in response to Simpsons-Sears?
walmart supply chain sustainability networks
WalMart Supply Chain Sustainability Networks
  • http://walmartstores.com/Video/?id=1228
wal mart supply chain squeezing suppliers
Wal-Mart Supply Chain Squeezing suppliers
  • Gallon jar (>3ℓ) of pickles
  • WalMart buyer MUST have it, and it must be <$3, below cost.
  • Families buy it, eat some, and the rest rot.
  • 80 per store per week, 240,000 throughout the WalMart system
  • Undercut all of Vlasic’s other packages.
  • Vlasic goes bankrupt.
what differentiates them
What differentiates them?
  • Location(s)
  • Catalogue
  • Cost of merchandise
  • Production vs. buying
  • Foreign investors vs. privately held vs. public
pest analysis
PEST Analysis
  • Political
  • Economic
  • Social
  • Technological
political
Political
  • Parties / Ideology
  • Legislation
  • Trade
  • Support / Investment
  • Protector
economic
Economic

Consumer confidence

Interest rates

Unemployment

Business cycles

Commodity process

GDP GNP

social
Social

Lifestyle

Values

Environment

Demographic changes

Income distribution

Culture

technological
Technological

Government investment

Patents

Adoption rate

Research

Unrelated developments