Canada’s Economic Outlook is Improving – A Few Hurdles Yet to Overcome

Are we getting close to turning the corner on this prolonged recession and slow recovery that has hammered our economy for the past four years? That’s a question so many business owners are asking. Our country’s economic outlook has brightened since the start of this year as the U.S. recovery gains strength boosting confidence among Canadian consumers and companies.

Canada is benefiting from generally improved global conditions, but there are still risks that could derail our fragile recovery.

The Bank of Canada recently reported that Canada’s economic picture has improved in recent months and boosted Canada’s economic growth forecast to 2.4% growth and hinted strongly that it may be ready to start bumping up interest rates soon.

However hiking borrowing costs can also pose risks for our economy burdened with high household debt, a strong dollar, soft export markets and weak employment growth.

The central bank has issued repeated and urgent warnings about household debt levels as the biggest domestic risk to our economy. Unlike the United States, Canada experienced a post-financial crisis with an inflated housing market rally that was triggered by record low borrowing costs. This in turn fuelled higher debt levels at a time when real wage growth remains sluggish. For many Canadians a rise in mortgage costs could be the tipping point as they to try to cope with high lines of credit on their homes and maxed out credit cards.

Despite the coverage of the household debt situation, there are signs business confidence is rebounding. In the US, for example, a newly released report by the National Association for Business Economics reports 78% of companies are upbeat and anticipate the U.S. economy will expand by over 2% and they plan to take on more workers as business improves. When the economy in the U.S. improves, ours recovers along with it.

The situation in Europe with the recent elections in Greece where there is no clear government majority to provide economic direction and in France where a Socialist government was voted in have caused concerns in international markets.  It may take a few more months to determine if indeed an economic recovery in underway in North America. However we urge you to be proactive and not be left on the sidelines waiting for the right time to upgrade your business, hire new staff or buy new equipment.

Plan on the future now and reduce your financial exposure by insuring your accounts against bad debt through Veri-Cheque’s Account Receivables Protection Plan. It’s certainly a very good business strategy to look ahead to grow and protect your business. I invite you to give us a call to get more information about how we can help with your business plans for the future.

Best Regards,

Ronald Renwick
President, Veri-Cheque Ltd.

Sell Aggressively but Prudently!

There has been up and down financial news over the past month. The good news is 43,000 jobs were created in January according to figures released by Stats Canada this past Friday.

The bad news is jobs are still scare even as the economy recovers. Part-time employment formed the lion’s share of January’s increase, with 41,500 new positions. Though job losses have eased, there are few signs employers are confident enough to hire additional full-time staff just yet.

According to a recent article in The Globe and Mail, this past recession has eliminated 323,000 jobs. The Canadian Federation of Independent Business released a survey last week reporting 71% of smaller businesses don’t see a change in their full-time employment levels in the coming months; 14% plan to increase their head count, while 15% intend to decrease staffing, Another survey by Towers Watson conducted last month showed 4 in 10 employers are planning job cuts.

When will employers start hiring? Job growth can be sluggish as economies emerge from a recession and sales pick-up again. Employers count on existing staff to work overtime before deciding on hiring additional staff. Or, they go the route of hiring part-time staff, as we have seen with January’s job figures.

From our end of the business we’re seeing less sales transactions into the U.S. as more companies are finding it harder to sell goods to American companies. The U.S. trade imbalance is growing and with it creeping protectionism to secure U.S. jobs.

Finding creative ways to stay afloat on the heels of a financial downturn is never easy for any business, but for small businesses it’s often more challenging when credit dries up.

Any company that has struggled through past recessions knows that capital gets scarce. Right now many companies are wondering when we’re going to get help with the next round of financing. Banks certainly aren’t doing their part to ease the burden of struggling smaller businesses as they simply consider them just too risky.

Regardless of how growing companies are able to come up with cash – whether through banks, personal loans, or even re-mortgaged a home – it’s important to spend it wisely.

Many businesses today reduce their financial exposure and count on an extra layer of protection by insuring their accounts against bad debt through Vericheque Account Receivables Protection Plan. It’s certainly a very good defensive move for companies looking to stay solvent over the long run.

Ron Renwick

Veri-Cheque Ltd

Canadian Retailers Getting a Jump Start on the Holiday Season

If you take a walk through any major shopping complex, you’ll notice Canadian retailers are rolling out Christmas merchandise earlier than ever before to get a jump start on the holiday season. November and December retail sales represent the most critical period of the year for retailers and often account for 20 percent or more of annual sales.

Canada enjoys a relatively stable economy and has fared better than most countries during the last recession. However with the economic doom and gloom these past few months, we may see the global economy plunge back into a slump and we won’t escape the fallout. Although there is a real threat Canada may head back into a recession, economists predict we’ll be held back by a weak U.S. recovery along with a European debt crisis that may take years to repair and stall our economy for some time to come.

The immediate challenge for most Canadian retailers as we navigate these economic times is how to manage their business for the short term especially heading into the critical holiday sales period.

The last recession brought about a dramatic shift in shopping habits as Canadians went on the hunt for deals and cheaper prices. As any savvy retailer knows, this shopping pattern has now become the norm for today’s consumers who aren’t spending as freely as they once did. In 2011, smart retailers will have purchased goods to cater to the new consumerism including more private label brands and closely monitored their inventory to avoid taking markdowns on overstocked items that can affect their bottom line.

In the U.S., ShopperTrak, which counts foot traffic at malls and blends it with economic data to predict trends, says in a recent news forecast that national retail sales will rise by just 3% during November and December, less than last year’s 4.1% gain. It also expects foot traffic to continue decreasing through the end of 2011, due to high unemployment rates and higher gas prices.

ShopperTrak’s forecasts can also apply to our Canadian retail sector and I’d like to share a few of their predictions for the coming holiday season:

As shopper traffic is declining, every shopper in a store will be more valuable than last year, and retail stores should be ready to convert their holiday shoppers into sales.
Consumers are increasingly sensitive to value. Lower-end apparel and accessories specialty stores may be pressured to reduce prices to compete with discount chains. Higher-end stores, however, may have an advantage this season as shoppers seek quality purchases offering perceived value and longevity of use.
Value-conscious consumers are increasingly using the internet to stretch their dollars by shopping at online outlets with potential for deep discounts or researching premium priced, large purchases. When they do walk into stores they have a purchasing strategy and are less likely to browse. This will account for significant foot-traffic losses this holiday season.
Don’t expose your business to potential losses this holiday season. Reduce your financial exposure and count on an extra layer of protection by guaranteeing your accounts receivable against bad debt through Veri-Cheque’s Account Receivables Protection Plan. It’s certainly a very good defensive move for companies looking to stay solvent over the long run. Feel free to give us a call at 800 (268)-3284 to get more information about how we can help your business.

The Clock is Ticking for Canadian Consumers Struggling

Canadians have been very fortunate these past two years as Canada’s economy has done very well post recession. Employment has returned to pre-crisis levels largely due to the demand from emerging economies’ for raw materials that has been holding the economy up. The GDP has recovered more quickly than those of other major world economies. As well, interest rates and inflation rates are at all time lows.

The Bank of Canada has successively knocked interest rates lower over the past two years as a way to boost the economy. Canadians kept spending through the recession – mostly by taking advantage of these record low interest rates and piling on debt. That kept the economy going strong, but now, household debt has reached record levels.

Our domestic household debt levels hovering close to where they were in the United States prior to the financial crisis. Canadians need to start paying down debt if the economy is to continue to prosper.

Since the start of this year, Canadian consumers are cutting their spending and are borrowing less. Meanwhile interest rates will be going up – it’s just a matter of when. Analysts predict rates will start rising this fall putting more financial pressure on consumers applying the brake even more dramatically in the face of higher interest rates and increased worries about high household debt.

On the global front, the world economic picture has also become increasingly uncertain with the continuing European debt restructuring, attempts by China to tame inflation, the impact that will have on commodity prices, and the still-fragile recovery in the U.S.

In Veri-cheque’s economic overview last May 2010, I referred to the chaos in the European economy and bailout for Greece, which I described then as the tip of the iceberg. Fast forward a year to today and not only have Greece’s debt problems worsened, the economies of Portugal, Spain and Italy are also in financial trouble.

As Canadian consumers scale back in purchasing, many small businesses will be facing higher inventories and tougher economic times ahead. Protect your accounts receivable against bad debt with Veri-Cheque’s Account Receivables Protection Plan to ensure your company’s future growth and longevity. I invite you to give us a call to get more information about how we can assist with your business plans for the future.

Dollar Stores versus Wal-Mart – The David and Goliath of the Retail Business

A battle is brewing is Canada and the U.S. to own the lower end retail market that will bring a whole new meaning to discount shopping. While mammoth Wal-Mart lost shoppers through the recession, discounts competitors have gained, in particular dollar stores, the real winners in the recent recession.

The battle front included not just low-income customers but also affluent shoppers who became more price conscious and discovered rock bottom prices and the convenience of dollar store shopping.

Dollar stores sales continue to grow post recession. These same customers keep on coming back to dollar stores that have widened their appeal by selling name brand goods and more food products. The strategy has resulted in record earnings in 2010 for U.S. chains, such as Family Dollar (6,600 plus stores), Dollar General (9,000 plus stores) and Dollar Tree (4,000 plus stores).

Recently Dollar Tree set its sights on Canada and purchased the Giant Dollar Store chain with 85 stores, a strategic move giving the company a foothold in western Canada and Ontario. It’s the first chain acquisition by a U.S.-based dollar store in Canada and more are forecast in the future.

Wal-Mart has always been the dominant player in the discount market but lost customers and revenue through its recent overhaul of stores and delisting of many brand name products. While dollar stores revenues will never equate a Wal-Mart, they have begun to chip away at Wal-Mart’s dominance with the sheer number of stores located on every other block.

Wal-Mart is certainly not resting on its laurels and is fighting back to win back its customers. The chain is again emphasizing its low-price guarantee and adding back thousands of products delisted in a bid to clean up their stores. Wal-Mart is also plotting an expansion into cities and developing a new downsized 20,000 square-foot store concept in towns to go head-to-head with dollar stores.

Another retail chain to watch is Target, Wal-Mart’s largest rival. Although its revenue is only one-sixth of Wal-Mart’s, Target has maintained its reputation for stylish clothes at low prices and has also added fresh fruits and vegetables to an expanded grocery section.

Target recently purchased the Zellers chain in Canada from The Bay and plans to open between 100 and 150 of its stores across Canada by 2014, as well as rebranding certain Zellers locations under the Target banner.

Canadian wholesalers and distributors supplying discount stores need to keep a close eye on the changing retail environment as the Wal-Mart, Target and U.S. dollar chains expand across Canada. Their enormous group-buying power to source products directly from suppliers overseas and their strategy to chop margins to the bone to offer their customers the lowest possible price will have a huge impact on the lower end retail market.

Small Canadian discount chains, independent mom and pop retailers, as well as wholesalers will find it increasingly difficult to stay competitive and businesses are expected to close.

The best way to reduce your financial exposure is by insuring your accounts against bad debt through Veri-Cheque’s Accounts Receivable Protection Plan. Our Credit Protection and Cheque Guarantee Programs allow you to safeguard your commercial accounts receivable against unexpected financial losses. It’s certainly the best strategy to safeguard your business in this ever-changing retail environment. I invite you to give us a call at (800) 268-3284 to get more information about how we can assist with your business plans for your future prosperity.

Future Direction of the Economy

This past year Canadian businesses experienced some ups and down in the economy but with the recession now over, it’s a relief to be finishing the year on a positive note. While it may be like gazing into a crystal ball to know what direction the economy will take us, I’d like to share some financial data and trends that may determine where our economy is headed in the future.

Again this fall, I attended the “Economic and Financial Outlook 2011” hosted by our company’s bank, The National Bank of Canada. It’s a good opportunity to find out what the bank’s’ forecast will be for the Canadian and world markets in the year ahead.

I’ve been going to their presentations for several years and although some of their forecasts can be off the mark, they provide thoughtful direction as to what the future may hold for our economy. Here is an overview of the relevant points I found of particular interest presented by Stéfane Marion, the National Bank’s chief economist and strategist:

World Economy

  • The World is shifting its economic clout. The emerging economies are in the driver seat and are experiencing the largest rate of growth.
  • The rate of growth in the emerging economies has been on a steep incline in the past five years and is expected to surpass the economies of advanced countries by 2013.
  • Since 2007, the retail sales of emerging markets surpassed that of advanced countries and are on the steady incline, while retail sales in advanced countries have flattened.
  • Several Asian countries, in particular China and India, have reached a tipping point where large numbers of people will enter the middle class and drive consumption. China’s middle class today is already large at 157 million people; only the United States has a larger middle class.
  • Five years ago, General Motors sold 10 cars in the U.S. for every one car sold in China; today the ratio is now quickly approaching one to one.

Canadian Economy:

  • Canada’s employment productivity over the past decade now lags behind other developed countries including Japan, Germany and the U.S. This poor result will certainly hamper our future ability to compete in the world market.
  • Employment is recovering faster from the recent 2008-09 recession than the past major recessions in 1982 and 1991.
  • There are positive signs for the 2010 labour market for young people aged 25 and over: In Canada the numbers are on the rise this year; however they are on the decline in the U.S. and are an indication of the much slower rate of recovery in the U.S.
  • When comparing the net debt-to-GDP ratios for G7 countries from 2000 to 2015, Canada rates the best overall and expected to remain stable to 2015. Italy and Japan fare the worst and their net debt-to-GDP ratios are forecast to increase substantially over the next five years.

On behalf of the staff at Veri-Cheque, I would like to wish all of you a very merry Christmas and prosperity for your businesses in the New Year.