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Consumer & Retail Advisor

What’s Critical to Succeeding in our Changing Retail Landscape

Posted in Branding, Retailing

*This is a guest post by Mirella Pisciuneri and Katherine Forbes of Richter Advisory Group. The opinions expressed in this article do not necessarily represent the views of McCarthy Tétrault. 

Roughly one decade ago, there was much speculation as to how Canadian retail brands would fare when international fast-fashion chains began opening stores in Canada. In addition, while new chains have made their presence known across the country and with increasing consolidation and emphasis on ecommerce, the retail market has become increasingly interesting to watch.

Large and established fast fashion brands of significant scale are often vertically integrated, with a sophisticated product development system able to supply fresh and interesting products to consumers at exceptional speed as fast as a weekly change in products (i.e. 52 times per year), as opposed to a seasonal revamp (three times per year).

While some brands such as Jacob and Smart Set have been pushed out of the market in recent years[1], others have been able to stay the course.

In addition to these pressures, financial realities are adding pressure to Canadian retailers. The foreign exchange rate of the USD experienced a greater than 10% swing in the year, reaching a monthly average high of $1.37 in December, 2015[2]. Canadian companies that were not positioned well to hedge against these fluctuations have had limited ability to pass the cost saving along to their customers. Additionally, there have been heightened discussions to raise the minimum wage in some provinces across the country[3]. Store payroll accounts for a significant portion of the cost on traditional retailers. Substantial increases to the minimum wage may impact profitability – although whether this will be the case for sure, is still to be seen.

The following are some steps that Canadian retailers can take to address these pressures in a changing landscape shaped by increased variety and susceptibility to foreign exchange rate fluctuations.

Merchandise planning and inventory control (“OTB”)

These processes are one of the biggest contributors to cash control in tough times. Tighter controls and comprehensive planning help ensure you are getting the best ‘bang for your buck’. Richter has observed that, unfortunately in many of the cases of underperforming companies, they are either not at the right place, or these processes have been implemented too late to be effective or make up for lost ground.

Product development & Vertical Integration

The need to keep up with the increased cadence of new products coming from fast-fashion retailers creates a challenge for inventory controls, and places pressure on production and design teams (particularly those of smaller brands). However, this also creates an opportunity for such retailers to market their products as being more exclusive in nature, versus readily available to any and all buyers. Highlighting this angle as part of your retail strategy could be beneficial.

 Occupancy costs

Rent or leasing costs are one of the most significant expenses for retailers with physical store spaces. Retailers should consider their physical store footprint and how it is being used. A strategic retailer should look at all cost areas and make decisions based on the current situation, but also projections long term.

Outsourcing non-core competencies

Outsourcing non-core competencies or even distribution functions, and evaluating cost centre process improvements often allows for an increased or renewed focus on the core business and can also convert fixed costs into variable costs, which make it easier to scale costs to fluctuations in sales volume. A diagnostic into various cost centres can result in previously unseen areas for cost savings, especially for consumer-facing businesses.

It’s important to monitor sales, profitability and costs, proactively. Consider vertical integration as an important element in achieving acceptable profit levels, and think lean. These suggestions for process improvement can help Canadian retailers stay successful in the current landscape and beyond.

Richter compiles a Weekly Retail Sales Summary which provides further insights into the sales and comparative rates of leading retailers.

Mirella Pisciuneri is a partner with Richter Advisory Group, based in Montreal. Her extensive experience in insolvency and restructuring, litigation support, mergers and acquisitions and analysis of operating performance and benchmarking has helped clients in a variety of different sectors.

Katherine Forbes is a vice president with Richter Advisory Group, based in Toronto. She has been involved in numerous complex engagements in the consumer products, distribution, women’s apparel and other retail industries for both private and public companies. She specializes in financial advisory, insolvency consulting, and cash flow forecasting.

Richter is a financial advisory firm with offices in Montreal, Toronto, and Chicago. Founded in 1926, the firm offers a breadth of services including accounting and assurance, tax, and wealth management, as well as organizational restructuring and insolvency, business valuation, corporate finance, litigation support, risk management and forensic accounting.

[1] “Canada’s Retail Exodus.” Financial Post. 15 January 2015. http://business.financialpost.com/news/retail-marketing/canadas-retail-exodus-heres-whos-closed-up-shop-in-canada

[2] http://www.bankofcanada.ca/rates/exchange/exchange-rates-in-pdf/

[3] “Minimum wage increases reignite livable income debate.” The Globe & Mail. 1 October 2015.  http://www.theglobeandmail.com/report-on-business/economy/five-provinces-hike-minimum-wage/article26618941/

The Ongoing Pursuit of Accessibility in Ontario – Amendments to the AODA Effective July 1, 2016

Posted in Employment and HR, Legislation
Martin Thiboutot

On McCarthy Tétrault LLP’s Ontario Employer Blog, Kate McNeill-Keller published an article highlighting the recent amendments to the Accessibility for Ontarians with Disabilities Act, 2005, which may be of interest to readers of the Consumer & Retail Advisor blog. These amendments intend, in particular, to align the requirements of the Customer Service Standards with those set out in the Integrated Accessibility Standards.

Happy FranCanada Day – Electronic Delivery of FDD’s in Ontario on July 1st

Posted in Franchising, Legislation
Jordanna CytrynbaumCatherine M. SamuelAdam ShipHelen Fotinos

Further to our update in April Ontario has approved the amended regulations to the Arthur Wishart Act (Franchise Disclosure), 2000 to permit electronic delivery of franchise disclosure documents (“FDD’s”).  Regulation 581/00 comes into effect July 1, 2016.

Effective July 1, 2016, franchisors will now be able to deliver FDD’s electronically or by courier, in addition to the previously approved methods of in person or registered mail delivery. The complete changes may be viewed here.

With these amendments, Ontario franchise legislation has received a mini-modernization-makeover.

The new legislation provides that electronically delivered FDD’s must meet the following conditions:

  • be in a form that enables the recipient to view, store, retrieve and print the FDD;
  • contain no links to external content;
  • have an index for each separate electronic file setting out a file name or a description of the subject matter if the file name isn’t sufficiently descriptive; and
  • the franchisor must receive a written acknowledgement of receipt from the franchisee

As noted, the amendments also permit delivery of the FDD by courier at the cost of the franchisor, as well as delivery of a notice of rescission from franchisees by pre-paid courier.

E-delivery promotes business efficiency and reduces the cost of delivering increasingly lengthy disclosure information that responds to current disclosure requirements. Franchisees will also be able to search and review FDD’s more easily. The new legislation is a positive development for franchisees and franchisors alike

Of interest, the Ministry of Government and Consumer Services has appointed a Business Law Advisory Council to make recommendations on how to amend Ontario corporate and commercial laws to make them more “business-friendly”. We will keep our eyes and ears open for any changes of interest.

Ontario Court of Appeal Recognizes Potential Liability of the Corporate Parent of a Franchisor Under the Duty of Good Faith

Posted in Case Comment, Distribution, Franchising
Martin Thiboutot

On McCarthy Tétrault LLP’s Canadian Appeals Monitor blog, Adam Ship and Sarah Ahsan recently published a helpful discussion of the Ontario Court of Appeal’s decision in Addison Chevrolet Buick GMC Limited et al. v. General Motors of Canada Limited et al., which will be of interest to readers of the Consumer & Retail Advisor blog. This decision potentially opens the door for a franchisor’s parent company to be liable to a franchisee of its subsidiary for breach of the duty of good faith.

Modifications to the Regulation Respecting the Language of Commerce and Business of the Charter of the French language

Posted in French, Legislation
Veronique Wattiez LaroseAnne-Elisabeth SimardMason Gordon

The Acting Minister of Culture and Communications, responsible for the Protection and Promotion of the French Language, Ms. Hélène David, presented yesterday the proposed modifications to the Regulation respecting the language of commerce and business of the Charter of the French language (the “Regulation”).

Background

 Historically, the rule from the Charter of the French language to the effect that public signs have to be in French (or in French and in another language provided that French is markedly predominant) benefited from what is known as the “trade-mark exception”, allowing trademarks to be used solely in English (or any other language other than French) for public signage if they are recognized within the meaning of the Trade-marks Act and for which no French version has been registered.

 In 2012, the Quebec Court of Appeal ruled in favor of a group a retailers carrying on business in Quebec taking advantage of this exception, specifying that any attempt to modify the scope of this exception should be done by way of an amendment to the text of the relevant Regulation.

Modifications to the Regulation

 On May 4, 2016, a draft amendment to the Regulation in question (attached hereto) was published in the Gazette officielle for a 45-day consultation period. Pursuant to this draft amendment, “Where a trade mark is displayed outside a building only in a language other than French under paragraph 4 of section 25, a sufficient presence of French must also be ensured on the site, in accordance with this Regulation”. The presence of French refers to a sign or poster with (i) a generic term or a description of the products or services concerned, (ii) a slogan or (iii) any other term or indication, favouring the display of information pertaining to the products or services to the benefit of consumers or persons frequenting the site. The newly proposed articles also include additional guidance with respect to the interpretation of these new principles.

 As a result, any person having as part of its public signage a trade-mark that is only in English will have to add one of the three above-mentioned elements to comply with the new rules.

It should be noted that these new measures will not impact the other trade-mark exceptions available in the Regulation in connection with inscriptions on a product or commercial advertising, nor the ability to use any artificial combination of letters, syllables or figures or the use of pictographs, figures or initials or a family name, a given name or the name of a personality or character or a distinctive name of a cultural nature.

Entry into Force and Transitional Measures

The draft of the Regulation provides that the Regulation will come into force within 15 days of its official publication, following the consultation period. Its provisions would apply as of that date to the installation of new signs or posters on which a trade-mark appears, and to the replacement of existing signs or posters bearing a trade-mark. Existing signs and posters will need to be brought into conformity with the Regulation within 3 years after the entry into force of the Regulation.

We will keep you informed of the publication of the Regulation, but do not hesitate to inform your clients about this today. We are of course available to assist with any questions they may have.

Practical Strategies for Managing Consumer Complaints

Posted in Consumer Protection, Product Liability
Christopher HubbardKatherine Booth

On March 2, 2016, we posted some key takeaways from our 6th Annual Consumer Products & Retail Summit held on February 25, 2016, and are following up with a series of posts to provide more detail on our top tips from the presentation Product Liability: Practical Strategies for Managing Consumer Complaints.

Tip #1: Developing a complaint management and response protocol can offer advantages such as building up one’s brand and generating good will with customers, suppliers and regulators alike.

Experience has taught us that many consumer complaints do not signal a material issue. As a result, dealing with them can seem like a distraction from conducting your business, and many companies approach consumer complaints with suspicion or frustration. However, consumer complaints are an inevitable part of modern commerce—where they cannot be avoided, it is worthwhile examine the ways they can benefit the company.

Instead of approaching these inevitable complaints with skepticism and fear or dealing with them on an ad hoc basis, developing and implementing a complaint management system can allow companies to use complaints not only to minimize legal risks, but also as an opportunity to enhance their relationships, credibility and goodwill with consumers, suppliers and regulators. An appropriate response from the company to an unhappy customer increases the chances of retaining that individual as a customer. Customer feedback, both positive and negative, is also a potentially valuable form of “crowdsourcing” that can be used to better understand customer experiences and preferences and generate ideas to improve and refine company processes and products.

Tip #2: The advantages of having a system in place include preventing escalation of complaints, minimising legal and reputational risk, and being in a position to defend and respond to legal proceedings in the event they arise.

While many consumer complaints pose no material risk to your company, in some cases, customer complaints can be the first sign of a more serious issue—of developing media scrutiny, brand damage, regulatory issues, product recalls, civil claims and even class action litigation.

A timely, professional and appropriate response to a customer inquiry or complaint decreases the risk that the customer will escalate the situation by, for example, filing a regulatory complaint, suing the company, or propagating concerns through social media.  Prompt responses to complaints permit companies to identify and correct misinformation before it is disseminated further. In the case of meritorious complaints, an effective complaint management system (including a system of appropriate escalation) permits companies to identify and investigate problems at an early stage when there is greater ability to resolve them and contain their impact. In the rare case where litigation or escalation is inevitable, a complaint management system permits companies to be in a better position ready to respond to and defend claims and deal with crisis situations.

Having a system in place to identify and manage risks at the earliest possible stage gives companies more control over the process. If these systems are not in place before the problem arises, it is more difficult to implement a considered response strategy.

Tip #3: The most effective strategies are developed proactively and enable businesses to assess and respond to consumer complaints in a timely and meaningful way, with a view to minimising risk.

There is no one-size-fits-all approach to management of customer feedback. The system that works best for your company will depend on the needs of your organization. However, the following are some best practices to consider to augment your company’s existing compliance and risk mitigation programs:

  • Get good intake information. Intake information is the information you get from a customer when the complaint is made. The quality of the information obtained at this initial stage has a ripple effect going forward. It can help “crystalize” the customer’s concern. It preserves institutional memory and prevents loss or destruction of information. It also gives corporate decision-makers the best information upon which to base its response strategy.
  • The power of aggregation – identifying patterns. Companies can use the information obtained from inevitable complaints to identify trends and patterns, for example, by making feedback data searchable, or implementing a classification system for different types of complaints. If unmonitored, feedback data can in fact be a source of risk to companies—that they were or ought to have been aware of a potential issue and failed to act.
  • Consider moving decision-making authority as close to the customer as possible. Most customer concerns pose very little risk to companies. Training and empowering front line staff to deal with minor complaints (but escalate when appropriate) can help companies deal with minor complaints efficiently and cost-effectively.
  • Avoid inadvertent admissions of liability. Acknowledging customers’ concerns can help de-escalate complaints. However, it is crucial to educate company employees on how not to make inadvertent statements that could be taken for admissions of liability or fault, which could be used against the company if legal or regulatory proceedings ensue.
  • Develop a system of appropriate escalation. Front line staff who deal with complaints in the first instance sometimes need guidance to understand what types of issues need to be escalated. Companies want to avoid situations where employees don’t recognize a potential broader issue, or where they recognise the issue but do not escalate it because there is no system for doing so. One way to do this is to develop a list of “red flags” to indicate for customer service personnel when a matter should automatically be escalated.
  • Assemble your team in advance. When a complaint requires escalation, employees need to know who to escalate complaints to. Identifying, in advance, the people within or outside your organization who might be necessary to deal with more serious complaints can help companies be prepared to respond to urgent crisis situations and prevent oversights, such as failing to report to an insurer or regulator.

Lessons from the Consumer Products and Retail Summit: Are Bricks and Mortar Stores Still Relevant?

Posted in Retailing
Jordanna Cytrynbaum

In follow up to McCarthy Tetrault’s 6th Annual Consumer Products and Retail Summit held on February 25, 2016, the Consumer & Retail Advisor Blog editor team is publishing a series of posts elaborating on the top takeaway tips from the Summit.

We begin with a post on lessons learned regarding the ongoing relevance of bricks and mortar stores, courtesy of our guest authors Mirella Pisciuneri and Katherine Forbes from Richter:

In 2015, the retail industry was plagued with bad news and disappointing earnings. Many retailers closed their doors in Canada, including MEXX, Jacob, Target and Future Shop; and others restructured: Tommy Hilfiger, Laura and American Apparel, to name a few. While different factors accounted for these closures, one factor is the current demographic shift, which is affecting all consumer-facing businesses. Several sources indicate that baby boomers, while representing a large share of consumer spending, are shifting their spending priorities toward travel and recreation, and buying less apparel, housewares and furniture[1]. Millennials are helping drive the shift to online shopping – evidenced by an increase in internet retail sales of 20% during the holiday season (while retail sales saw a 2% increase for the same timeframe)[2]. Additionally, traffic to stores is decreasing overall[3].

Do these factors signal the end of “bricks and mortar” stores?

The short answer is no – yet, the staying power of the traditional store is becoming more and more vulnerable. Even as we are now firmly entrenched in the digital age, there is still a place for bricks and mortar stores; however the traditional model as we typically knew it, is no longer adequate. Retailers need to shift their strategies in order to survive.

To bring customers into their stores, we’re now seeing the need for retailers to do more than just stock goods for purchase. Many brands that are thriving in this retail environment are doing so because they are taking an “omni-channel”, strategic approach: combining the strengths of e-commerce and traditional stores to create brand loyalty that is necessary for survival. With increased competition and a wide variety of products available online, customers now have many alternatives to meet their shopping needs, yet in many cases, digital still falls short in creating a true customer experience, and this is where physical stores can shine.  An innovative and effective approach to integrating the physical presence with online convenience that a number of retailers are testing or providing is providing online shoppers with the option to pick-up their purchases in store shortly after ordering, thus presenting reasons to stay and shop while in-store. Other examples include a menswear store that was originally solely online offers a barber shop in its store to increase return visits; and in the U.S., a surviving Barnes & Noble bookstore near a college campus placed a cosmetic counter at the centre of the store to target the multiple needs of its customers.

From Richter’s perspective, it seems that largely, Canadian retailers have been somewhat slow to adapt in this space, but are starting to see the value in doing so. There are a few brands that are executing omni-channel well, strengthening brand presence and awareness – whether online or in-store – and blurring the line between online and traditional stores, giving customers the sense that their favourite brand is more easily accessible. In apparel, Aritzia, Dynamite/Garage and Lululemon have anecdotally generated successful followings as a result of their ability to execute an omni-channel strategy. All have websites and in-store experiences that work seamlessly when it comes to viewing and then purchasing products.  For example, Dynamite customers can choose clothing items online then present their mobile devices to a sales associate in store, who then pulls their choices for the customer to try on.

Brands are also going above and beyond in new and unique ways to entice store visitors. As pointed out by Jacques Nantel in a recent article, one retailer recently negotiated with its landlord, the West Edmonton Mall, to allow its customers to test its kayaks in the mall’s pool! Other retailers, as he notes, may even offer fridge space in certain dressing rooms to allow customers to test out its winter outerwear onsite. These are unique examples of retailers thinking innovatively; however innovation doesn’t have to mean expensive or “out there” initiatives. A much simpler and cost-effective tactic comes from a grocery chain, adding recipes at the front of each aisle to help customers simplify their lives, which in turn, also boosted sales of the featured products, as a result.

These examples run the spectrum from the complex and even revolutionary, to simple yet effective strategies, but all encourage customers into the physical store space. Physical stores help create a presence and tailor more personal shopping experiences for consumers. What’s more, physical stores still remain an integral way to showcase products: as much as they are the end point of sale, these stores are also a crucial asset serving as living billboards to attract customers and showcase new products. So to get rid of physical bricks and mortar stores in the immediate future would be shortsighted.

A bright side in this situation is that retailers aren’t facing these struggles alone. Also wanting to increase foot traffic, shopping centres are renting spaces to non-traditional tenants such as upscale restaurants, cinemas, ice skating rinks and other diversions.

While online retailing is here to stay, the best option to ensure success as a retailer today is to combine the strengths of online offerings with physical stores, and approach new strategies with open, innovative thinking.

Richter compiles a “Weekly Retail Sales Summary” which provides further insights into the sales and comparative rates of leading retailers. To sign up to receive this newsletter, click here.

Mirella Pisciuneri is a partner with Richter Advisory Group, based in Montreal. Her extensive experience in insolvency and restructuring, litigation support, mergers and acquisitions and analysis of operating performance and benchmarking has helped clients in a variety of different sectors.

 Katherine Forbes is a vice president with Richter Advisory Group, based in Toronto. She has been involved in numerous complex engagements in the consumer products, distribution, women’s apparel and other retail industries for both private and public companies. She specializes in financial advisory, insolvency consulting, and cash flow forecasting.

Richter is a financial advisory firm with offices in Montreal, Toronto, and Chicago. Founded in 1926, the firm offers a breadth of services including accounting and assurance, tax, and wealth management, as well as organizational restructuring and insolvency, business valuation, corporate finance, litigation support, risk management and forensic accounting.

 *Based on takeaway one from Mirella and Katherine’s presentation:

E-commerce is here to stay and is key to success, but only as part of a strategy combined with ‘bricks & mortar’ to create a customer experience

[1] This is a conclusion gathered from several sources indicating how BBs account for a large portion of consumers and are shifting their spending habits http://money.usnews.com/money/blogs/on-retirement/2014/06/27/how-to-profit-from-aging-baby-boomers https://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02117.html http://www.capitalone.ca/media/doc/canada/white-paper-baby-boomers-and-money.pdf http://www.gallup.com/businessjournal/181367/baby-boomers-opening-wallets.aspx

[2] “Online shopping in Canada jumped 20 percent during holiday period, according to Mastercard survey.” The London Free Press, 19 January 2016.

[3] Falling traffic to malls, consumer debt fuel retail upheaval: Reitmans.” Global News, 2 April 2015.

Proposed Amendments to Franchise Legislation in Alberta and Ontario

Posted in Franchising
Catherine M. SamuelAdam ShipJordanna CytrynbaumHelen Fotinos

Ontario is proposing to amend Regulation 581/00 under the Arthur Wishart Act (Franchise Disclosure, 2000) to permit franchisors to electronically deliver disclosure documentation (“FDD”) to prospective franchisees as well as deliver FDD by courier. See the proposed amendments here.

The draft legislation provides that electronically delivered FDD’s must be in a form that enables the recipient to view, store, retrieve and print it, contains no links to external content and has an index for each separate electronic file that describes the subject matter therein. Electronic delivery of FDD’s will only be effective were the franchisor receives an electronic acknowledgement of receipt from the prospective franchisee. The proposed amendments will also permit delivery by courier at the cost of the franchisor, as well as delivery of a notice of rescission by pre-paid courier. Franchisors may currently provide disclosure documents to franchisees personally, by registered mail or by any other prescribed method – there are no other prescribed methods of delivery.

We encourage franchisors subject to the Ontario franchise legislation to submit any comments before May 2, 2016. Instructions on providing feedback are set out at the link above.

Going west, the Alberta government is considering removing the Mature Franchisor exemption from the Franchises Act. Under the Franchises Act Exemption Regulation, a large size franchisor is currently exempt from disclosing financial statements as part of its FDD if the franchisor or the corporation controlling the franchisor meets certain criteria of established size and net worth. This exemption is consistent with other provincial franchise legislation. If Alberta removes the Mature Franchisor exemption, it poses a(nother) risk that will make Alberta less attractive to franchise system investors.

We are closely tracking the process of these proposed amendments in both Alberta and Ontario and will keep you apprised of any developments as they arise.

Cook or Get Out of the Kitchen: Legitimate Interest Required to Enforce a Restrictive Covenant

Posted in Competition, Franchising, Litigation
Martin Thiboutot

On McCarthy Tétrault LLP’s Canadian Appeals Monitor blog, Shanique Lake recently published a helpful discussion of the Ontario Court of Appeal’s decision in MEDIchair LP v DME Medeqip Inc, which will be of interest to readers of the Consumer & Retail Advisor. This decision has important implications for all franchisors and franchisees in respect of enforcement of restrictive covenants or non-competition clauses in franchise agreements.

Dunkin’ Donuts: The Supreme Court of Canada puts an end to the saga

Posted in Franchising, Litigation
Adam ShipAnne-Marie NaudHelen FotinosAnne-Elisabeth Simard

On March 17, 2016, the Supreme Court of Canada (“SCC”) dismissed the Dunkin’ Brands Canada Ltd.’s application for leave to appeal from the judgment rendered by the Québec Court of Appeal on April 15, 2015.

By dismissing the application for leave, the SCC determined that it would not review the Québec Court of Appeal decision which, notably, ruled that the obligations to enhance and protect the brand are implicit to franchise agreements. A more detailed analysis of this decision is available in our previous publication.

As is customary, the SCC did not provide its grounds for dismissing the application for leave and therefore, the reasons that founded the SCC’s decision remain unknown.