The liquidation sales at Nordstrom stores across Canada will begin Tuesday.
Canadians are seeing the cost of borrowing rise rapidly as the Bank of Canada takes historic action to slow the soaring of prices, having learned costly lessons from history when central banks let inflation run rampant.
The Bank of Canada recently raised its key interest rate by a full percentage point — the largest single rate hike in more than two decades — as it tries to cool domestic demand and bring down inflation expectations.
An unusual move for an unusual time: inflation reached a 39-year-high of 8.1 per cent in June, after years of a low, stable and predictable consumer price index in Canada.
But throughout much of the 20th century, price stability wasn’t a given in the Canadian economy.
TD chief economist Beata Caranci said inflation today might feel especially challenging because Canadians have been shielded from inflation volatility for decades.
“We haven’t had this challenge in a while,” Caranci said.
Canada’s last experience with high inflation came in two waves during the 1970s and 80s and hit a peak of 12.9 per cent in 1981.
In 1973, adverse weather sparked a global food shortage and an embargo on OPEC oil drove energy prices up. Several years later, a second energy crisis was brought on by the Iranian Revolution in 1979.
And while the drivers of high inflation are relatively similar — global circumstances pushing up food and energy prices — inflation today isn’t expected to climb as high or be as persistent.
That’s because the approach of central banks is now markedly different, said Western University economics professor Stephen Williamson.
“A big difference now is sort of a strongly held notion that it’s mostly the job of the Bank of Canada to look after inflation control,” said Williamson. “In the 70s, that wasn’t true.”
For the bulk of the 20th century, central banks had not yet developed strong and effective mandates to maintain a stable reading of inflation, Williamson said. Instead, they tried to control inflation through the money supply.
Economists at the time believed inflation could be managed by controlling the amount of money circulating in the economy. However, central banks found this tactic to be unsuccessful.
Caranci said another reason why the Bank of Canada was slow to raise rates was that central banks were historically hesitant to hinder economic growth through higher interest rates.
TD senior economist James Orlando wrote an analysis in April that compared high inflation today to the 1970s and 80s. He said the Bank of Canada was slow to raise interest rates in the 1970s, and by the time the bank acted, it was too late.
“Inflation expectations adjusted upwards, resulting in even higher inflation over the subsequent years,” said Orlando.
Interest rates in the 1980s eventually rose to as high as 21 per cent.
In 1982, the Bank of Canada announced it would no longer target the money supply and instead would turn its focus to interest rates.
Canada’s turbulent experience with high inflation also led to the Bank of Canada’s mandate to maintain a target inflation rate. In 1991, the Bank of Canada and the minister of finance agreed on an inflation-controlled framework to guide monetary policy.
“We believe the Bank of Canada has learned from history,” Orlando wrote in his comparison of inflation in the two eras.
This time around, Canada’s central bank is still facing criticism for taking too long before starting to raise its key interest rate. By comparison, though, the Bank of Canada has acted faster and more forcefully.
“We’re hearing different dialogue coming out of the central bank today that there is a willingness to sacrifice growth, and to even have the unemployment rate rise,” said Caranci.
In its latest rate announcement on July 13, which surprised economists who were expecting a three-quarters of a percentage point hike, the central bank’s message was clear: it’s not afraid to move aggressively to clamp down on skyrocketing inflation.
At the same time, economists like David MacDonald from the Canadian Centre for Policy Alternatives have used history to warn raising rates too quickly can trigger a recession, as it did in the 80s.
However, Caranci said there are important differences between the two time periods, including a different makeup of the economy and the existence of safeguards such as mortgage stress tests.
“The challenge with doing comparisons of periods, especially when you get that far back in history is, there’s been so many differences at play,” said Caranci.
In May, Bank of Canada deputy governor Toni Gravelle delivered a speech that focused on why comparisons between stagflation in the 1970s and the current inflation environment were “unjustified,” citing strong economic growth, a tight labour market and historically low unemployment.
And of special importance, Gravelle said today’s Bank of Canada is equipped with the policy tools it needs to rein in inflation.
“Since the 1990s, we and other central banks around the world have had success with inflation targeting,” he said. “And we are committed to bringing inflation back to target.”
This report by The Canadian Press was first published July 21, 2022.
Nordstrom is expected to begin liquidating its stores across Canada today.
The start of the department store chain’s closing sale comes a day after the U.S. retailer’s Canadian branch got permission from the Ontario Superior Court of Justice to start selling off merchandise.
Nordstrom’s liquidation efforts are being led by Hilco Merchant Retail Solutions ULC and Gordon Brothers Canada and are expected to be complete by late June.
Furniture, fixtures and equipment will be liquidated alongside most of Nordstrom’s merchandise, but goods from third parties aren’t part of the sale because they were removed from stores over the weekend.
Nordstrom required court approval to liquidate because it is winding down its Canadian operations under the Companies’ Creditors Arrangement Act, which helps insolvent businesses restructure or end operations in an orderly fashion.
As part of the wind down, Nordstrom will close its six Canadian department store locations and seven Nordstrom Rack shops, which sell designer goods at discount prices.
This report by The Canadian Press was first published March 21, 2023.
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The upscale department store chain has a store at the Rideau Centre mall as well as a Nordstrom Rack location at the Ottawa Train Yards shopping centre
The liquidation sales at Nordstrom stores across Canada will begin Tuesday.
A spokesperson for Nordstrom confirmed the impending sales period Monday in an email to The Canadian Press, just after the Ontario Superior Court of Justice gave the U.S. retailer’s Canadian branch permission to start selling off its merchandise.
The upscale department store chain that primarily sells designer apparel, shoes and accessories has six Canadian stores and seven discount Nordstrom Rack locations, including its Rideau Centre location and a Nordstrom Rack at the Ottawa Train Yards shopping centre, which sells merchandise at discounted prices.
When Nordstrom announced the move in early March, it said it expected the Canadian stores to close by late June and 2,500 workers to lose their jobs.
The company initiated the exit from the market because chief executive Erik Nordstrom said, “despite our best efforts, we do not see a realistic path to profitability for the Canadian business.”
Nordstrom opened its first Canadian store in Calgary in 2014, followed by the Ottawa store at the Rideau Centre, which occupied the second and third levels of a former Sears location.
The Rideau Centre store has an alterations and tailoring shop and an energy drinks bar. Merchandise ranges from brand name to designer apparel, housewares, furnishings and beauty products, including brands such as Geox shoes, Gucci, Adidas and Adidas by Stella McCartney.
Later on came Nordstrom Rack, which made its Canadian debut in 2018 at Vaughan Mills, a mall north of Toronto. At the time, Nordstrom said as many as 15 more Rack locations could follow.
Nordstrom promised each Rack store would deliver savings of up to 70 per cent on apparel, accessories, home, beauty and travel items from 38 of the top 50 brands sold in its Canadian department stores.
Nordstrom had trouble with profitability because of its selection of products and the COVID-19 pandemic, said Tamara Szames, executive director and industry adviser of Canadian retail at the NPD Group research firm, a day after Nordstrom announced its exit.
“You would hear a lot of Canadian saying that the assortment wasn’t the same in Canada that it was in the U.S.,” she said.
She noticed Nordstrom started to shift its product mix away from some luxury brands around 2018 and saw it as a sign that the retailer was struggling to maintain its original vision and integrity.
The pandemic made matters worse because many stores were forced to temporarily close their doors to quell the virus and shoppers were less likely to need some of the items Nordstrom sells like dressy apparel because events had been cancelled.
Despite stores reopening and many sectors rebounding, Szames said the apparel business is the only industry NPD Group tracks that has yet to recover from the health crisis.
“The consumer has really been holding back in terms of spendâ¦within that industry.”
At a hearing at Osgoode Hall in Toronto, lawyer Jeremy Dacks, who represented Nordstrom, said the company has “worked hard to achieve a consensual path forward” with landlords, suppliers and a court-appointed monitor to find an orderly way to wind down the business.
The monitor, Alvarez & Marsal Canada, suggested five potential third-party liquidators and Nordstrom was approached by another five. The company decided to go with a joint venture comprised of Hilco Merchant Retail Solutions ULC and Gordon Brothers Canada, which were involved in the liquidation of Target, Sears and Forever 21 in Canada, Dacks said.
They will oversee the sale of merchandise, furniture, fixtures and equipment, but not goods from third parties, which removed products this past weekend, Dacks said. He added that all sales will be final and no returns will be allowed.
Lawyers for Nordstrom landlords Cadillac Fairview, Ivanhoe Cambridge, Oxford Properties Ltd. and First Capital Realty testified Monday that they were pleased with how “smoothly” and “organized” the process has gone so far.
In approving Dacks’ liquidation request, Chief Justice Geoffrey Morawetz agreed, saying Nordstrom is facing a “difficult time, but this process is unfolding in a very cooperative manner.”
Nordstrom required court approval to begin the liquidation because it is winding down its Canadian operations under the Companies’ Creditors Arrangement Act, which helps insolvent businesses restructure or end operations in an orderly fashion.
With files from Joanne Laucius
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