In case you haven’t heard that already, Best Buy decided to close all FutureShop stores in Canada. 50% of the FutureShop stored are to be rebranded as Best Buy, while the rest are closed indefinitely. In my opinion, that move was very expected. Let me tell you why…

A couple of weeks ago, I went to Centre Laval with my family (Laval is an island about 30 minutes North of Montreal). Centre Laval is a retail compound where you can find a store of nearly any retail chain operating in Canada. My wife took my daughter to a pet store so that she can see some animals, while I wandered around. About 30 minutes later, I called my wife and told her that I’m waiting for her in Best Buy. 10 minutes later she called me and asked me where I was because she was at Best Buy. I looked around, and it didn’t take me long to realize that I was in FutureShop, and not at Best Buy. Yes – that’s how similar these 2 places are – owing to the fact that Best
Buy owns FutureShop.

At that time, I asked myself, what’s the point of having a Best Buy and a FutureShop within a walking distance of each other (often the walking distance is a few minutes), when they belong to the same company and when they sell the same stuff for exactly the same price? Not to mention, of course, that in both places, the employees outnumber the clients by around 10 to 1 (there was around 20 employees in both places and there was only me and another shopper). When I saw my wife, I told her that FutureShop’s days are numbered, and so are Best Buy’s. In a few months, Best Buy will have no choice but to start restructuring its business in Canada and it will have to close all its under-performing stores (I would say about 70% to 80% of its stores)

But what about Staples which is mentioned in the title of my post? Staples, in my opinion, is slightly in a better position than Best Buy’s but it will also have no other option but to close the majority of its brick and mortar stores in Canada. There are many reasons for this: Bad store management (I noticed that most managers in Staples are mean, despite the fact that the employees are not), Amazon’s expansion, and the declining Canadian Dollar. The major advantage that Staples has is that it caters for businesses (unlike Best Buy which typically caters for super-frugal individuals) – but that advantage cannot be used as a case for keeping the brick and mortar stores, since most businesses buy online. At one point, Staples will discover that its online business is subsidizing its brick and mortar stores, and when they discover that, they will start closing stores like crazy…

I am worried about the retail sector in Canada, which provides employment for many Canadians. The thing is, as my barber told me when I asked him if I was losing hair, “we can’t stop progress”.

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Back in 2008, the term “Too Big to Fail” was coined in the US – affirming that the US government will never let large organizations fail because of the potentially huge negative implications on the economy. Indeed – the US government helped many large companies regain their balance and stand on their feet. Granted, the US government’s response could have been better and more broad, but one has to admit, there was a response (and it worked)!

Fast forward to 2015, and here’s what the Canadian government did when Target announced that it was exiting the Canadian market leaving nearly 17,600 families out of steady income: nothing. Canada did nothing to prevent a company from making a decision that will have a disastrous effect on the lives of nearly 50,000 people (that’s about 0.15% of the total Canadian population). The only thing that the Canadian government did was to “accept” Target’s incentive for creating a $60 million fund to pay generous severance packages for all of its employees (Target’s employees, that is!) Other than that, the Canadian government was just a spectator in this tragedy, and did absolutely nothing – no effort whatsoever to keep about 17,000 families from falling into poverty and potentially becoming a burden on the country’s social care program!

So, what could have the Canadian government done?

They could have done many things – such as extraordinary tax incentives for a specific period (such as 5 years) – they could have offered to become a temporary partner in the business by putting money there – they could have worked with Target to find another solution that will help keep the company on Canadian soil.

So, why didn’t they do any of that?

Usually, the Canadian government doesn’t interfere with the private sector – especially when the parent company is a US company. Additionally, doing any tax incentives may result in other similar companies (such as Walmart Canada) asking for the same treatment – something that the Canadian government can’t afford and something that shouldn’t be done.

But the Canadian government should have done something. It shouldn’t have let this to happen without a fight – an honest fight! Yet it did nothing. Yes – we know that major companies are going to be jealous and are not going to accept any “special” treatment for Target Canada, but up until 2015, and as far as I know, it’s still the Canadian government that runs this country, and they can decide whatever they want to protect the country’s interests as well as the interests of its citizens.

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I love Target – I said it before and I’ll say it again. I was really saddened to see it go, and the fact that I’m pretty sure that Target’s decision is irreversible and that Target will never return to Canada for the foreseeable future makes the whole thing even more saddening.

Target claim that the reason why they’re exiting Canada is that they can’t foresee profitability until at least 2020 (5 years from now), and their $1 billion loss was the maximum price that they’re willing to pay to remain in Canada. Of course, they’re stating facts, but the question is, what were the reasons that led to this situation?

I, for one, can think of 10 reasons that caused this:

  1. Target expanded too fast: The main reason why this happened is that Target created over 130 stores in less than a year! This caused some serious pressure on Target’s cash flow since some stores were under-performing.

  2. Target had a problem with their supply chain: This problem is directly related to the first problem: Target just couldn’t quickly establish a reliable supply chain that will ensure that all of its stores are, well, well supplied!

  3. The Canadian shopper is frugal: Canadian shoppers are very frugal – and I’m stating a fact here. People are willing to drive long distances to save a few pennies per liter for gas, for example! Canadians were only buying Target’s deals (Target was actually losing money on some of these deals). Canadians are not interested in buying items at a premium (and by premium I mean 2 baby pajamas for $18 – yes, many Canadians find that expensive and are willing cross the border in order to save a couple of dollars on those pajamas)

  4. No online shopping: Many Canadians like shopping online – and almost all Canadians use retailers’ online stores for price comparison before deciding where to buy their items from. Target didn’t have a store. The only thing that they had was a flyer that was updated every week. In my opinion, that was very, very lame!

  5. The Canadian Dollar: Most items at Target are imported, in US$. Which means Target would have had to quickly increase their prices because of the weakening Canadian Dollar or risk even greater losses. This will be a deterring factor for Canadian shoppers who are definitely not very well prepared for this rapid inflation.

  6. Target’s staff is expensive: I’ll make this simple: compare Target’s staff to Canadian Tire’s staff. The differences are just too many. Target’s staff is probably the best in the world among retailers, and best means the most expensive. Of course, the staff’s overhead is manageable had the company been making money, but since the company was losing money, the staff became a contributing factor for its impending doom!

  7. Canada is no longer interesting for American retailers: American and international retailers are exiting the Canadian market in droves. This is possibly related to the US economical rebound (yes, there is a rebound): all the retailers right now want to focus all their efforts on the US market (and that is something that Target’s CEO mentioned in the letter announcing the end of Target Canada).

  8. The stockholders wanted to leave Canada: Many stockholders were against the move to Canada in the first place, and so every time the company was posting losses in Canada they (the stockholders) were putting pressure to exit the Canadian market. Maybe this is a bit shortsighted, but stockholders can’t wait for a decade or so in order to see some mediocre positive results.

  9. Some Canadians were unwelcoming: I hate to say this – but some Canadians were very unwelcoming to Target. In fact, some wished that Zellers (really, Zellers?) would come back to replace Target (Target took over almost all Zellers’ locations in Canada).

  10. Canada is overcrowded with retailers: Walmart, Costco, The Bay, etc… are all established in Canada for a long time now and so Target has to compete with all of them, and Canada is a relatively small market. In fact, it is a very small market. This makes this market a very un-lucrative market.

Of course, the last 2 points are not very strong – but they still are contributing factors. If you think of any more reasons why Target exited Canada, then please add them in the comments section.

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If you haven’t been living under a rock these past few weeks, you probably have noticed that the Canadian dollar is falling rapidly, despite some spikes here and there (and these spikes are caused by speculators, and not by tangible factors).

Ever since Saudi Arabia fixed the oil price at $77, the Canadian economy became in peril. Why? Well, first of all, and regardless what anyone here in Canada thinks, the Canadian economy is not a diversified economy, it’s an economy that is highly dependent on oil (from oil sands). And, in case you don’t know, oil has to be above $60 for Canadian oil companies to make any money. Granted, oil is now hovering around the $80, so these companies are still making profit, with no reason to panic, but it’s a fact: profits are down.

The federal government has made some serious decisions affecting the Canadian economy for nearly a decade now based on 2 assumptions: USD/CAD Parity and high oil prices. Both of these assumptions are no longer accurate, which means that the debt will start growing, which means that the Canadian economy will no longer look attractive for mega investors, which means that the Canadian dollar will no longer mean a “bull” dollar, which means that we’re heading for inflation.

Inflation, of course, will cause everything to become more expensive, especially fruits and vegetables which are mainly imported from the US (in USD). This means that the purchasing power of the CAD will drop (because everything else will follow), which means that, at one point, the Bank of Canada will start flattering the idea of increasing interest rates.

A 1% rate increase will be insignificant to stem the inflation that is heading our way. 4% or 5% would be a start, and such a rate increase will create another problem: high mortgage rates. Most of the people I know, who have mortgages, will literally become bankrupt if the bank increases their rates by a mere 2%. Imagine what will happen if the rate increase is double that number (4%), and you will get an idea what will happen to the Canadian economy.

So, the Bank of Canada will have another option, leave the current rates unchanged and allow the Canadian dollar to freefall, probably until it reaches the $1.5 level (which is a sustainable level). Once that level is reached, which can happen in as little as 2-3 years, the Bank of Canada can start intervening slowly to stem further drops in the value of the CAD. Of course, this will create a mortgage crisis (which, from my perspective, is unavoidable), but it won’t be as hard as if it’s done now since there are many Canadians who make their monies directly or indirectly out of the US, which means that they will be able to afford the higher mortgage payment in CAD (A mortgage payment of $2,000 made in 2017 will be more or less like a mortgage payment of $1,400 made today).

The Bank of Canada has to choose between the lesser of 2 evils – and the lesser of the 2 is to let the Canadian dollar float, which seems to be what they’re currently doing.

If you have a large purchase in Canadian dollars at a fixed low interest rate for a long term, then now is probably the best time to do it.

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October 21, 2014 | In: Opinion

Nurturing a Culture of Rats

I was a brilliant student at school. All those who know me in person can attest to that. But, when I was around 12 (or maybe 13, I can’t remember exactly), a small incident happened to me at school.

I was doing a test, and I knew I didn’t do that well (by the way, brilliant students worry much more about grades than F students), so when the teacher told us to put down our pens (e.g. that the test was over), I tried to make changes to the test, but, another student caught me and told the teacher: “Monsieur, il triche!” (French for “Sir, he’s cheating”). I remember this incident as if it happened yesterday, I remember how the rat jumped and yelled that I was cheating, I remember how the teacher was disappointed in me, I remember the shame, and I will never forget the disdain I and my friends felt for that person thereafter.

As children, we think of rats as bad people, those who tell on us for little, harmless things that we do for no reason other than they’re rats. Unfortunately, as we grow, the society molds our brains until we eventually think that ratting someone out is a good thing.

Let me give you an example… In some municipality somewhere in Canada, people are paid to tell on those who overstay their meter or park their cars in areas where they shouldn’t park. So there is this guy (and this is a true story), in his mid 40s, sitting on his balcony, drinking coffee, and watching the streets within his line of sight. Everytime he sees a simple parking issue, he calls his friend at the municipality, who then sends someone, fines the person, and gives the rat something like $25. Apparently, the person makes about $6,000/month for being a rat.

Of course, that scenario can happen in any place where the government pays money for people to tell on their co-citizens. I think these people are scum. They’re not doing this for the benefit of the society (how would someone who overstays his meter hurt my well-being?), they’re doing it for the money, which makes them less worthy than a bug for their society.

The problem is, governments have come to realize that this strategy is so successful that they are deploying it in every aspect of our lives. But that success comes at an expense, because governments, in that way, are nurturing a culture of rats. And rats are those people who were bad when we were kids, and our judgement towards others was always right when we were kids, because it was pure, untarnished by the greases of society, and unaltered by the ruthlessness of the world we live in.

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When I settled in Canada permanently back in November 2005, I stayed for a couple of weeks with a friend. A friend whom, without his help, I would have probably had a very hard time settling (and most likely I wouldn’t have had the opportunities I had), but he made everything easier. Thank you Jeff!

My friend gave me a room in his apartment which was very clean and very nice. Next to the closet, there was a pair of boots – they seemed very old but they were immaculate. For some reason, I used to stare at these boots every night before falling to sleep. Then, one day, when it was snowing, my friend picked those boots and wore them. So I asked him, “Did you buy those boots?” He then told me the story…

These boots belonged to his grand father. His grand father fought with the Allies in World War II while wearing these boots. He then wore them until he died. When he died, he passed them over to his son. His son used them a bit and then gave them, in his turn, to his son (my friend). Back then I felt that the story was impressive: wearing your grandfather’s boots, the same pair that was used in a war that changed the course of the world.

Fast forward to this morning, when I threw my shoes that I wore for less than 6 months because they started disintegrating. And then, all of a sudden, I remembered my friend’s boots, and his story seemed even more impressive. A pair of boots that lasted over 70 years. But then again, this is how everything was in that day and age. Things were made to last a lifetime or even more. Not anymore…

Shoe makersShoe companies no longer want to build shoes that last for a century, they want you to buy shoes that last for a few months so that you can through them and buy another pair in the same year. Car makers no longer build those strong cars that can sustain shocks, corrosion, rugged driving and terrain condition… Car makers are intentionally building good looking but plastic cars that will fall apart in a few years. Back in the 90s, only Japanese cars were considered made out of Pepsi cans – nowadays even German cars are built from the same plastic. Air conditioners break 3-4 years after first use – compare that to the American Air Conditioners that were built back in 1960s and still work until now.

I can give you countless examples proving my theory: phones, fridges, washers, microwaves, computers, TVs, etc…

It seems that someone, somewhere discovered that his business will do much better if he makes the same customer buy the same thing over and over again over the course of his life. Obviously, everyone else followed. And now we live in an era of disposability, where everything created by man is disposable. But that’s not as tragic as the fact that we, as humans, have grown to treat each other as disposable and replaceable.

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Back in 2011, when I used to be actively trading many bank stocks, large investors were generally excited about their prospects (their refers to the bank stocks) when the economy rebounds. Even Warren Buffett bought about 5 billions worth of shares in Bank of America. But, a few months after Buffett made that move, the stock tumbled to $5 (yes, five dollars), which means that Buffett, in late 2011, lost about 50% of his investment, or $2.5 billion.

Fast forward to 2014, and BAC is now trading at about $17, still below the $18.41 achieved back in April of 2010, and way below the pre 2008-2009 financial crisis level, when it was trading for about $50.

As for C, it is an even more depressing story. C, at $50, which is $5 before the reverse split, is merely trading at 10% of its pre-recession value.

S&P’s index, which both BAC and C are included in, is now 30% above its pre-recession value. The Dow Jones is now just below 20% above its pre-recession value. In other words, the major bank stocks, BAC and C, have underperformed probably every other stock in the two major indexes. Hardly the potential large investors promised and believed in back in 2010.

If you’re eying bank stocks for long term investment, then it’s possible that you haven’t missed the train for big returns. Just be very careful and do your due diligence before you taken any decision, and always invest with money that you don’t need.

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I have the Sony Google TV, and I think I am one of the first people who bought it (back in 2012). I use it every day to watch videos on YouTube (I love watching the Sherlock Holmes series, the one from the 80s-90s starring Jeremy Brett), I also use it to occasionally stream movies on Crackle.

Yesterday (or was it Saturday), I was surprised, when I opened Crackle, to see something like the following message:

Crackle is no longer supported on GoogleTV. You can still use Crackle on your PC or your Android device.

What was surprising is that it happened all of a sudden (much like everything else these days), but what wasn’t surprising is that it happened: The service wasn’t working properly on Google TV (it was working, but not properly) and it was probably costing Crackle more money to maintain than it was actually making through advertising revenue.

What was a bit ironic is that Crackle is a Sony business, and it is no longer working on that Sony device.

Sony seems to be taking a very proactive approach towards its services and products recently, immediately canceling those that are deemed unprofitable or generating losses.

I’m not sure I will miss Crackle as much as I miss the VAIO laptop, maybe because I can live without it or maybe because I can still use it on my other TV (which is Android powered).

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AMZN, in my opinion, is a very risky stock, but, in the opinion of many, many others, it is a safe haven and a golden egg. Regardless of what I think and what other investors think, here are some 10 facts about Amazon:

  1. Amazon became public on May of 1998.

  2. Amazon started trading at $18/share (Google Finance shows that it started trading at $1.5, but remember that the stock was split 1:12 between 1998 and 1999).

  3. Females constitute about 65% of Amazon’s traffic.

  4. AMZN had 3 splits between June of 1998 and September of 1999. In short, 1 share of AMZN back in 1998 is 12 shares of AMZN at the current moment.

  5. Amazon never paid dividends.

  6. AMZN was hardly hit during the NASDAQ crash of 2000. However, even in its worst days, its price remained above IPO level.

  7. It took AMZN 10 years to regain its 2000 peak price.

  8. If you bought 1,000 shares with AMZN back in 1998 (worth $18,000) and kept them to this date, you would have $3,936,000.

  9. April of 2007 was the most active month for AMZN, where 250 millions shares were traded (about 10 times the average).

  10. AMZN is trading at a P/E of 862, which means that it’ll take Amazon 862 years to pay off its investors.

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Every time a new iPhone is out, Canadians wait in line every day for months (until the new iPhone is available in abundance) to buy it. For the untrained eye, this might look like a Canadian obsession with new technology, especially with new iPhones. But, for those of us who have a little more knowledge about Canadians, the real reason lies elsewhere.

In Canada, and unlike the United States, Apple stores sell new iPhones unlocked (e.g. not restricted to a certain carrier), and these phones are usually worth a lot more than locked phones, and can be sold to anyone anywhere since they can work in any country and with any carrier.

Those obsessed Canadians are not really obsessed. In fact, they probably couldn’t care less about the iPhone, because the second they buy it, they will try to sell it on eBay. If you check eBay right now, you will see a bunch of unlocked iPhones being sold by Canadians (and only by Canadians), sometimes for $1,000 more than the original price. Not too bad for waiting in line for a day’s work of doing nothing other than waiting in line.

So, if you pass by a long line of eager Canadians waiting in front of an Apple store to get the new iPhone, then remember, it’s not about the iPhone, it’s about the money!

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