The Globe and Mail - 13.09.2019

FRIDAY,SEPTEMBER13,2019 | THEGLOBEANDMAIL O REPORTONBUSINESS| B7

“The request for consultations

will not undo the log jam,” Mr.

Clark said. “Nothing is going to be

resolved until the Meng Wanzhou

case is resolved.”

The loss of the Chinese market

has already cost the Canadian ca-

nola industry about $500-million

in the past six months. If these re-

strictions persist for a year, the

loss will amount to $1-billion, ac-

cording to Brian Innes, vice-presi-

dent of public affairs at the Cano-

la Council of Canada, which rep-

resents 43,000 producers.

In its complaint to the WTO,

the Canadian government la-

ments that Canadian officials

have tried repeatedly through dif-

ferent channels to get answers

from China on the scientific ratio-

nale behind the ban.

“Canada has employed numer-

ous and varied formal and infor-

mal mechanisms at its disposal to

solicit this information,” the Can-

adian government’s WTO filing

said.

Canada accuses China of

groundlessly blocking canola

seed shipments in the complaint.

“Canada believes China’s mea-

sures constrain Canadian exports

of canola seed and that measures

do not appear to be based on the

relevant international standards,

guidelines or recommendations.”

The Canadian government

told the WTO it asked China June

13, under WTO rules, to explain

the measures it has taken. “Chi-

na’s response of 12 July, 2019, fails

to address the majority of ques-

tions posed by Canada in its re-

quest,” thegovernment said.

The canola council’s Mr. Innes

echoed the Canadian govern-

ment on Beijing’s conduct, say-

ing, “China has not come to the

table and engaged constructive-

ly.”

Last March, China suspended

canola seed imports from two

Canadian companies, Richardson

International Ltd. and Viterra Inc.

While other Canadian companies

remain eligible to export canola

seed, they have become “subject

to enhanced inspections, includ-

ing increased testing,” Ottawa

said in the WTO filing.

China has cited the detection

of potential economically damag-

ing pests in Canadian canola seed

shipment –what are referred to as

“quarantine pests” – as the rea-

son for these restrictions, but has

not fully explained it. They list

three weed seeds and two diseas-

es. “We don’t have sufficient evi-

dence to know if they are legiti-

mate concerns,” Mr. Innes said.

In 2018, canola seed was Cana-

da’s single largest export to China

based on dollar value. Exports ex-

ceeded $2.78-billion last year, ac-

cording to Statistics Canada.

Canola farmers have not found

a new market for the vast major-

ity of the canola seed China used

to buy, Mr. Innes said. Unsold ca-

nola is piling up at the farms of

Canadian producers. “Volume-

wise, our canola exports to places

other than China have not in-

creased over the previous crop

year,” he said. “Statistics Canada

[recently] showed that there is

more canola on Canadian farms

at this time of year than at any

point in history.”

Farmers have asked Ottawa to

beef up assistance programs to

cover losses in income from the

trade disruptions this year.

The Chinese embassy in Otta-

wa did not immediately respond

to a request for comment Thurs-

day.

Canola:Group

saysindustry

ispoisedtolose

$1-billionover

12months

FROMB1

“For Hudson’s Bay, we are working to fix
this business to recapture market share
over time,” Ms. Foulkes said in a statement
Thursday.
Sales at Hudson’s Bay stores that have
been open at least a year were down 3.4 per
cent, while comparable sales were up 0.6
per cent at Saks Fifth Avenue and 3.4 per
cent at Saks Off 5th, its discount brand.
The sales decline number for the Bay “is
difficult to bounce back from,” said George
Minakakis, CEO of consultancy Inception
Retail Group. “You need significant sales
gains to be back at zero [for the year].”
Ms. Foulkes has indicated that the com-
pany expects improvements in the second
half of the year, which includes both the
back-to-school shopping season and the
crucial holiday period.
HBC has been pursuing a strategy of sell-
ing off underperforming stores and focus-
ing on its Hudson’s Bay and Saks brands.
“These next two quarters are going to tell
a lot about whether the strategies they’re
trying to pursue are going to turn into
sales,” Mr. Minakakis said. “You can’t be-
come a growth company by not growing
sales. Sears tried to wow the industry by
cutting and reducing costs to the point of
oblivion. That’s not the answer.”
HBC has faced growing competition
from other department stores, as well as
from online retailers such as Amazon.com
Inc. HBC has been working to improve its
e-commerce capabilities, and while overall

sales were down in the quarter, digital sales

increased 19 per cent.

“HBC’s core operations are challenged

by numerous sides, including increased

competition, which have hurt sales and

compressed gross margins,” CIBC analyst

Mark Petrie wrote in a research note on

Thursday. “... We expect gross margin to

stabilize somewhat, and branding enhan-

cements and optimization of

inventory levels should sup-

port [results in the second

half of the year], but the busi-

ness remains challenging

and this will get no easier

with competition intensify-

ing.”

HBC is also in the midst of

a dispute over an offer to take

the company private. A

group led by executive chair-

man Richard Baker has of-

fered roughly $1-billion, or

$9.45 a share, for the compa-

ny. However, a group of mi-

nority shareholders has

called the bid “inadequate.”

Last month, HBC an-

nounced that it would sell its

Lord & Taylor banner to fashion rental ser-

vice Le Tote Inc. for $132.7-million. The deal

will allow shoppers at Lord & Taylor stores

to either buy or rent merchandise, which

will be a new way of doing business for the

193-year-old department-store chain. It

could provide a model for other stores that

HBC operates when they consider how to

offer “new services” such as subscriptions,

rentals and resales, Ms. Foulkes said.

HBC’s net loss for the second quarter, in-

cluding losses from discontinued oper-

ations tied to Lord & Taylor, was $984-mil-

lion.

HBC has been closing some Saks Off 5th

stores and plans to focus on markets with

concentrated populations and higher

household incomes. Howev-

er, it has no plans to close

Hudson’s Bay-branded stores

in Canada. Ms. Foulkes said

the company is happy with

its store footprint, although it

is considering using some

store space in different ways.

She pointed to a deal with

workspace-sharing company

WeWork to develop co-work-

ing spaces on the upper

floors of some of its Bay loca-

tions as an example. And the

company is exploring other

options for the use of square

footage that could lure in cus-

tomers who might not other-

wise visit its stores.

“While we’ve progressed

in simplifying the business and strength-

ening operations, the second quarter dem-

onstrates that we are still in the early stages

of what HBC can become,” Ms. Foulkes said

in the statement.

HUDSON’SBAY(HBC)

CLOSE: $10.21, UP 1¢

HBC,whichownstheTorontostoreseenabove,reportedonThursdaythatsalesatitsHudson’sBaystoresthathavebeenopenforatleast
ayearweredown3.4percentinthequarter.CHRISTOPHERKATSAROV/THEGLOBEANDMAIL

HBC:Retailerposts$984-millionlossinsecondquarter

FROMB1

You can’t become

a growth company

by not growing

sales. Sears tried

to wow the industry

by cutting and

reducing costs to the

point of oblivion.

That’s not

the answer.

GEORGEMINAKAKIS

CEOOFINCEPTION

RETAILGROUP

“The sale of Aeroplan was an abomina-
tion – a giveaway,” Charles Frischer, who
spoke on behalf of the dissident share-
holders, said in an interview.
Aimia has also tried to expand outside
of Canada by acquiring other loyalty pro-
grams and at times this strategy has come
back to haunt the company. Notably, Ai-
mia paid $755-million for the Nectar re-
wards business in Britain in 2007, but ulti-
mately sold the business in early 2018 for
a net price of $34-million.
“I don’t like the loyalty space,” Mr.
Frischer said. “There will be no loyalty ac-
quisitions if I have anything to say about
the process.” Instead, the dissidents have
proposed share buybacks in the near fu-
ture.
His group’s proposed slate of directors
includes two Canadians: retired corporate
lawyer Joel Schachter and financier David
Rosenkrantz. The other proposed direc-
tors are two Americans: Mr. Frischer, who
is a general partner of Seattle-based LFF
Partners, and Michael Lehmann, who

runs money manager LARC Capital.

If their campaign for board seats is suc-

cessful, the shareholders are likely to re-

place Mr. Rabe as CEO. “I don’t think that

Jeremy is going to be in the long-term pic-

ture at Aimia if I have anything to say,”

Mr. Frischer said.

Mr. Rabe became CEO and joined Ai-

mia’s board through a proxy

battle launched by Mittle-

man in early 2018. However,

since joining the company

he has switched sides and is

now at odds with Mittle-

man.

In the countersuit that

Mittleman filed this week,

the New York-based fund

took aim at Mr. Rabe, alleg-

ing that during the negotia-

tions with Air Canada he tried to secure a

position at the airline to run Aeroplan.

Mittleman also alleged that former Aimia

board chair Bob Brown was part of the

talks.

“For Mr. Brown and Mr. Rabe to be ne-

gotiating with Air Canada for a position

for Mr. Rabe at Air Canada at the same

time as they were negotiating the Aero-

plan agreement on behalf of Aimia was a

clear conflict of interest,” the lawsuit al-

leges.

Dan Gagnier, a spokesperson for Aimia,

said the company is reviewing the allega-

tions and that it intends to “vigorously

dispute” the allegations and

claims made. The company

also said in a statement that

it is reviewing the requisi-

tion for a special meeting of

shareholders.

In an e-mail, Evan New-

man, a partner at Mittleman,

said the fund has not had

any contact with the requi-

sitioning shareholder group.

“We welcome the opportuni-

ty for shareholders to freely make their

views known with regard to Aimia’s

board. We will give due and thorough con-

sideration to their nominees,” he wrote.

AIMIA (AIM)

CLOSE: $3.37,DOWN 1¢

Aimia:Company’sforeign-acquisitionstrategy

hassometimescomebacktohauntfirm

FROMB1

If their campaign

for board seats

is successful,

the shareholders

are likely to replace

[Jeremy] Rabe

asCEO.

“Far better to tell the Germans to
expand their fiscal policy.”
Mr. Draghi would agree. At the
end of every rate-setting decision
the ECB has made since he joined
the bank almost eight years ago,
he has pleaded with govern-
ments to get in the game on the
fiscal front and work in tandem
with the ECB’s monetary stimu-
lus measures, one bolstering the
other. He did so again Thursday,
forcibly so. “Now is the time for
fiscal policy to take charge,” he
said.
His pleas have been largely fu-
tile – for good reason. In recent
decades,governments have em-
powered central bankers to the
point that they, in effect, became
the default managers of the econ-
omy (and regulators of the com-
mercial banks). Governments

stepped back, as if they expected

the central bankers to work mira-

cles while fiscal stimulus was rel-

egated to a secondary tool.

The process of empowering

central bankers – mission creep,

if you will – has its roots in the

1970s and 1980s, when high infla-

tion was wreaking havoc with

economies everywhere. Politic-

ians and their lavish vote-buying

habits were to blame. Together

with trade unions, they gamed

the system. Unions would ask for,

say, a 4-per-cent pay increase,

knowing they would get some-

what less. Governments would

agree to 2 or 3 per cent, then use

high inflation to compress those

wage gains. Repeat process.

After the inflation-era fiascos,

the idea of truly independent

central bankers took hold. They

would be allowed to do what they

thought best to contain inflation,

boost employment and smooth

out business cycles. The Bank of

England got the nod from Tony

Blair’s new Labourgovernment

in 1997, after which the chancel-

lor of the exchequer had no right

to call up the bank governor and

casually suggest to him that rates

should drop a notch or two. The

ECB was formally launched a year

later in preparation for the intro-

duction of the euro. Both the

Bank of England and the ECB

were adept inflation busters,

though more so the ECB.

The central banks came into

their own during the 2008-09 fi-

nancial crisis. It’s no exaggera-

tion to say the ECB saved the euro

from destruction in 2012, when

Mr. Draghi said the bank would

do “whatever it takes” to keep the

euro zone intact. In came a raft of

“unconventional” measures, in-

cluding QE, which propped up

the banks, prevented disinflation

from turning into destructive de-

flation – outright falling prices –

and pushed down interest rates

and the value of the euro. At the

time, governments weren’t doing

much besides preaching austeri-

ty and praying that the central

bankers’ voodoo would work.

Inflation went far too low – for

years it has been running at

about half the ECB’s target rate of

almost 2 per cent – and economic

growth never returned to robust

levels. Now, growth and inflation

are stalling again, and the ECB

has little power left to reverse the

situation. Take negative interest

rates, which are designed to en-

courage commercial banks to

open their lending spigots. If they

stash their spare cash at the ECB

instead of lending it out, they get

charged. But will lowering rates

by a mere one-10th of a point do

the trick? Unlikely.

The slowing economy shows

central banks can only go so far.

It’s time forgovernments to sad-

dle up. That’s not to say central

banks should lose their inde-

pendence and become political

creatures again (even if some

leaders, notably U.S. President

Donald Trump, would adore

that), rather that fiscal policy has

to be revived to pick up where the

central banks left off. In Europe,

that would mean persuading

German Chancellor Angela Mer-

kel to use spending to boost de-

mand.

If she and other leaders con-

tinue to rely largely on the central

banks to fix their economic woes,

they are bound to be disappoint-

ed. Mr. Draghi is giving Europe

one more shot of stimulus, then

calling it quits. His message is

that the ECB is tapped out.

Reguly:Processofempoweringcentralbankershasrootsinhigh-inflation1970s,80s

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