Thank you, Mr. Chairman.
I want to thank the committee for today’s opportunity to present a retail perspective amidst this crisis.
For those unfamiliar with the Retail Council, we represent small, medium and large retail businesses with a presence in every community across the country. Our members’ sales represent over 70% of retail [Technical difficulty—Editor]. Since 1962, we represent more than 45,000 storefronts in all formats, including department, grocery, specialty, discount, independent retailers and online merchants. Lastly, and importantly in this context, retail employs over two million Canadians, making ours the largest private employment sector in Canada.
Retail is by no means unique in being severely challenged by COVID-19. Where we think retail is distinct is that there are two very different situations faced by the main parts of our sector, which we can title “essential” on the one hand and “discretionary” on the other.
The essential part of our industry has robust revenues in this environment, particularly in grocery and pharmacy. They face a multitude of operational challenges, including supply chain issues, HR issues, PPE sourcing and adaptation of workplaces with major increases in their cost structure, but their viability is not in question.
By contrast, the discretionary part of our sector, ranging from apparel to furniture and appliances, electronics, toys, books and so on, has been devastated by the COVID-19 crisis. This is partly due to shifting consumer spending and reduced incomes for citizens, but primarily because of being shuttered by order of public authorities.
Some derive limited income from e-commerce, but with constraints on curbside activity in the two largest provinces and the consumer focus on essentials, e-commerce revenues are a pale shadow of their former income from bricks and mortar operations. Colloquially, they are often referred to as retail stores, and of course, it is their very stores that have been lost to them in this period. It is on that topic that I would like to speak today.
RCC and its members greatly appreciate the effort that the government has put into programs like CERB and CEWS to provide income safeguards for Canadians to help avert much wider layoffs and allow the rehiring of many employees, but the reality is that, with limited or no income from operations, retailers can’t keep going simply by receiving generous assistance to pay employees. Even with taxes and, in some cases, utilities deferred, the meter continues to run on their rent even when nobody is coming through the door.
The CECRA program is an important step for severely impaired small retailers but one that is limited by enterprise size, rental footprint and a 70% income loss threshold. When CECRA was announced on April 24, the Prime Minister stated, “We’ll also have more to say in the coming days about rent support for larger businesses”.
Sticking the landing of that policy decision is critical, not only to larger retailers but also to those smaller retailers who do not fit within the parameters of the CECRA program. Simply put, retailers without income or severely reduced revenues have no ability to pay rent. Not only does this jeopardize their tenure in the very stores they will need in order to emerge from this crisis. It jeopardizes many of the million-plus jobs in the discretionary retail sector.
Non-payment of rent also ripples through a complex ecosystem involving commercial real estate, individual and institutional investors, pension beneficiaries and governments, especially municipalities that are dependent on the commercial tax base.
There may be a misconception that large retailers are sitting on a pool of cash. In reality, most entered the crisis with 30 to 60 days' worth of cash on hand, most of which has been exhausted already. Retailers’ ability to turn to commercial debt solutions is exceedingly limited. Unless a retailer owns its own real estate, its only securitizable assets are its account receivables and its inventory. At the moment, receivables are at or close to zero.
As to inventories, many are seasonal, and most are locked up in stores and warehouses. It's uncertain when they can be sold and whether consumers will have the income or the orientation to spend on discretionary items. In those circumstances, commercial loans are unavailable or they are so expensive interest-wise that retailers will not be able to carry that burden into the recovery period, especially when competing against international e-commerce juggernauts. That’s why it is critical that the government orient part of the additional liquidity that it spoke to, and can provide, to a purpose-built loan program on reasonable terms, allowing retailers the time to dig themselves out of the hole and repay those loans.
We understand that there's limited fiscal capacity to provide grants to industry. The federal government's capacity to borrow at lower rates of interest and to profile loan repayment in keeping with economic recovery is the essential element.
If anyone tries to tell you that there are big distinctions here between small, mid-sized and large retailers on this, the absence of revenues, the ticking meter of rental costs and the inability to borrow on reasonable terms affect the whole sector. If you have 10 employees or 10,000, the difference is essentially just one of scale, with the latter simply being a thousand times as large.
Thank you.