Contents The End of Eaton's: Retail Evolution The changing retail marketplace, the inevitable passage of time, and what many see as the natural decline of an institution unable to change with the times are just some of the issues that this story represents. It is not, however, simply a business story, since for 129 years Eatons represented a quintessentially Canadian institution and part of the national identity. For some, the disappearance of an icon with direct connections to personal and family traditions is to some extent a loss of a collective sense of self. To younger Canadians, it may simply be the way of the world. Whatever ones reaction, the demise of this family business signals social and economic changes that affect how Canadians shop and how marketers redefine the nature of retailing. Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions .
Transcript
Contents
The End of Eaton's: Retail Evolution
The changing retail marketplace, the inevitable passage of time, and what many see as the natural decline of an institution unable to change with the times are just some of the issues that this story represents. It is not, however, simply a business story, since for 129 years Eaton�s represented a quintessentially Canadian institution and part of the national identity. For some, the disappearance of an icon with direct connections to personal and family traditions is to some extent a loss of a collective sense of self. To younger Canadians, it may simply be the way of the world. Whatever one�s reaction, the demise of this �family business� signals social and economic changes that affect how Canadians shop and how marketers redefine the nature of retailing.
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
.
Comprehensive News in Review Study Modules Using both the print and non-print material from various issues of News in Review, teachers and students can create comprehensive, thematic modules that are excellent for research purposes, independent assignments, and small group study. We recommend the stories indicated below for the universal issues they represent and for the archival and historic material they contain.
�The Bay Stops Selling Fur,� March 1991 �Olympia & York: A Business Giant Stumbles,� May 1992 �Superstores: Is Bigger Better?� November 1994 �Eaton�s: Canada�s Store?� May 1997
Other Related Videos Available from CBC Learning
Does Your Resource Collection Include These CBC Videos?
The announcement that many economists, customers, and the Canadian public in general anticipated, and that many people considered inevitable, finally came on August 20, 1999. Eaton�s, the venerated icon of Canadian retailing, was filing for a proposal to creditors under the Bankruptcy and Insolvency Act. Many of its customers were saddened by the news, but few were surprised. After all, Eaton�s has been on shaky financial ground for most of the last decade.
Two years before, the company had filed for protection from its creditors, �a kind of stay of execution� in the words of Laurence Booth, finance professor at the University of Toronto. At that time, the creditors approved a $419-million restructuring plan, and Eaton�s hired Brent Ballantyne, an experienced �turnaround specialist� to take over as chairman from George Eaton. On June 10, 1998, Eaton�s went public for the first time in its long history, issuing 11.7 million common shares at $15 a share. The Eaton brothers still held 51 per cent of the shares, thereby keeping the controlling interest in the company that bore their name. Under new management, Eaton�s started to close many of its departments such as electronics, appliances, and in most stores, furniture and rugs. Instead, management focused on a new look and on selling higher-profit fashion merchandise. In order to save costs many Eaton�s employees were let go. Despite these
changes, the company still reported a $72-million loss in 1998, and share prices plummeted.
In an attempt to lure younger and more affluent consumers into its stories, Eaton�s launched a new, hip advertising campaign and started to change its merchandise to meet this demographic group�s need. In marketing terms, this was not the conservative, inclusive, family image that Eaton�s, �Canada�s store,� had projected for almost 130 years, and in a renewed advertising campaign, the company played up this trendy new image in a slightly self-deprecating manner. Unfortunately, despite the suddenly revised image and product lines, the store was unable to compete for younger consumers in a marketplace with an abundance of faddish and stylish specialty stores. Rather than attracting new customers, the store ended up alienating those who comprised its loyal, traditional, and generally older customer base. Eaton�s new marketing initiatives encountered the age-old generation gap. �They forgot about us,� lamented 71-year-old customer Grace Simmons. �We�re the old-timers. We�re the ones who built the place. I can�t imagine how much money I�ve spent in here over the years. We bought everything here: the clothes for our kids, the clothes for the grandkids, the furniture, everything.� In early October 1999, Sears Canada�the company that is 55 per cent owned by U.S.-based Sears, Roebuck and Company, and which had already announced the purchase of eight of Eaton�s stores for $55-million�issued a further announcement that it would also be purchasing five of the Eaton�s downtown locations. The stores, which are among Eaton�s best performers in terms of sales, will be refurbished and reopened as Eaton�s stores and will return to the traditional Eaton�s full department stores marketing Eaton�s brand merchandise. Sears will also relaunch the Eaton�s catalogue. In the end, though, the Canadian retail industry was still faced with a significant shift in the marketplace.
At Eaton�s flagship store at the Toronto Eaton Centre several faithful shoppers stopped to rub the foot of the bronze statue of Timothy Eaton, the man who started the retail dynasty over 130 years ago, a tradition bringing good luck. Unfortunately for Eaton�s, the luck has run out.
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family?
The Basics of Bankruptcy Discussion, Research, and Essay Questions
�She started to leaf through the catalogue the Eaton company sent us in the mail every year. My mother was proud. She didn�t want to buy our clothes at the general store; the only things that were good enough for us were the latest styles from Eaton�s catalogue.� � From Roch Carrier�s short story �The Hockey Sweater�
Roch Carrier�s short story �The Hockey Sweater� was originally written in French as �Le Chandail,� later translated into English, and then it became a charming animated National Film Board film. It tells the tale of a young French-Canadian boy growing up in a small town in Quebec. He, along with every other young boy in the town, is an ardent Montreal Canadiens fan and dreams of the day that he can be exactly like the star player, Maurice (Rocket) Richard. Every day during the cold Quebec winter, the boys congregate at the outdoor ice rink to play hockey; each wears the Montreal Canadiens jersey; each wears Maurice Richard�s famous number 9. One day the boy�s mother notices that his hockey sweater is getting old and torn and decides to buy him a new one from the Eaton�s catalogue. Unfortunately, in error, Eaton�s sends the mother a sweater from the traditional rival team, the Toronto Maple Leafs! Being too proud to return the sweater and afraid that she might offend �Monsieur Eaton� because �Monsieur Eaton�s an Anglais; he�ll be insulted because he likes the Maple Leafs,� Roch�s mother makes him wear the sweater. And so the boy�s troubles begin.
�The Hockey Sweater� is also a story about fitting in, and about the two solitudes within Canada: the French and the English. It is a story about hockey; it is a story about icons. And in Canada, as we see in this story, Eaton�s is one of those icons. Many in Canada grew up dreaming about all the wonderful things displayed in the Eaton�s catalogue. Many watched the wonders of the Eaton�s Santa Claus parade and remember its fairy-tale Christmas windows. Long before Toys �R� Us opened its doors in Canada, children would flock to the Eaton�s toy department to marvel at all the shiny new toys. Eaton�s was seen as part of our popular history. In recent times, how real was the historical role? Was it simply nostalgia for �the good old time�? Eaton�s money-losing catalogue was discontinued in 1976, and Eaton�s pulled out of its sponsorship of the Santa Claus Parade in 1982 in an attempt to cut expenses. A whole new generation of Canadians grew up without these traditions. And as a result of changing demographics, many families, new to Canada, did not grow up identifying with the Eaton�s culture. Critics say that, in many ways, Canada changed but Eaton�s did not or could not.
�Sacred� Eaton�s Before viewing the News in Review segment on the fall of Eaton�s, look up the word icon in the dictionary, particularly a recent one such as the Oxford Canadian Dictionary, and discuss its original meaning as well as its secondary meaning as it is used in popular language.
Follow-up Discussion and Activities 1. The traditional meaning of the word icon is �an object of religious worship.� What does the use of the word in reference to Eaton�s say about Canada, as a culture, if one of our icons is a retail department store? 2. Read �The Hockey Sweater� by Roch Carrier and then locate and view the NFB film version. Write a one-page commentary in which you describe the icons in the story. 3. What icons exist today in Canadian culture with which you identify as a Canadian? Write your own short story celebrating one of the icons you have identified. Create a display of your work.
Introduction
Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
Economists have said that the collapse of the Eaton�s retail dynasty was the result in part of Eaton�s slow response to changes occurring in the retail marketplace. Many of these changes have occurred at a staggering pace, given that in markets, historically, goods, services, and the advertising of them required more time to reach the consumer than is usual today in marketplaces enhanced and accelerated by television and the Internet. You may even remember the days before Wal-Mart, Chapters, Home Depot, Starbucks, Blockbuster Video, or the enormous movie complexes that have arrived in our communities. Most of these changes have occurred within the last five years. Given that Eaton�s evolved and remained relatively constant for almost 130 years, the rapid rate of change poses the question of whether we have seen a retail evolution or a retail revolution. As happens in times of rapid and substantial change, there have been casualties. Certainly, the demise of Eaton�s has had a dramatic effect on its employees, shareholders, and customers, but the consequences of its disappearance are even more far-reaching. The departure of Eaton�s will leave a hole in many retail environments. It will change the dynamic of malls in which an Eaton�s store was a principal anchor, and it will change the downtown retail core of many cities across Canada, retail environments already threatened by consumer preference for
extensive suburban shopping places. Although the fall of Eaton�s may appear to be a significant business opportunity for the store�s competitors it could also prove to be a double-edged sword. With a void created in the Canadian retail market, many fear more retail giants will move in from the United States, thus increasing the Americanization of Canadian culture, a culture that is reflected in our consumer habits and choices.
Task One As you read the information below, make notes on how the loss of one Canadian-owned store could potentially change retailing in Canada forever.
Redefining the Mall The fall of Eaton�s has some mall landlords worried. Because Eaton�s has filed for insolvency, the existing leases on properties they inhabited will be voided. At best, landlords will get three months rent in arrears and three months of gross rent forward. Landlords will have to get a new tenant quickly in order to avoid potential big losses. The problem is that many of the Eaton�s locations are just too big for most other stores to take over. This is especially true for Eaton�s two largest stores; the Toronto Eaton Centre location and the one in downtown Montreal. Both have about one million square feet of leasable space, and few retailers, with the exception of some large American department stores such as Macy�s or Bloomingdale�s, could fill that much space. John Williams, a retail consultant, feels that landlords will have little choice but to subdivide the larger stores. Both of the stores have several floors that have mall access, and these could easily be split and leased individually to big-box retailers like Chapters or Indigo Books & Music, HMV, or Toys �R� Us. According to Williams, it will be harder to lease the upper floors of these megastores since they do not have mall access. More than likely these floors will have to be converted into office space or condominiums.
Whatever the landlords decide to do they will have to work quickly to avoid the trickle-down effect that can occur when an anchor store pulls out. Many of the smaller retailers rely on the walk-by traffic generated by being close to a large anchor store. If the store is vacant, the number of people visiting that section of the mall decreases significantly. �The big disaster is when you end up with a big, black, empty box at the end of your mall,� Richard Talbot of Thomas Consultants International Inc. explained in an article in The Globe and Mail. �There�s no traffic
going past the small stores and they just shrivel up and die. It�s like turning off the tap.� Interestingly, even after the last Eaton�s store has been sold or disbanded the Eaton�s name will live on. Several malls in Canada will continue to be known as Eaton Centres because customers have strong associations with the name. �People know what the Eaton Centre is,� said Jon Hagan, chief financial officer of Cadillac Fairview Corp., the owner of the Toronto Eaton Centre as well as Eaton Centres in Montreal and Victoria. Cadillac Fairview has no plans to change their malls� names. Overall there are eight shopping centres in Canada that bear the Eaton name.
Redefining the Downtown Core In September 1999, Sears Canada spent $55-million to purchase eight Eaton�s stores and the rights to the Eaton�s name. The company may also buy an additional five stores in the future. The move will save at least 1000 jobs. The stores that Sears purchased are all in suburban malls where Sears either doesn�t have a store or where Eaton�s held the better location. Sears did not, however, purchase a single one of Eaton�s prestigious downtown locations, such as the flagship stores in Montreal, Toronto, or Vancouver. According to one Sears� spokesperson, the company has never done well in urban centres since its clientele traditionally comes from the suburbs. Some analysts are worried if the traditional retail powerhouses are unwilling to purchase these urban stores, it could spell trouble for already beleaguered downtown cores across Canada. To illustrate this point one only has to look at what happened to Thunder Bay and Guelph, Ontario.
Task Two While studying the two case studies described below, list the potential positive and/or negative effects of future plans for these two downtown cores. Thunder Bay, Ontario When the Eaton�s store in the Keskus Harbour Mall in downtown Thunder Bay closed in 1998, almost all of the mall traffic disappeared. The mall, situated in the old downtown of the Port Arthur section of Thunder Bay, was already having difficulty competing with the newer, larger Inter-City Mall in the city suburbs. Fewer and fewer people seemed to come downtown to shop. The closing of the Eaton�s store was the final blow. The once thriving 60-tenant mall dwindled to just three businesses. In early 1999, the Ontario Casino Corporation announced its plan to revive the weakened downtown by taking over the mall,
demolishing a portion of it and spending $40-million in renovations of the rest. The plan is to change the mall into a charity casino.
Guelph, Ontario A similar fate befell the downtown retail area of Guelph. From the beginning, the small mall that housed the Eaton�s location was never very successful. Some analysts suggest that this was partially because it only had one anchor store, thereby not encouraging customers to walk from one end of the mall to the other. In addition, fewer shoppers were visiting the downtown core, preferring to shop in the newly expanded Stone Road Mall farther from downtown. When Eaton�s closed its doors, the downtown mall collapsed. A Calgary-based company is spending $21-million to transform the former mall into a sports and entertainment complex.
Redefining the Competition What will happen to Canadian retailing if, as has been suggested at the time of this writing, the large Eaton�s flagship stores are purchased by the U.S. chain Federated Department Stores, operators of Bloomingdale�s and Macy�s? Analysts suggest that the arrival of these stores on the Canadian retail landscape will force other department stores such as the Bay and Sears to revamp their operations and become more competitive. If they fail to do this, they may end up in a similar position to Eaton�s. Analysts point to the fate of Woolco and K Mart, stores that went out of business when Wal-Mart set up shop in Canada. David Brodie, an analyst at CIBC World Markets, puts it this way. �We just have to ask ourselves what did Wal-Mart mean to Canada? It meant: Get smart, or pack up those bags. Those that are too weak will close their doors, and others will consolidate.� This is a trend that concerns many Canadians. As one reader wrote in a letter to The Globe and Mail, �What�s next? Maybe Labatt�s will be liquidated by Anheuser-Busch, Canadian Tire will fold into Home Depot, TD Bank will sell out to Chase Manhattan or the Blue Jays will move to Virginia.�
Task Three Working in small groups, complete the following.
1. Evolution is a process of change in a certain direction. Revolution is a sudden, radical, or complete change. What word, in your mind, better reflects the changes resulting from the fall of the Eaton�s empire? 2. If you have an Eaton�s store in your city or town, analyze the mall it is in. What stores are currently in the mall? What new
stores would enhance the mall? Would they be large enough to take over the Eaton�s space, or would the space need to be subdivided? Would these new stores be direct competitors of stores already existing in the mall? Should the space be rented for something other than a retail outlet? If so, what? Assume you are a retail analyst and write a report to the mall�s landlord outlining your findings. Share your report with the class. 3. Eaton�s had many stores in the downtown cores of Canadian cities. How will the closing of these stores affect the number of shoppers who visit downtown? Do you think the demise of the downtown core was inevitable considering the predominance of malls in Canada? Do you agree with the plans of Thunder Bay and Guelph to bring entertainment or recreational sites to the downtown core instead of different retailers? 4. As a class discuss your feelings about the Americanization of the Canadian retail scene and Canadian culture. It what ways does our retail market define and sustain Canadian culture? What is uniquely Canadian in our retail marketplace? What is almost identical to the U.S. marketplace? Does the Americanization trend worry you, as it worries The Globe and Mail reader quoted above, or do you welcome the increased competition? How does increased competition strengthen or weaken retailing in Canada or anywhere else?
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
In a recent survey sponsored by the accounting firm Grant Thornton, 276 Canadian family-run businesses were asked if company leadership would be passed down through the family ranks. Only 16 percent of the leaders of the firms included in the survey planned to pick a successor from among family members. As many entrepreneurs in Canada move closer to retirement age, the issue of succession has become a major area of concern. Don Emerson, a partner at Grant Thornton, was quoted in The Globe and Mail as saying, �It�s probably the most agonizing issue for family businesses�the question of who takes over next. It�s a huge source of conflict.� To mitigate this conflict, many family businesses are turning to succession planners to help with the transition. Recently, succession concerns have become even more relevant to those heading up family-run businesses as a result of several high-profile cases of families and family businesses being divided because of issues surrounding succession. As you read about the Eatons and the McCains, list some of the issues that succession planners might face when trying to help a family decide who will lead the business into the next century.
Who�s Minding the Store? Eaton�s, the 130-year-old retail chain, was started in 1869 by Timothy Eaton, an austere, teetotalling emigrant from Ulster,
Ireland. After operating a similar, smaller business with his brother James in 1856 in Kirkton near St. Mary�s, Ontario (the J. and T. Eaton General Store), he opened a dry-goods store at the corner of Yonge and Queen streets in Toronto and was soon very successful, owing to a lot of hard work and his customer service policy of �Satisfaction guaranteed or your money refunded.� On his death, his son John Craig Eaton took over the retail empire, which now employed over 9000 people and had stores as far away as Winnipeg. Although John was more flamboyant than his father he was still a good businessman and was best known for sponsoring the first Santa Claus parade in 1905 in Toronto and then in Winnipeg. Unfortunately, in 1922, �Sir John� died prematurely at the age of 46. At the time, his oldest son was only 19 years old, and a void was left in the line of succession. Robert Young Eaton, a nephew, stepped in and ran the company for 20 years until the rightful heir, John David Eaton was ready to take over in 1942. John David Eaton was described by a relative as �the best of a bad lot� but he was quite inactive in the running of the family business. As related by Rod McQueen in his book The Eatons: The Rise and Fall of Canada�s Royal Family, John D. was an alcoholic who spent most of his time on his yacht moored in Vancouver. He was often absent from his duties as president of Eaton�s and his duties as a father of his four boys�John Craig, Fredrick, Thor, and George. The day-to-day running of the store was left to an executive committee, and during the 1960s and early 1970s John D. hired outside management to run the empire. Upon his death in 1973, the company�s ownership and decision-making power was left equally to his four sons. John Craig, the oldest son, had the title of chairman, but rarely made appearances at the company�s head office in the Toronto Eaton Centre. He developed a reputation as a playboy and party animal who flunked out of Harvard and married three times. The second son, Fredrick was president of the company from 1977 to 1988. During that time the profit levels of the retail chain steadily decreased, prompting him to try to cut expenses. One of the most infamous of his cuts was to end Eaton�s sponsorship of the Santa Claus parade in 1982. Although this saved the company money, it alienated many long-term customers who grew up watching the parade every Christmas. In 1988, Fredrick, bored with the running of the store, accepted an appointment from then-prime minister Brian Mulroney as Canada�s High Commissioner to the United Kingdom. The leadership of Eaton�s was passed on to his brother George, a former race car driver. During the decade of his reign as CEO of Eaton�s, George made some
disastrous policy decisions such as replacing the numerous traditional store-wide sales, such as Eaton�s yearly Trans Canada Sale with �everyday low prices.� He and the store also failed to adapt to the new retailing reality of Canada, one dictated by the advent of foreign retailers like Wal-Mart. Many Eaton�s employees are angry at the lacklustre and often non-existent leadership of the brothers.
Frozen Food, Family Feud Another family business that has played a major role in the Canadian economy is McCain Foods Limited, the French fries giant located in Florenceville, New Brunswick. During the last decade, Canadians have witnessed a family feud that has divided the McCain clan and serves as an example of the extent to which family business affairs can subvert family solidarity. Started by Harrison McCain and his younger brother Wallace with support from their brothers Andrew and Robert, McCain Foods Limited began producing frozen French fries in a small factory in January 1957. That year the company�s 30 employees produced about 1500 pounds of the packaged food an hour and earned sales of $152 678. By 1998, the company had more than 12 500 employees working in more than 55 plants in 11 countries. Annual sales in 1998 reached the $5-billion mark. They have since expanded their business to include such food items as pizza and juice, and such non-food subsidiaries as a trucking division and a national courier company. In the early 1990s problems started when brothers Harrison and Wallace initiated discussion on who would succeed them in running the business. Each owned 33.5 per cent of the company shares and each had an equal vote in the direction the company was going to take. Wallace wanted his son Michael, then in his 30s, to take over the business, while Harrison wanted to appoint someone outside of the company to run the business. With discussion at an impasse, the brothers went to court. A New Brunswick arbitration court sided with Harrison, and in 1993 Wallace was ousted as co-chief executive, and leadership of McCain Foods Ltd. went solely to Harrison. Wallace and his son Michael moved to Toronto and purchased Maple Leaf Foods, a meat-packing giant. Although Harrison maintains that he is continually in contact with his brother and that there are no hard feelings, he admits that the whole process was �painful, very painful.� Although Harrison is now 70 years old he still actively runs the company and has remained silent about who is in line to succeed him when he finally decides to retire.
Discussion Questions
1. The survey of Canadian family-run businesses on the issue of succession found that the current owners have two major worries. The first is that the children may not have the expertise or aptitude needed to run a large company and that the company and the family�s future wealth could be at stake. The second is that the transition may create a lot of conflict and cause the family to be torn apart. On the other hand, by hiring outside management, many current owners are afraid that the non-family executives will change the way the business is run and that core values held by the family will no longer be maintained. With this in mind, explain how the case studies of the Eatons and McCains illustrate the problems of succession. In what ways is each case unique?
2. It is easy to confuse the concepts of leadership and ownership. How do they differ and how are they related? By losing the leadership of McCain Foods Ltd. did Wallace McCain also lose ownership? Explain your answer carefully.
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
On August 20, 1999, Eaton�s announced that it was filing a �proposal to creditors� under the Bankruptcy and Insolvency Act. The prestigious place that Eaton�s held in Canadian social history and the impact that the store closings will have on approximately 13 500 employees made this a major news story. Unfortunately, it is not a unique story. In the first five months of 1999 alone, Canada had over 4000 businesses file for bankruptcy. Although the facts of each of these cases were different, the steps followed were for the most part the same.
Filing for Bankruptcy Technically, Eaton�s has not filed for bankruptcy at the time of this writing, but rather has filed a �proposal to creditors.� Under these terms, Eaton�s has 30 days to file a proposal under bankruptcy that must be approved by its creditors. Hap Stephen, Eaton�s chief financial officer, is currently in discussions with a number of these creditors but has kept the details of such negotiations confidential. In cases where the proposal to the creditors is defeated, a company could be placed into bankruptcy. A company could also be placed into bankruptcy if (a) a creditor petitions the courts to place the company into bankruptcy; (b) the directors assign the company into bankruptcy; or (c) if the proposal to creditors is annulled for non-compliance. Regardless of the terms, Eaton�s found itself in the position where it had to liquidate its assets and pay off its
creditors.
Order of Payment In the case of a bankruptcy, the priority order in which creditors are paid is as follows:
1. Secured Creditors The �secured� creditors of a company have first rights to the company�s assets upon liquidation. Only after they have been paid out fully can the �unsecured� creditors receive any payment. Usually the largest secured creditors are the banks or lending institutions that have financed the company. In the case of Eaton�s, just over $200-million is owed to secured creditors, the bulk of which is owed to a U.S. banking syndicate ($181.6-million). Other secured creditors would be landlords (lease obligations) and the Government of Canada (payroll deductions).
2. Contingent Secured Creditors and Preferred Creditors These two groups are only paid if the secured creditors have received all of their money; they will not receive any money if there is nothing left over. However, the secured creditors have agreed to allow back-wages to be paid to employees. In the case of Eaton�s, Norwest Financial is a contingent secured creditor and is currently owed $42-million by Eaton�s. The preferred creditors are the employees of Eaton�s who are currently owed almost $8-million in accrued wages and vacation pay. Under the Eaton�s proposal, however, the employees who will be laid off once the store closes are guaranteed their back wages and vacation pay. It is unlikely, however, that these employees will receive any severance packages. In addition, employees who have tried to tap into their benefit packages since the August 20th announcement have found their dental and prescription plans discontinued. Fortunately for many of the long-term employees, the employee pension plans are not held directly by the company.
3. Unsecured Creditors Eaton�s has approximately $78.5-million in outstanding debts to its unsecured creditors. Accounting for almost half of this total is the amount owing to merchandise suppliers ($37.2-million). The biggest potential losers are Tommy Hilfiger ($2.8-million), Jones New York ($2.1-million), Polo Ralph Lauren ($879 000), Parfums Christian Dior Canada ($825 000) and Lancôme Canada ($628 000). Besides the merchandise suppliers, the largest unsecured creditors are the federal and provincial governments who are owed money for the GST and PST collected from customers.
4. Preferred and Common Shareholders Only after all other creditors have been paid will any of the remaining money be divided between preferred and common shareholders. When this occurs the preferred shareholders are always paid first. It is unlikely in the case of Eaton�s that there will be enough money at the end of the liquidation period to pay out the shareholders. Shareholders realized this and many sold their shares before the Toronto Stock Exchange suspended trading of the Eaton�s shares on August 23, 1999. At that time, share prices had dropped to a low of 40 cents a share, a major decline considering that shares were trading at $15 a share in June 1998.
Follow-up Discussion and Activities 1. A �secured creditor� means that the creditor, upon lending money to a company, requires the company to provide collateral. What does this mean? Research a definition of the word collateral. Why do you think a bank would require collateral when lending money to a customer?
2. Do you agree with the order in which creditors are paid out? Why, or why not?
3. As mentioned above, there were over 4000 corporate bankruptcies filed in the first five months of 1999 in Canada. For the provincial breakdown of those figures visit the Office of the Superintendent of Bankruptcy Web site at http://strategis.ic.gc.ca. What areas in Canada had the highest number of bankruptcies? How does the number of bankruptcies in 1999 compare to previous years? Track the statistics for the last 10 years. Which year had the highest level of bankruptcies? Suggest reasons for this.
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
1. The Eaton�s catalogue holds a major place in the history of Canada and the hearts of Canadians. Understanding the significance of the catalogue to Canadian social history, the Eaton�s Company allowed for some of the catalogues from the 1920s and 1930s to be republished in book form. Go to your local library to find a copy of one of these catalogues. Using the catalogue as a guide, research how Canadian life at that time was different from today. You may want to look at issues such as inflation, changes in technology, the role of women, the use of language, or changes in the demographics of Canada. How do the old Eaton�s catalogues give us insight into each of these areas?
2. Many blame the fate of the Eaton�s empire on the performance of the four Eaton boys who took over the business in the 1970s. Succession is a major issue in Canada where many of the largest and most famous companies are family owned and operated. Research how one or all of the following families are dealing with, or have dealt with, the issue of succession: the Bronfmans, the Irvings, the Steinbergs, the Schneiders, or the Bombardiers. What is the current financial state of affairs of each of these companies?
3. Make a list of your family�s shopping and entertainment habits for a week. Compare your list with that of other students. What
are the five stores or services that your family shops at or uses the most? What percentage of these stores or services are relative newcomers to the Canadian retail marketplace? What percentage of these stores or services are American?
4. To further examine the decline of the downtown core in most North American cities, locate �Television and the Consumer� in the CBC educational series Inside the Box. The video and resource guide, which are based on the book The Malling of America: An Inside Look at the Great Consumer Paradise by William Severini Kowinski, may be available through your school or public library media collection. Summarize in written form the arguments for or against the mega-mall.
5. One Canadian company that has successfully competed against Wal-Mart, the new giant on the discount store block, is Zellers. From your own experience, suggest what innovative programs or products they have introduced to maintain consumer loyalty. Alternatively, research how Canadian Tire has maintained its customers despite the threat posed by superstores like Home Depot. 6. Read The Eatons: The Rise and Fall of Canada�s Royal Family by Rod McQueen. What reasons does he give for the fall of the Eaton�s empire? Do you agree with his analysis? Give an oral presentation of the book to the class.
7. Why would Sears Canada buy five downtown Eaton�s stores and operate them under the Eaton�s name and with Eaton's brand names? Suggest why the Eaton�s name might have substantial marketability. In your opinion, will these refurbished stores really be Eaton�s stores? What exactly is Sears buying?
Introduction Mythology and Merchandising The Changing Retail Environment All In The Family? The Basics of Bankruptcy Discussion, Research, and Essay Questions
