Sears Canada failure creates winners, losers
Competitors stand to gain, while suppliers will lose out
The list of suppliers left in the lurch by the Sears Canada insolvency reads like a who’s who of retail and it circles the globe.
It has debts to businesses in Shanghai, Hong Kong, Gazipur, Bangladesh, Gurgaon, India, New Jersey, Ohio and Mont-Laurier, Quebec.
It owes money to small contractors and conglomerates: Canada Post, Coca-Cola, Clinique, Crocs Canada, Google Inc. and Upper Canada Soap and Candle. It owes Adidas Canada $871, 537. It owes Barbara Engram of Milltown, NL $1,134. Dican Enterprises, of Brampton, which supplied forklift parts to a Sears warehouse in Vaughan, is owed $17,000.
“I think it’s a lot of money for anybody in soft times,” said owner Sayed Mohammed, who is waiting to see what kind of settlement he’ll get after the liquidation sales are done and the money from asset sales is distributed to creditors. He had been supplying Sears since 1995.
“Like anything else, when you have a big account and things like this happen, you tend to feel it.”
For more than 27 years, Toronto based Ahearn & Soper Inc. supplied Sears with inventory management tools, from warehouse automation products to printers, mobile scanners and labels. While Ahearn sometimes did as much as $500,000 a year in business with Sears, in recent years it was closer to $250,000, said Danny Di Marco, Ahearn’s VP of finance and chief financial officer.
“We basically saw the writing on the wall. We scaled back the terms and the amount of credit we gave them,” said Di Marco.
Ahearn is owned $53,020, and Di Marco is not sure how much it will be able to recover. The bigger concern is how long it will take to replace the lost income.
“To find another customer like Sears, who was loyal and bought as much product as they bought from us is not an easy task,” said Di Marco.
Sears is not the retailer it once was, employing 41,000 people and doing $6.7 billion in sales, but the effects of the insolvency will ripple far and wide, according to experts.
If the liquidation plan is approved in court on Friday, about 12,000 people will be out of work by the time all the Sears locations across Canada are closed between Oct. 19 and Christmas, including 74 full-line department stores, eight Sears Home stores and 49 Hometown stores.
Malls will be faced yet again with the task of filling in empty spaces left by a prominent retailer, a little more than two years after discount depart- ment store retailer Target decamped following a failed launch in Canada.
When Target closed its 133 Canadian stores in the spring of 2015, Walmart was expanding its grocery superstore concept in Canada and swooped in to buy 13 of the Target leases. Lowe’s Canada and Canadian Tire bought about a dozen each. There isn’t the same demand for retail real estate today.
Not all of the effects will be negative. The liquidation sales at Sears during the holiday season may attract customers who would otherwise be shopping at Costco, Walmart and Hudson’s Bay, said retail consul- tant Ed Strapagiel.
But the effect will be temporary. In the long term those same merchants stand to gain market share as they fill the space left by Sears Canada, which did $2.6 billion in sales in 2016.
Apparel retail consultant Randy Harris said that in the apparel sector, Hudson’s Bay, Winner’s and Marshall’s stand to benefit the most. Reitman’s may also pick up sales.
“If you kind of think of who goes to Sears, these people aren’t going to all of a sudden turn around and go to Nordstrom’s — a lot of them are on fixed incomes,” said Harris.
Retailers in the home improve- ment sector stand to benefit too, according to Michael McLarney, founder and editor of Hardlines, an industry trade magazine.
“There’s no question that Home Depot and Lowe’s Canada have that appliance business squarely in their sites, and in the smaller markets, Home Hardware,” said McLarney.
The difference between the Sears’ and Target’s insolvency is that most suppliers this time around had an idea it was coming, said Lou Brzezinski, a partner in Blaney McMurtry’s commercial litigation group.
“Sears caught nobody by surprise and Target caught everybody by surprise,” said Brzezinski.
Many Sears suppliers purchased insurance against just such a thing happening although not all of them could afford it or thought it was worth the money.
“It’s a significant amount of money off the bottom line,” said Brzezinski.
Target creditors got more than 80 cents on the dollar for monies owed, said Brzezinski, which is almost unheard of. Currently some Sears creditors are selling what they are owed for about 30 cents on the dollar.
The difference is that Target Canada’s debt was held by its parent corporation in the U.S., and it decided to subordinate its claim, allowing other creditors to be paid first, said Brzezinski.
That’s not the case with Sears.