Sears' downfall would drastically affect the economy
Sears Canada's bankruptcy has left a reprehensible trail of suppliers who are currently taken aback by the retail company’s ill-fated situation—this just goes to show the immense tussle to stay afloat in the retail world.The retail company are nose deep in debts—with businesses in major cities such as Shanghai, Hong Kong, Gazipur, Bangladesh, Gurgaon, India, New Jersey, Ohio and Mont-Laurier, Quebec.
There's a long list of small contractors and conglomerates that the company is indebted to. Companies like Coca Cola, Canada Post, Clinique, Google Inc., Crocs Canada, and Upper Canada Soap and Candle. It owes $871,537 to Adidas Canada Ltd., $1,134 to Barbara Engram of Milltown, NL. Even forklift suppliers for Sears's Vaughan warehouse—Dican Enterprises, Brampton, is owed $17,000.Sayed Mohammed, a Sears supplier since 1995 said: “I think it’s a lot of money for anybody in soft times,”
Mohammed—like most suppliers, is patiently waiting to see what kind of settlement he’ll get after the liquidation sales are completely and the money from asset sales is distributed to the numerous creditors.“Like anything else, when you have a big account and things like this happen, you tend to feel it.”
Danny Di Marco, the vice-president of finance and chief financial officer of Toronto based Ahearn & Soper Inc., said that the company has been a major supplier of inventory management tools, ranging from printers, to warehouse automation products, mobile scanner, and labels to Sears for over 27 years.
He said Ahearn completed deals with Sears as high as $500,000 per year, but later experienced losses in more recent years as it reduced to about $250,000.
“We basically saw the writing on the wall. We scaled back the terms and the amount of credit we gave them,” said Di Marco.
Di Marco is unsure if Ahearn would be able to recover a substantial amount of the $53,020 being owed to them. He said he's worried about how the company is expected to fill up the gap in their income left by Sears. “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.
Experts say that the current situation surrounding Sears' collapse would drastically affect the economy; as the retailer who had a labour force of 41,000 people and sales revenues as high as $6.7 billion, is entangled in debts.
The liquidation plan would cause 12,000 people to be out of their jobs, as Sears locations across Canada would be closed between October 19 and Christmas. The court is bound to approve this on Friday, and 74 full-line department stores, eight Sears Home stores and 49 Hometown stores would be affected.
The ripple effect would spread to the malls housing these retail stores, as they'll be battling to fill up the vacuum left by a prominent retailer—just slightly over two years after Target decamped after an unsuccessful launch in Canada.
“The ‘B’ malls are going to have a tough time,” said retail consultant Ed Strapagiel.
The demands for retail real estate has dropped drastically, unlike when Target closed its 133 Canadian stores in 2015 and had Walmart, Lowe's Canada and Canadian Tire buying a couple of the leases.
The liquidation sales at Sears might have a positive effect during the holiday season, as it’s bound to attract customers who might have chosen to shop at Costco, Walmart and Hudson’s Bay, said Strapagiel.The effect is bound to last only for a moment, as other merchants stand to gain a lot of market share filling up the void left by Sears Canada—who made $2.6 billion in sales in 2016.
Randy Harris, an apparel consultant said that Hudson’s Bay, Winner’s and Marshall’s are poised to be the biggest "winners" in the apparel sector—with Reitman also experiencing an increase in 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, president of Trendex North America and publisher of the industry newsletter Canadian Apparel Insights.
Founder and editor of Hardlines trade magazine, Michael McLarney lent his voice too, saying that beneficiaries would also include retailers in the home improvement sector.
“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.
“Sears caught nobody by surprise and Target caught everybody by surprise.” said Brzezinsk—a partner in Blaney McMurty's commercial litigation group, citing the difference between Sears' bankruptcy and that of Target's.
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,
This was quite surprising considering some Sears creditors are currently selling what they are owned 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.Sears though are in a much different situation.