Target's leaving Canada. How will suppliers respond?

Posted by Kimberly Presnail on Jan 23, 2015 11:38:00 AM

Find me on:

The Canadian retail space was given a wake-up call early this year, with a number of key players closing shop. Target Canada is clearly the most talked about departure, with a write-off estimated at over $5.4 billion, and 133 Canadian retail locations that will likely be closed within 16 to 20 weeks, leaving over 17,000 associates unemployed.

The many speculations of why have flooded the market – a failed supply chain, overly ambitious market entry, the importance of tailoring to the local market, poor real estate locations, strength of competitive market, and more. Of the many lessons to be learned, one rings especially true: be true to your brand and deliver on its promises.

The impact to Target’s Suppliers

By now we all know of the impact to employees, the labour market, and the retail market, but what about to the product suppliers?  What about the brands that were on Target’s shelves (albeit either too many or too few) - how does Target’s departure ripple through the Canadian consumer packaged goods supply chain?

“This will impact each and every Target supplier to some degree.  With 133 stores across Canada, it is a significant disruption to the marketplace that will reverberate through the supply chain and effect brand budgets for FY15.”  says Michael Villeneuve, Group VP Active International, a corporate trade organization that specializes in recovering asset write-downs, by allowing companies to leverage the full value of their inventory to fund other business expenses, such as corporate travel or media.

IGD’s Retail Analysys states “Target’s competitors did a brilliant defensive job. Walmart, Loblaw, Shoppers Drug Mart, Canadian Tire, and a host of general merchandise retailers focused on improving their store operations, offered better pricing and brought in new ranges.” 

There is of course opportunity within their broader distribution base to absorb some of the overhang.

“Canadian Tire has the bigger category overlaps with existing Target stores, for products such as household essentials and small kitchen appliances.” says Colum McKinley, vice-president of Canadian equities at CIBC Asset Management 

Peter Sklar, analyst at BMO Nesbitt Burns said the only retailers who will potentially benefit from Target’s exit include Loblaw’s Joe Fresh apparel line and pharmacy and grocery retailers in the health and beauty aids category. 

A bargaining tool for remaining retailers 

Whichever way the market share goes, Canadian retailers will certainly capitalize on the opportunity as a bargaining tool, and suppliers can use it as an opportunity to strengthen their partnership.

“Retailers may persuade suppliers to shift their planned Target spends to their business in hopes of gaining back more than their fair share of POS, “ says Michael Villeneuve of Active International,  “ Strategies such as this will provide opportunities for suppliers to step up, once again, to demonstrate their undying loyalty and support to 'the big guys'.”

Tackling the excess inventory

Inevitably, many suppliers will be left with an asset problem through 2015. Although most manufacturers will attempt to absorb their Target forecasts into the balance of their customer base, recovering the loss entirely will be a challenge.

“With orders being cancelled companies from technology to baby goods, these suppliers are going to need new distribution channels in an already shrinking liquidation market.” comments Nikki Stone VP Business Development with Active International, “Further, the Canadian liquidation market is shrinking dramatically with closures of key players such as Big lots, Liquidation World and XS Cargo. The array of viable domestic buyers has never been so limited, and why tier 3 planning is critical.”

Seasonal manufacturers to be hardest hit

“This will be the case for all seasonal manufacturers as their customers commit to forecasts many months in advance in order to source materials and achieve the best pricing – typically overseas.”  adds Michael Villeneuve

Seasonal manufacturers will be especially challenged, as they likely have forecasted for bumps during peak holidays.  Seasonal manufacturers should be prepared for impending mark downs and write-offs by considering new and alternative strategies to minimize and/or recover the write-downs and write-offs.

A break from price breaks?

“We are sorry to see a competitor leave the Canadian marketplace as we believe competition is ultimately good for customers,” said Andrew Pelletier, Walmart Canada’s vice-president of corporate affairs and sustainability.

“It’s always sad to see job loss. We are always looking for great talent and we would welcome applications from those who are interested in joining Walmart,” he said to The Star when asked about helping unemployed Target workers.  

Although all of the remaining big box retailers have issued empathetic statements towards the thousands of workers affected by the closure, they are also likely breathing a sigh of relief, knowing they are under less pressure to reduce prices.



by Kimberly Presnail, VP of Marketing & Culture at Active International 

Topics: Risk Management, Supply Chain Management (SCM), Inventory Turnover & Closeouts


Other Topics

see all