Chanel is pulling its high-profile fragrance products from Sears Canada Inc. stores amid an escalating battle over the department store retailer's efforts to claim a share of suppliers' savings from the strong Canadian dollar.
Chanel, whose Chanel No. 5 fragrance is a top draw for customers, is among a growing number of Sears suppliers trying to resist the retailer's push to reduct payments to them because of the strong currency.
Sears spokesman Vincent Power confirmed Chanel will stop shipping products to the retailer, saying the retailer's discussions with its suppliers over the value of the dollar are aimed at lowering prices for Canadian consumers.
"We feel Sears' role is to advocate for the customer with suppliers for lower pricing," Mr. Power said in an e-mail. "We hope suppliers will agree with our request; that may not always happen. Our goal is to engage with suppliers in meaningful discussions that result in benefits for them and our customers."
Mr. Power said Chanel's leaving was a mutual decision. Chanel Canada president Guy Schreiber had no comment "for the moment," his assistant said. Industry sources said that its decision takes effect on Sept. 30.
Sears' bid to collect millions of dollars from its suppliers underlines retailers' increasingly aggressive efforts to squeeze more from their vendors to help improve profit margins in an increasingly competitive merchandising landscape. They're taking a page from the playbook of discount titan Wal-Mart in pressing suppliers for better deals.
Earlier this year Sears clashed with suppliers amid a surging Canadian dollar, and the retailer took the unusual step of notifying some vendors that their payments were being retroactively reduced. Suppliers who buy goods in U.S. dollars and sell them to Canadian merchants for Canadian currency were making greater profits, and Sears was demanding a better deal.
"This process of trying to get clawbacks or anything else is only going to continue - it's not going to stop," predicted Randy Harris, president of market researcher Trendex North America. "You're going to get every six months a new version."
Other suppliers are considering halting shipments to Sears in a bid to pressure it to drop its demands. Some stopped deliveries but started again after Sears shelved the matter, sources said.
"In four or five cases, people told me they will not ship to Sears until the matter is resolved," said David Schachter, president of the National Apparel Bureau, which represents fashion suppliers. "The anger level of people who had money deducted is certainly increasing."
Mr. Harris tied Sears' aggressive stance to its U.S.-based parent and its controlling shareholder, hedge fund manager Edward Lampert. Mr. Lampert is pushing the Canadian division to generate more profit margins, which is forcing it to squeeze its suppliers more, Mr. Harris said. Sears Canada is also depending less on national brand apparel suppliers as it shifts to more private labels, he said.
Mr. Lampert recently took more control of the Canadian unit. The U.S. parent bought out a major shareholder, giving it a 90 per cent stake in the Canadian business. In June, it paid its first dividend to shareholders in almost three years, with most of the $377-million payout landing in the parent's coffers. At the same time, it reported weak quarterly results, citing the strong Canadian dollar that spurred cross-border shopping.
Sears' demands for retroactive currency payments have raised eyebrows in the industry because they're tied to contracts that are already signed and products delivered. Mr. Harris predicted that rival the Bay, owned by Hudson's Bay Co., and Shoppers Drug Mart Corp., will cash in from Chanel leaving Sears because they both stock Chanel products.
"Absolutely there would be a benefit to the Bay," said Brenda Yeomans, a general merchandise manager at the Bay.
"One of our key strategies is to have exclusive and differentiated brands. That really just gives us an opportunity to further pursue that strategy."
Still, even HBC, which runs the Bay and Zellers, took a cue from Sears' tactics with its suppliers. HBC warned its suppliers in May that they risked losing its business if they don't match the improved terms that they may offer to Sears.