Target’s exit leaves suppliers and pharmacists with debts and doubt, Marina Strauss

…already mobilizing to push the company for a better deal. They formed an association to fight Target, charging on a website they created that their pharmacy franchise operations were “a failed business model for pharmacy franchisees.” Target was “forcing franchisees to continue to bleed money, while giving periodic financial injections to stay alive and knowing that one of the only ways out is by declaring bankruptcy,” the pharmacists said on the PFAC.ca site. The pharmacists’ message in 2014 was eerily prescient.

The Globe and Mail
January 23, 2015

Target’s exit leaves suppliers and pharmacists with debts and doubt
Marina Strauss

Target%20pharmacy4.jpg

A Target store in Saint-Eustache, Que., is shown on Thursday, Jan. 15, 2015. (Ryan Remiorz/THE CANADIAN PRESS)

When U.S. retailer Target Corp. this month announced its decision to exit Canada, the shocking news reverberated across the country. Just two years into its major cross-border expansion, the company was suddenly calling it quits.

To some who did business with Target Canada, however, the company’s misguided strategies and financial pain were evident early on. Long before the retailer pulled the plug, Target had created rifts with pharmacists, suppliers and other stakeholders, often steamrolling along without seeking input, industry insiders say.

Among the first to feel the pinch were Target’s franchised pharmacists. They had each sunk more than $50,000 into inventory to team up with the retailer for its much-touted arrival in 2013, encouraged by projections of high-volume prescription sales and heavy shopper traffic.

But about a year after Target’s launch in the spring of 2013, some struggling Target pharmacists, grappling with lower-than-expected revenues, were already mobilizing to push the company for a better deal. They formed an association to fight Target, charging on a website they created that their pharmacy franchise operations were “a failed business model for pharmacy franchisees.”

Target was “forcing franchisees to continue to bleed money, while giving periodic financial injections to stay alive and knowing that one of the only ways out is by declaring bankruptcy,” the pharmacists said on the PFAC.ca site.

The pharmacists’ message in 2014 was eerily prescient. Last week, Target Canada sought bankruptcy-court protection from creditors and is now moving swiftly to close its 133 stores by May, letting go 17,600 employees. Despite $7-billion of investments in its operation here, Target couldn’t see a path to profit until 2021.

The grim outlook was partly formed during an executive visit to the Canadian stores. On the weekend before Christmas, typically the busiest shopping days of the year, Target Corp.’s new chief executive officer, Brian Cornell, visited several stores in Ontario and Quebec. Strolling the aisles, he found “not as much traffic as we would have expected,” a company source said.

But Target’s pharmacists, suppliers and other stakeholders had felt cracks in the operations long before Mr. Cornell’s pre-Christmas store tour.

Even so, the company’s abrupt decision to stage a wholesale retreat from Canada remains a mystery to some, who thought Target was slowly starting to turn a corner. Some suppliers said that in the month leading up to the chain’s Jan. 15 bankruptcy-protection filing, they received merchandise orders from Target that were considerably larger than previous ones in 2014.

“They were really starting to get it together,” said Gary Grundman, president of Garbo Group Inc. in Toronto, which supplied private-label fashion accessories, such as jewellery and scarves, to Target Canada. Garbo is owed $39,160. “I think there is a back story here that we don’t know about.”

Santo Fata, vice-president of Sager Food Products Inc. in Montreal, which is owed more than $11,000 – he calculates $16,000 – said he was finally beginning to see “wonderful” sales numbers of its cooking oils at Target by late November, receiving its last order the day before the filing.

The inventory orders “were steady, regular and getting larger,” Mr. Fata said. “We were happy.”

Now some suppliers owed hundreds of thousands of dollars are considering ways they can force Target to return their unsold goods that were shipped within 30 days of the filing – rather than have the inventory be included in the chain’s liquidation sales.

The vendors would have had the right to try to reclaim unsold merchandise that had been delivered 30 days before the filing had Target filed for protection under the Bankruptcy and Insolvency Act, said Ivan Bern, a lawyer for Elfe Juvenile Products in Montreal, which is listed as owed $38,294. (Mr. Bern says the debt is $147,758). But instead, Target filed under the Companies’ Creditors Arrangement Act, which doesn’t have the 30-day goods provision.

Target spokesman Eric Hausman said this week its Canadian team “was operating the business as normal until the day of the announcement” of the filing. Mr. Cornell and other Target executives weren’t available for interviews.

From the start, Target was plagued with supply chain problems that often left its store shelves empty, while it grappled with customer complaints of high prices. “We missed the mark from the beginning by taking on too much too fast,” Mr. Cornell said last week.

He said the retailer had “undertaken a massive effort” to ensure that it entered the crucial holiday season with levels of stock that were at “an all-time high.” But Target didn’t see as much of an improvement during the holiday season as it had been seeking, he said.

While wrestling with its supply challenges, Target also faced increasingly disgruntled franchised pharmacists, many of whom were struggling with mounting losses. They initially had been assured by Target that the stores would enjoy heavy traffic, which they counted on for a healthy prescription business. But by the spring of 2014, some Target pharmacists had formed the Pharmacy Franchisee Association of Canada to take on Target.

By the end of 2013, Target had agreed to provide ailing franchised pharmacists with annual payments of up to $110,000, a source familiar with the situation said.

However, “only some received this while others who were in a similar or worse financial situation did not receive anything,” said Stavros Steve Gavrilidis, a Target pharmacist in Windsor, Ont., and PFAC’s acting secretary.

Now many of the Target pharmacists face an uncertain future. Other drugstore retailers aren’t generally rushing to pick up Target prescription lists, suggested Clint Mahlman, chief operating officer of London Drugs Ltd. of Richmond, B.C.

Not many Target pharmacists have lucrative lists of prescription customers because they didn’t have the two to three years usually needed to build them up, he said.

Target typically shared little sales information with suppliers about how business was going, Garbo Group’s Mr. Grundman said. “They didn’t really take advantage of the knowledge in the market. … They just came in here with a preconceived idea of how they were going to land and market in this country.” Still, suppliers were starting to see improvements in recent months, Mr. Grundman said.

And not all creditors see the Target experience as a disaster. Michael Budman, co-owner of fashion chain Roots Canada Ltd., said it successfully re-ignited the Beaver Canoe line, which generated strong sales at Target. Now Roots, which is owed $433,248 in royalties, will “assess all our options” for selling the brand elsewhere.

Some industry observers said Mr. Cornell may have had little upside in hanging on to Target Canada because the stumble would have quickly become part of his legacy with no quick fix in sight.

Sager Food’s Mr. Fata said he doesn’t blame Target for deciding to leave Canada given the anticipated long turnaround period.

“It was a little shocking and disappointing,” Mr. Fata said. “But it’s a tough market.”

But Rick Chad, president of executive search firm Chad Management Group, said he helped recruit some executives for Target – plucking people from secure jobs – and found the retailer’s officials he dealt with “wouldn’t take anybody’s advice.”

“In my estimation, they threw in the towel too early,” Mr. Chad said. “I think they came in in a ridiculous way – they ran before they walked. Americans sometimes seem to think they know more about Canada when they come here than Canadians do.”

http://www.theglobeandmail.com/report-on-business/targets-exit-leaves-suppliers-and-pharmacists-with-debts-and-doubt/article22614003/


Brought to you by WikidFranchise.org

Risks: $50,000 Ontario Appeal award for one franchisee's pain and suffering, 95 per cent of legal fees are paid by franchisors, Activism over the internet, Advice from franchise lawyer only, Agree with proposed law or you get nothing, Anonymous: leaderless on-line resistance subculture, Appropriate franchise law, Arthur Wishart Act (Franchise Disclosure), 2000, Canada, Arthur Wishart Amendment Act (Franchise Disclosure), 2010, Canada, Attorney seeds the destruction of his own client's case, Bad faith and unfair dealings, Bank calls in debt, Bank won't finance deal because they know something you don't, Banks are industry cheerleaders, Big Franchising, Big Pharma, Blame themselves, Blocking for the industry, Blogs: most effective means to justice, Brand backlash: franchisees suffer because brand owners screw up, Breach of duty, Business model had never created adequate investor returns, Buying a job, Call for a public enquiry, Call for franchise law, Canada Small Business Financing program, Cannon fodder, Career Limiting Move, CLM, Caveat emptor canard, Class action only as good as the lawyers involved, Coerced waiver of punitive damages, Commercially reasonable exercise of discretion, Companies' Creditors Arrangement Act, CCAA, Contingency fees, Contracts seen as unenforceable or void, Courts extremely picky about shoddy disclosure practices, Credence good fraudulent expert, Credence goods: taking advantage of the innocents, Cruelest lies are often told in silence, Disclosure document must disclose all material facts, Dispute resolution means franchisee goes broke, Don’t owe your lawyer money, Don't use a brand name franchise lawyer, Down-and-dirty CCAA, Employees misclassified as franchisees or independent contractors, Exponential increase in franchise bar services ($ and influence), Externalities: cheap business decision when someone else pays, Fair dealings: treat assets as if they were their own, False assumptions, multiple, Federal insolvency laws used to shirk legal claims, Fee reduction always has a catch, Fee surprises at settlement time, First we kill the lawyers…, Franchise banker, Franchise bubble will crash much harder (non-franchised), Franchise bar: Serving those most able to pick up the tab, Franchisee consultant, Franchisee leader, Franchisee revolt, Franchisee-on-franchisee opportunism, Franchisees are practice clients that help keep the lights on until franchisor clients show up, Franchisees dragged into complex legal dispute their franchisor created, Franchisee, independent contractor or employee?, Franchising Opportunism paper, Franchisor abandonment, Franchisor controls both wholesale costs and retail prices, Franchisor insolvency, intentional, Franchisor knew they were selling money losing concepts, Franchisors want the minimum regulation they can get away with, Fraudulent non-disclosure, Frenzied lobbying, Futility of taking legal action, Good faith + fair dealings = false hope, Government guaranteed loans, Government guaranteed loans, abolish program, Government guaranteed loans used a great deal in franchising, Government guaranteed loans, massive loan defaults, Government guaranteed loans: program loses $1, franchisee families lose $10, Gripe sites, Hacktivists: internet social justice activists, Hates publicity, Harassment, Intimidation, Hope springs eternal in the hearts of the delusional, Ideas once outrageous are now considered normal, Imbalance of information and power, Immigrants as prey, Independent franchisee association, Independent franchisee association betrayal, Individuals with a very successful career history, Industry Canada, Insolvency laws need to protect franchisees as well, Insolvency strips employees' severance payments, Insolvency trustee, consultant and auditor same firm, Intentional franchisor insolvency creates huge fees for legal, accounting, consulting firms, Internet information sharing, Investors steered to specific attorney, Jealously guarded monopoly on the provision of legal services, Joint Employer: franchisor legally liable along with franchisee for labour violations, Knew or could have reasonably been expected to know, Lawsuits, individual, Lawyering up without 2nd opinion is a trap, Lawyers can serve franchisors or franchisees, never both, Leaderless Franchise Network, LFN, Leadership development, Lease obligations make franchisees pay even if not in business, Lender's due diligence not done properly, Lending duty, Lending duty never enforced via regulation or litigation, Lending is subject to expert fraud because it is a credence good service, Loan repudiation, Loser pays court costs, Material facts were not disclosed, Materially misleading information, McLaw: toothless legislation designed to protect the dominant parties, Ministry of Government and Consumer Services, Ontario, Mom-and-Pop franchisees at greatest risk, Money influencing public decision-making, Moral Hazard: a party insulated from risk behaves differently than if the full risk were present, Most lucrative form of commercial lending, franchising, Network effects: unintended consequences when dealing with communities, No real penalties for abuse of federal insolvency laws, Odious debts, Office of the Superintendent of Financial Institutions, Canada, Ombudsman for Banking Services and Investments, Canada, On Cooling the Mark Out (Erving Goffman), One franchisee turned against the other (action very difficult), Online reputation grows exponentially, Operating losses from Day 1, Opinions at odds with the Minister, Opportunism Test: If asset ownership were reversed, would decision likely change?, Overconfidence effect, Pawns in a game they can't win, Political champions, Predatory franchise lending, Privacy laws violated, Punitive, exemplary and/or aggravated damages, Regulatory capture breeds its own incompetence, Reputational risk, Restructuring legislation is deficient. Reverse onus on good faith and fair dealing, Right to associate and right to harass, Rules for Radicals: make them play by their own rules, Secured creditors (banks) 100% covered in dodgy insolvency, Settlement just covers fees, Shame - humiliation emotion, Sharecropping, Shareholder activism forces franchisor action, Sincere ignorance, Situationism psychology: people are influenced by external factors more than internal traits, Social media triggers unskilled franchisor reaction, Social proof: in new situations, you assume others know more so you follow their lead, Sophism: an argument used to deceive, Spouse can sue for losses also, Spouse dragged into negative investment, Spouse needs independent advice, State refuses to even listen, State sanction, Stores shuttered, Strategic lawsuit against public participation, SLAPP, Sub-prime lending practices done in franchising, Sue lender for failing to do their lender's due diligence, Sue the lawyer that created the disclosure document, Sunk Cost Fallacy: very hard to resist putting good money after bad, Sunshine is the best disinfectant, Suppliers and landlords act as if they were the franchisor, Symbiotic relationships (industry, banks, lawyers), Talk to former franchisees, Taxpayers end up paying for private gain, Test for franchisee, independent contractor or employee, The burned hand teaches best, The Fixer fixes for a hefty price, The key is to commit crimes so confusing that police feel too stupid to even write a crime report about them, Thin-skinned politicians not doing their duty, Threats against supporters of franchisee association, Trade association fronts and defends best and worst franchisors, Unskilled and unaware bias (Dunning–Kruger effect), Vacuum of information favours dominant party, Wage theft, Victims are highly intelligent and educated, War of attrition, What does the independent franchisee association say?, White-knight lawyer turns black, Who pays for the research?, Wiki: a franchisee-created wiki made from your franchisor's documents, Wives free to sue franchisor, Write a letter of complaint, Canada, 20150123 Targets exit

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License