By  on September 21, 2007

MONTREAL — Sears Canada is seeking retroactive rebates from 2005 to August 2007 from suppliers due to the strengthening Canadian dollar, a move the apparel industry is calling unacceptable.

The retailer also plans to knock off 5.5 percent on existing orders after a set date this month or next.

In a memo sent to suppliers on Aug. 24, a copy of which was obtained by WWD, Idalia Farrajota, vice president of merchandising, wrote that Sears Canada was experiencing "increased pressure from its key retail competitors that have been obtaining cost benefits from offshore productivities and the strong Canadian dollar."

She pointed out that the Canadian dollar has appreciated 46.6 percent in the last four-and-a-half years against the U.S. dollar used to purchase overseas merchandise, and "our competition has either passed this on to customers or used the increased profitability to fund expansion. This competitive disadvantage represents a loss of business to both Sears and yourselves, as Sears is not sharing in industry cost relief."

As a result, "Sears Canada is now requesting a retroactive lump sum payment...and will be creating an incremental allowance of 5.52 percent on all commerce made with your company after aligned dates."

Bob Kirke, executive director of the Ottawa-based Canadian Apparel Federation, said such a demand is breaking a contract, since the retailer has vendor agreements with all its suppliers that contain no provisions for any adjustments. For some suppliers, the lump sum payments could be worth up to $400,000.

"You can't push on retroactive stuff, and as for current production, it could end up in court if vendors feel strongly enough about it," Kirke said.

In a letter of response to Farrajota, Kirke noted the demand for compensation also applied to domestic producers that didn't benefit from reduced costs of imported merchandise. He also challenged Sears' position that "vendors have enjoyed significant gains simply on the exchange affect," which he said was incorrect.

"Firms hedge their currency position in order to ensure that they are able to meet their obligations to Sears and its customers," he said.

In a reply to his letter, Sears told Kirke the store wanted to deal directly with vendors on a one-to-one basis.Sears Canada did not return phone calls seeking comment.

David Schachter, director of the Canadian Apparel Credit Bureau here, wrote Farrajota on Sept. 11 asking her "to rescind this notice and to cease all efforts to collect this relief."

Kirke said Wal-Mart Canada and Hudson's Bay Co. and its Zellers discount division tried the same thing within the last two years, but were unsuccessful.

He suggested Sears Canada likely is being pressured by its U.S. owner to improve its margins and thinks Sears Canada "wants more discounts going forward."

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