Minnesota suppliers hit hard by Target's Canada collapse

When Target pulled the plug on its Canada operations, it created a financial ripple effect in Minnesota, and not just for the hundreds of people laid off last week at the Minneapolis headquarters.

The retailer's Canadian division filed for bankruptcy protection last month, and it owes millions of dollars to dozens of small and medium-sized businesses in the Twin Cities. Among them are Retail Merchandising Services of Maple Grove, which followed Target into Canada in 2011 to help the retailer expand north of the border.

"We hired and trained 200 employees across Canada," said Phil Lamers, president of Retail Merchandising Services. "The hiring, the background checks, to do all that it was hundreds of thousands of dollars."

That's an investment that the company, which stocked and maintained sunglass displays at U.S. Target stores for decades, likely won't recoup.

Lamers said he had to shut down his Canadian business after Target's announcement last month that it would close its stores in the country.

Target Canada filed for creditor protection too, and it owes about $200 million to 1,800 vendors. The total for Minnesota-based suppliers and service providers is nearly $5 million. Target's court documents say the company owes Retail Merchandising Services $211,000, but Lamers said the amount is $340,000. If Target does not pay, it won't sink the firm, but it will hurt.

"We won't have a profit-sharing contribution for 2014. And I've had to borrow more money," Lamers said. "We have a line of credit and we've got to use that to a greater degree than I would like. It's unfortunate. It's also part of life, part of business."

Overall, Lamers said, Target has been a great business partner — and apart from the mess in Canada — a well-run operation that Retail Merchandising Services will continue to work with. The smaller company was twice named a Target vendor of the year.

Lamers said he hopes to recover at least part of what he's owed in the bankruptcy process.

Brian Brown, a partner at Ideapark, an online marketing firm in Minneapolis, isn't as optimistic.

"We don't expect to see any of that money," said Brown, whose company is not on the official list of creditors.

Brown doesn't want to say publicly how much he's owed. But he cut three people from his staff of 25 when Target Canada folded. He fears Ideapark will have to eat the entire cost of the work it did ahead of the holiday shopping season.

"It was a lot of late nights and working on holidays. We worked over Thanksgiving and worked over Christmas," Brown said. "The day after Christmas in Canada is Boxing Day. We supported their business to a greater degree than we expected. So basically all that work is what they owe us for, and it's the most we've ever done for them."

Asked for a response to the concerns of suppliers, Target Canada said it remains committed to a fair and orderly process as it winds down its operations.

Unhappy creditors could try to go after Target's U.S. assets. But Minneapolis bankruptcy attorney Mike Meyer — who is not involved in the case — said there is very little chance that they could to pry anything loose.

"There are strict rules regarding the liability of parent corporations in the United States," Meyer said. "It is very atypical for creditors of a subsidiary corporation of a large well-run company to have claims against the parent."

In most big bankruptcy cases, Meyer said, creditors will be lucky if they get even half of what they're owed.

Investors are offering to buy creditors' claims for as much as 40 cents on the dollar. At Retail Merchandising Services, Phil Lamers is tempted. He said getting that kind of cash now — rather than risking a lower payment later — will cover the severance to his Canadian workforce and allow him to move on to other opportunities.

Toronto lawyer Lou Brzezinski, who represents some of the creditors, said how much they recoup in the end will depend on the sale of Target Canada's store leases.

"If they sell all of them the landlords' claims will be next to nothing," Brzezinski said. "If they sell half of them there'll be substantial landlord claims which will dilute the amount available to creditors."