In a skirmish that is sure to have lasting impressions, Sears Canada is pressuring suppliers to accept reduced payments for goods given the recent strengthening of the Canadian Dollars (aka “the Loonie”) vs. the Greenback.

Foreign currency exchange rate pieces I’ve posted before tended to focus at higher points in the value chain and generally looked at income reporting and comparison of performance across borders, but in this case Canadian consumers are pressuring retailers because they can cross the border and buy goods at much cheaper prices than they can get them for at home.  Sears Canada has, as a result, tried to pressure (perhaps not a strong enough word) its suppliers into accepting revised terms on otherwise valid contracts.

The Toronto-based retailer, which is publicly traded but majority owned by Sears Holdings Corp. of the U.S., has told many suppliers it is permanently reducing what it pays them by about 10%. It argues that since the stronger Canadian dollar means vendors pay less for a product, be it a grill or a shirt, Sears should pay less too. It also wants some “retroactive recovery” of what it has paid so far, according to an April letter viewed by The Wall Street Journal.

Sears Canada says it needs to lower its prices, as U.S. retailers are luring away shoppers whose Canadian dollars go further south of the border

Given that many of these suppliers also must deal with Sears in the United States it could be interesting to see how the companies reacts and how strong the “partnership” relationship is between members of the value chain.  Suppliers will be concerned about irritating Sears but they will also try not to cave because doing so could cost them in similar negotiations with other retailers.  Many are predicting that the Canadian Dollar will remain strong for some time so prices will have to come down in Canada to reflect this fact…but it will be interesting to see if this action is the catalyst for such change or if it will just take time.

Strong Loonie Sets Off a Retail Tiff. Phred Dvorak, Andy Georgiades. Wall Street Journal. (Eastern edition). New York, N.Y.: May 19, 2010. pg. B.1