Sears Hometown dealers get OK for class action

A class action lawsuit against Sears Canada Inc. and its U.S. parent by 250 Hometown Store dealers across Canada has been given the go-ahead by an Ontario court.

In a court filing, franchisees of Sears Hometown Stores allege Sears Canada and Sears Roebuck and Co. made it “virtually impossible” for them to operate their businesses profitably.

Antony Karabus, CEO of retail consultancy HRC Advisory, said Sears Canada lost the trust of both consumers and franchisees in Canada.

“The complaint is that these 250-odd hometown dealers are saying that they are franchisees and that Sears Canada has unilaterally changed their working conditions and their ability to make profit,” he said in an interview with CBC’s The Exchange with Amanda Lang.

The Hometown stores are small retail outlets that show a selection of Sears products and provided catalogue ordering in smaller towns and cities that could not support a full-scale store.

Karabus said Sears missed an opportunity to create a digital ordering business by leveraging the loyalty these stores had created in their markets.

In their suit, the dealers allege that Sears lowered commissions, reduced advertising for local stores and bypassed the franchises by selling directly to their customers.

They also claim that Sears set their compensation and work conditions, without abiding by labour laws or franchise protection laws.

Sears Canada said it has reviewed the claims and believes they are without merit. It denied changes to the dealer compensation structure and advertising subsidies could hurt dealers.

Sears Canada has been losing market share in Canada for several years.

Karabus said Sears used to be a powerful brand associated with value in Canada.

“What went wrong was, when they became owned by financial players, they became much more about squeeze the costs and focus on driving value for the shareholder, which obviously is the objective, but when you do that at the expense of service as a retailer and you sell off all your best locations and you don’t create a good working environment, there is a natural effect,” he said.

Sears has sold off its highest-profile locations, including the Eaton Centre and Yorkdale, to offset its losses. It has laid off thousands of people and sold off its interest in retail centres.

The consumer was bound to notice the low employee morale and lack of attention to the retail experience, Karabus said.

“Consumers lose trust,” he said. “They say, ‘why would I go there when the same time down the street, there are prices just as good.’”