The impact of Target’s sudden exit from Canada is beginning to show on the agency community, with reports of staff layoffs beginning to surface amid millions of dollars in unpaid bills and lost work.
According to documents made public last week, the U.S. retailer owes approximately $3.4 billion to a long list of creditors, including agency partners such as Carat Canada, KBS and Veritas Communications (the list also includes approximately $132 million owed to its corporate parent).
KBS, which is owed more than $700,000, has laid off an unspecified number of employees as a result of the Target loss. KBS did not grant Marketing an interview, instead providing a statement from president Nick Dean.
“While we are disappointed to be ending a long-standing partnership with Target, we are even more saddened to be in the unfortunate position of having to part ways with some incredibly talented individuals,” said the statement. “The good news is our business is healthy, and we are moving forward with the momentum of recent wins.”
Annette Warring, CEO of Carat parent Dentsu Aegis Network, directed media requests to Target.
However, one senior media agency executive, speaking anonymously, told Marketing the $9 million owed to Carat is likely for unpaid billings to media vendors that ran Target advertising.
Media services firms act as intermediaries between clients and vendors, collecting payments for media space and time from the former and then forwarding them to vendors minus an agency fee, typically 3-4%.
With Target now under creditor protection, the agency and its media suppliers will now likely enter into a series of negotiations over the unpaid bills. “[Carat] is expected by those vendors to pay, and those vendors are going to try to collect 100 cents on the dollar, and then there’s going to be some sort of negotiation,” said the media executive.
Some vendors will demand the full amount owed to them, some will ultimately settle for half, and others might be willing to forgive the whole debt because of the amount of business Carat does with them on behalf of other clients, such as P&G.
A likely outcome, he speculated, is Carat will end up approximately $4.5 million out-of-pocket, a substantial blow for the agency. “You can say ‘Oh Carat’s a big company,’ but eating half or a third of their profit, whatever $9 million represents, that’s not easy.”
He called it a “Kafkaesque concept” that agencies should be on the hook for their clients’ media bills, particularly given the already low margins they work with. “It’s ridiculous to expect that Carat should guarantee the indebtedness of 97 cents on every dollar when a minute portion is going to Carat. It doesn’t make any sense.”
He was particularly scathing in his assessment of Target, which he said has “burned” the hundreds of companies that extended it credit based on a healthy balance sheet. “It’s wrong that a publicly traded company that obtains credit in foreign markets because of its good name can walk out of that market and leave havoc behind,” he said.
