Target Corp.'s northern invasion has taken a bite out of Canada's publishing industry, with the country's largest printing company saying the loss of Zellers flyers will offset much of the work it has done in the last year to reduce costs and increase profits.
The American retailer will open stores in this country starting in March, with many of its locations moving into premises vacated by Zellers. The Canadian chain is being shuttered and its stores being handed off to other retailers, with Target taking over the majority.
The company said it has spent the last year closing plants, shrinking its media operations and renegotiating deals with key clients in a bid to push profits higher in a highly competitive market.
"These elements should offset the loss of Zellers, a major client who announced in 2012 it will be closing all of its stores," the company said in a statement as it reported a $51.9-million fourth quarter loss.
The company's loss was mostly driven by a one-time impairment charge – on an adjusted basis, it earned $61.9-million. Revenue increased to $585-million from $521-million a year ago.
The quarter was stronger than most analysts expected, with the company's media division posting better-than-expected numbers as cost cutting began to take hold and its textbook business in Quebec saw increased business following a strike in the province that reduced demand temporarily.
The publisher also said it renegotiated its publishing deal with The San Francisco Chronicle, which signed a 15-year, $1-billion deal in 2009 that saw the paper outsource its printing to a Transcontinental printing plant in the Bay area. Transcontinental will continue to publish the Chronicle, but will only do about two-thirds of the printing that the contract originally demanded, saving the paper an estimated $30-million a year.
In exchange for the long-term savings – which Transcontinental said would come from using two printing presses instead of three to print the paper – the paper's parent company Hearst Inc. will pay Transcontinental $200-million.
"This means we have recouped 100 per cent of our investment," chief executive officer François Olivier said in a conference call with analysts. "They will save on costs and so will we – all of the assets are paid for and we maintain ownership. And we can finally focus on using the capacity for other potential customers in California."
Many contracts in the printing industry demand publishers pay a fixed amount regardless of the size of each daily paper. That means publishers don't have the flexibility to save money by printing fewer sections or reducing the number of days they publish. Mr. Olivier said earlier this year that each of its major newspaper clients are locked into fixed contracts that guarantee the printer at least 80 per cent of its fee, regardless of what is printed from day to day.
The Chronicle, which is owned by Hearst Corp., has a weekday circulation of about 225,000. Its publisher had no comment on the revised printing contract yesterday.
When it was signed in 2009, the deal was hailed as one of the first times a large U.S. newspaper outsourced its printing to another party, something which has become common in both the United States and Canada. It was also hailed as innovative, because it allowed the Chronicle to print colour on every page and use glossy paper on section fronts. The Globe and Mail, which is also printed by Transcontinental, uses the same technology.
It came as the paper's publishers were threatening to close the paper entirely if it couldn't find ways to cut costs. The Chronicle lost $50-million in 2008, and its publisher told employees that "we need to live within our means as a newspaper, and we have not for years."
By signing on with Transcontinental, it was able to upgrade its presses without a large capital outlay and offer advertisers access to higher-end colour, glossy pages. It also allowed the company to reduce the size of its staff, something it said it had to do to deal with the continuing losses.
Hearst owns 15 daily newspapers, including the Houston Chronicle, San Antonio Express News and the now digital only Seattle Post Intelligencer. It also is one of the largest magazine publishers in the world, with titles such as Elle and Cosmopolitan.