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The Aldo Group announced it had obtained creditor protection to restructure its business.

Christinne Muschi/The Globe and Mail

A retail reckoning has begun.

After weeks of lockdowns across North America that have shuttered stores and decimated sales, the retail industry is in the most difficult position it has seen in decades.

This week, J.Crew and luxury department store chain Neiman Marcus filed for bankruptcy protection in the United States. In Canada, the Aldo Group announced it had obtained creditor protection to restructure its business. That was after Reitmans Canada Ltd. announced on May 1 that it was in search of financing to meet its obligations, warning its future as a “going concern” was at risk.

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But the retail industry’s ills began even before the COVID-19 pandemic.

With limited cash on hand, and a sector in disruption, many retailers were already living on the edge. Add the economic shock of the global pandemic and some will not survive.

“Going into this, 2019 was a really poor year for retail in Canada,” said industry analyst Ed Strapagiel. Data from Statistics Canada, which include both store retail and automotive sales, indicate the sector grew just 1.6 per cent in 2019, the slowest growth since the recession in 2009.

“Now they’re facing this crisis. We’re looking at sales going down and expenses going up. And if you’re not that strong to begin with, that’s very tough,” Mr. Strapagiel said.

That’s a big problem for the Canadian economy. The $600-billion retail industry employs more than 2.2-million people, according to the Retail Council of Canada, many of them working for the kinds of non-essential stores that have been temporarily closed. Although provinces have begun unveiling plans to reopen their economies, it’s not clear when traffic to stores will recover.

Neiman Marcus’s bankruptcy filing wipes out Canada Pension Plan’s stake in the company

“Even before COVID-19, stores were closing at a rapid rate,” said Armin Begic, executive director of the retail business group with research firm The NPD Group Inc. “Disposable incomes are going to be constricted. People are going to be spending less money. That’s going to have an impact on stores.”


Tectonic shifts in customers’ shopping habits in recent years had already dealt a blow to the bottom lines of many retailers. The pandemic has been an accelerant.

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When the Aldo Group announced it had obtained creditor protection, the Canadian footwear retailer touted its “solid track record of growth and profitability.” But while COVID-19-related store closings have wiped out much of Aldo’s cash flow, the Montreal-based retailer has been losing money for the past few years, according to court filings.

In the year ended Feb. 1, 2020, Aldo had operating losses of US$108.1-million. Last July, the company launched a transformation plan. Its goal: reduce the share of the business focused on bricks-and-mortar stores, and put more emphasis on e-commerce, wholesale and franchises.

“Fashion retail has been tough for a few years,” Aldo chief executive David Bensadoun said in an interview. “The fundamental problem with brick and mortar is that you end up with very high fixed costs, and COVID is exposing that for every retailer. A healthy fashion retailer would have been doing 12 to 15 per cent of their sales in e-commerce before COVID. All of a sudden, 85 per cent of your sales disappear.”

Commercial property owners have evidently recognized the risk of retail vacancies. Brookfield Asset Management Inc. is planning to provide a total of up to US$5-billion in capital to prop up struggling retailers.

Five of Canada’s largest commercial landlords recently joined forces with a group of chain retailers including Hudson’s Bay Co., Indigo Books and Music Ltd. and Cineplex Inc., to ask the federal government for more assistance for retailers. Rent-relief options announced by Ottawa so far are mostly targeted at small businesses, but retailers are struggling across the board.

The initiative was led by Indigo CEO Heather Reisman. Indigo had already cut costs and was in the midst of what it called a “fundamental repositioning” before the pandemic. The group proposes that the government provide loans on favourable terms to help retailers pay rent. In turn, the landlords have agreed to provide an abatement on one-third of the rent for 10 months, for tenants whose revenues have declined significantly.

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“Prior to this, we were 80 per cent [bricks-and-mortar sales] and 20-per-cent digital,” said Hudson’s Bay president Iain Nairn. But e-commerce sales do not make up for the losses from store closings.

“A lot of these businesses were profitable businesses. You can’t last that long without any sales." Mr. Nairn said. "You’ve got to have enough funding and liquidity to get you through the period until that comes online again, which hopefully will be soon.”

Retailers typically operate with relatively little cash on hand, making it risky or impossible to wait out prolonged shutdowns.

What is the reopening plan in my province? A guide

Protect your business

Government relief programs announced so far have moved too slowly for some to mitigate this risk. Women’s fashion retailer Judith & Charles applied for one of the working capital loans of up to $2-million Ottawa has set aside under the Business Credit Availability Program for businesses affected by COVID-19.

“We need the money now,” said co-founder and president Charles Les Pierrès. The company has 11 stores across Canada and sells wholesale to retailers including Nordstrom. Judith & Charles’s summer merchandise is still sitting at manufacturers’ facilities. Suppliers are ready to ship the fabric for the fall lines. But e-commerce accounts for just 18 per cent of sales and is not enough to cover costs.

“We were profitable, so we had cash on the side," Mr. Les Pierrès said. "But that cash is running out.”

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Before the crisis hit, retailer La Maison Simons was a month away from opening a new distribution centre in Quebec City, with major investments in automation to better serve its stores and e-commerce business. That work has stopped in its tracks. A deal to sell the old facility fell apart.

“It probably couldn’t have happened at a worse time,” CEO Peter Simons said. "The productivity is dormant, but the debt and the operational expenses aren’t dormant.”

Late last week, camera retailer Henry’s announced it would restructure its business, permanently closing seven out of its 29 stores in Canada. Some of those closings likely would have occurred eventually, said CEO Gillian Stein, but not to the same extent or at this speed.

“Every business, moving forward out of this crisis, is going to rethink their cash flow. I don't think anybody can come out of this and expect to run their businesses exactly the same as they used to,” Ms. Stein said.

She expects discretionary spending and consumer confidence will take some time to recover. “We had to recognize that sales for the foreseeable future are going to be depressed. And so we needed to make sure that the business made sense for that new reality,” Ms. Stein said.


There are some bright spots. Video game sales grew 63 per cent in March compared with last year, according to NPD Group data. Games and puzzles grew 74 per cent; home hair clippers were up 224 per cent. Espresso machines, bread-makers and skincare products are all growing as well.

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It’s retail therapy for shut-ins. And most of it is happening online.

At Simons, people who are telecommuting are buying more tops, while sales of pants have been less strong. Athletic wear has also sold well. And the company has had success with buy-local messaging. Part of its website, called Fabrique 1840, is dedicated to selling products from independent Canadian designers, and its growth has accelerated.

Montreal-based furniture retailer Mobilia has seen a surprising boost in first-time buyers on its site. Online sales for April surpassed its total e-commerce sales for all of last year. Stores are still the driver of the business, accounting for more than 95 per cent of sales last year, but president Johannes Kau says he believes e-commerce will begin growing more quickly.

“We’re probably where we were going to be in about three or four years with e-commerce, he said.

While online sales haven’t made up for lost store revenue at clothing retailer Groupe Dynamite, CEO Andrew Lutfy has been surprised by the customer demand. Before COVID-19, he had been planning for online sales to reach 50 per cent of total proceeds in approximately five years. He now expects to reach that level in two to three years.

“It’s a massive opportunity,” Mr. Lutfy said. "Whatever evolution we would have organically had over the next five years, we’re probably going to see it happen over the next five months, nine months. All the trends that were happening, they just got accelerated and amplified.”

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That’s causing some retailers to think about the future. With about 260 of its 304 stores temporarily closed, Leon’s Furniture Ltd. has seen e-commerce grow from roughly 5 per cent of sales to about 40 per cent. While they will not remain at that level, president and CEO Edward Leon expects the pandemic could accelerate shifts toward online buying.

“Everyone has got to be thinking about how consumer shopping behaviour is going to change,” he said. “In the longer term … it begs the question, how many of these stores are dispensable?”

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