This was a year of bloodletting in Canadian retail. Stores were forced to close in a wave of lockdowns, then reopened, then closed again. Some haven’t survived; others have been forced into restructuring.
Chains that have opted to close some locations in Canada include Aldo Group, Dynamite, White House Black Market, David’s Tea, Ann Taylor, MEC, Addition Elle and Thyme Maternity. Many of those retailers’ parent companies are in the midst of restructuring and expect to continue operating; others – including Le Château and swimwear retailer Swimco – have decided to close up shop permanently.
And industry observers predict there could be more retail insolvencies to come in 2021.
“We haven’t yet seen the wave of filings that perhaps we thought we would see when we were all shut down in mid-March, and in the weeks and months following that,” says Stuart Brotman, a partner and leader of the insolvency and restructuring group at Fasken Martineau DuMoulin LLP in Toronto.
“Never before have we found ourselves in a situation where the entire world was put on pause,” says Sandra Abitan, a managing partner with Osler, Hoskin & Harcourt LLP in Montreal who specializes in retail insolvencies and restructuring. “A recession is a recession; this is a natural disaster.”
A number of retailers are hanging on thanks to government support in the form of wage subsidies and rent relief, Ms. Abitan notes. But that aid won’t last forever. In addition, many retailers have patient landlords who have offered rent concessions, and patient lenders who, at least for now, recognize this may not be the right environment to try to make their money back through liquidations. That’s also delaying some filings.
But once the holiday shopping season and post-holiday promotional rush are in the rearview mirror, many operators will be forced to assess where they stand. That’s true every year, and it’s not unusual for some companies to consider restructuring in the first few months of the year for that reason. But this was a very different holiday season. In some parts of the country, non-essential retailers were closed altogether, while in many others, strict capacity limits were enforced. All this put a damper on shopping at a crucial time when many stores move from the red into the black. In 2019, the holiday period accounted for 19 per cent of the year’s total retail sales, not including motor vehicle and gas station sales, according to the Retail Council of Canada.
“What I’m hearing more and more from retailers is that the additional lockdowns – especially in key areas – are pushing them more and more to the brink,” Diane Brisebois, CEO of the RCC, said in an interview just days before Ontario announced it would be widening its restrictions beginning on Dec. 26. “It will be impossible for them to make up the difference in lost revenues in stores with their online business.”
Just how desperate the situation is for retailers was summed up last month in a court challenge from Hudson’s Bay Co. ULC. The department store chain filed an application for a judicial review of Ontario’s closure of non-essential retail stores in some regions of the province. The hearing took place the week before Ontario announced the new lockdowns to come. Remaining open is “fundamental” to many retailers, a lawyer for HBC told a panel of judges. “It is the distinction between survival or not.” (The court denied HBC’s application.)
Without that holiday boost, retailers could be facing a cash crunch. That’s a problem not just for their short-term survival, but also in terms of their ability to place orders for the products they need to stock shelves and keep their businesses running.
“There are always some market factors that could encourage an increased number of insolvency filings by retailers in January and February. When you layer COVID on top of it, that may be magnified,” says Mr. Brotman. “And it may also have a trickle-on effect – a further wave or ripple of filings later in the year – as the COVID constraints, on the one hand, are relieved, and as the liquidity supports start to go away.”
E-commerce is helping to bridge the gap, but many retailers weren’t set up to handle online orders at the same magnitude as their offline sales. And online orders can be costly to pack and ship, squeezing profits further.
There’s another complicating factor: liquidating unwanted inventory – a needed release valve for many retailers to unload seasonal stock, recoup some cash and clear warehouse space – has become more difficult.
“There are fewer people buying now,” says Alex Hennick, CEO of Toronto-based A.D. Hennick & Associates Inc. The company buys and sells excess inventory from retailers, manufacturers, distributors and insolvency trustees. Mr. Hennick has found the typical buyers for such excess stock to be more hesitant than usual. In November, for example, he bought more than 400 barbecues. He did sell them, but a few buyers who would normally be interested either didn’t have the warehouse space or the cash to do a deal.
Mr. Hennick anticipates the market could be especially tight in the new year for clothing retailers wanting to liquidate or offload unsold items. While comfy sweats and yoga pants have sold well in 2020, clothing sales overall have been down. Clothes are seasonal products, and the nature of fashion means not every retailer will be able to hold on to leftover stock.
“The amount of clothing that is going to be on the market is pretty significant, because we missed a few seasons this year,” Mr. Hennick says. “Unless it’s a perfect deal, [liquidators] are going to be reluctant to buy.”
Some of the measures retailers are taking to survive – especially focusing on better serving online customers and closing underperforming stores – were inevitable. The consensus is that the pandemic has accelerated trends that were already on the rise. The cruel reality in retail is that meaningful change, such as doing e-commerce right, takes investment. And they’re being asked to pivot quickly after a year of partial closures, when sales have taken a major hit and cash is tight.
Ms. Abitan believes next year – with COVID vaccines rolling out – will be the real test of who will be able to survive the post-pandemic era. “Who will have taken enough steps to be operationally more sound and have enough liquidity to secure their supply chain, and have this [digital] experience to offer their customer base?” she says. “The way people are shopping today – you can yell at Alexa to order your toilet paper – everything is changing. It’s an industry that is being transformed right now.”
Some Canadian retailers that entered creditor protection since the pandemic began
Store brands: Aldo, Call It Spring, Globo
Status: Obtained creditor protection under the Companies’ Creditors Arrangement Act [CCAA] in May, restructuring ongoing
Updates: Plans to close roughly 300 stores, or 40 per cent of corporate-owned locations
Boutique Tristan & Iseut Inc.
Status: Filed for protection under the Bankruptcy and Insolvency Act (BIA) in July, restructuring ongoing
Coalision Inc. (Lole)
Status: Obtained creditor protection under BIA in June
Comark Holdings Inc.
HQ: Mississauga, Ont.
Store brands: Bootlegger, cleo, Ricki’s
Status: Obtained creditor protection under CCAA in June, restructuring complete
Updates: Went into creditor protection with 310 stores. As of July, the company planned to close 29 stores. A plan was approved in July to sell the retailer’s assets to a wholly owned subsidiary and to emerge from creditor protection, transferring liabilities to an excluded company
Status: Obtained creditor protection under CCAA in July, restructuring ongoing
Updates: Closed more than 200 stores in the U.S. and Canada
Groupe Dynamite Inc.
Store brands: Dynamite, Garage
Status: Obtained creditor protection under CCAA in September, restructuring ongoing
Updates: Had more than 300 stores across North America at time of filing. As of early December, it had disclaimed leases at 78 stores, and a review of its lease portfolio was ongoing
Status: Obtained creditor protection under BIA in June, restructuring complete
Updates: The camera retailer closed seven of its 29 stores
Laura’s Shoppe Inc.
Store brands: Laura, Melanie Lyne
Status: Obtained creditor protection under CCAA in July, restructuring ongoing
Updates: Went into creditor protection with 140 stores and as of October, it had decided to close one store
Le Château Inc.
Status: Obtained creditor protection under CCAA in October, simultaneously announcing it would wind up operations and close all of its 123 stores across Canada. Liquidation is ongoing
MEC (formerly Mountain Equipment Co-op)
Status: Obtained creditor protection under CCAA in September, simultaneously announcing the business woud be sold to California-based investment firm Kingswood Capital Management LP. The sale was approved in October
Updates: Kingswood has promised to keep 17 of the chain’s 22 stores open
Mendocino Clothing Co. Ltd.
Store brands: Mendocino, M Boutique
Status: Filed for protection under BIA in July
Updates: Had 27 stores in and around the Greater Toronto Area at time of filing, all of which were permanently closed. The business was sold to a related company, Shop Mboutique Ecomm Ltd., which is focusing on e-commerce sales under the MBoutique brand. The company has also opened three new stores in Vaughan, Mississauga and Oakville, Ont.
Modasuite Inc. (Frank & Oak)
Status: Obtained creditor protection under BIA in June. Purchased by New York-based investment company Unified Commerce Group in October
Updates: Went into creditor protection with 20 stores; closed all but 9. At the time of the acquisition, the new owners said they were considering reopening some locations
Reitmans Canada Ltd.
Store brands at time of filing: Reitmans, Penningtons, RW & Co., Addition Elle, Thyme Maternity
Status: Obtained creditor protection under CCAA in May, restructuring ongoing
Updates: Shut down the Addition Elle and Thyme chains over the summer. As of Aug. 1, the company had 440 stores across Canada, compared to 576 in May
Sail Outdoors Inc.
HQ: Laval, Que.
Store brands: Sail, Sportium
Status: Filed for creditor protection under BIA in June. Restructuring complete.
Updates: Shut down six out of its 18 stores.
Swimco Aquatic Supplies Ltd.
Store brands: Swimco
Status: Obtained protection under BIA in June. In October, it announced it was going out of business and would close all 20 stores
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