Boutique Au Coton Inc., a casual clothing chain, is insolvent and scrambling to restructure its operations under bankruptcy proceedings -- owing creditors more than $23-million and facing mounting competition.
Its parent company, Groupe Au Coton Inc. is the single largest creditor, being owed $6.8-million as a secured creditor and another $6.5-million as an unsecured creditor, according to a filing under bankruptcy laws in Quebec Superior Court. Secured creditors get priority when debts are repaid.
Other secured creditors include TD Canada Trust, owed $4.5-million, and TD Asset Finance Corp., owed almost $363,000.
"No creditor can commence or continue any action, execution or proceeding against the company or its assets for the recovery of a claim," says a notice to creditors from Ernst & Young, also filed with the court last week.
The company has 30 days to present a restructuring proposal to creditors, although under the Bankruptcy and Insolvency Act the court can extend the period.
Stanley Wener, senior vice-president at trustee Ernst & Young, said Au Coton is looking at "a certain level of downsizing," although it's too early to say how many of its 140 or so stores will be closed.
In the year ended July 28, Au Coton had a loss of $2-million on sales of $65-million, he said.
The private Montreal-based company, which operates Au Coton and Boca stores, has been hit by growing competition in the apparel sector as new foreign players enter the market, observers said.
They include U.S.-based Gap Inc. and its value-priced arm, Old Navy, and Winners.
As well, discounters Wal-Mart Canada Inc. and Zellers Inc. have been bolstering their clothing departments over the past few years, cutting into the business of domestic operators like Au Coton.
"They would have been significantly hurt by Old Navy" in the crucial Ontario market, said David Howell, vice-president at market researcher NPD Group Canada Inc.
Old Navy arrived in Canada last spring, as did American Eagle Outfitters, another U.S. fashion player.
Retail consultant Wendy Evans said Au Coton failed to establish itself as a major force in the market, although it has a presence in many malls across Canada.
"They're not big advertisers, they're not splashy, they're just middle-of-the-road retailers," Ms. Evans said. "They have the staple items. Maybe people want more excitement than that."
Company officials could not be reached for comment.
Au Coton has its own manufacturing plants that produce much of the retailer's inventory, said Bert Lafford, president of the National Apparel Bureau in Montreal.
Mr. Lafford said he wasn't surprised at the bankruptcy filing because he had heard in February that some landlords were having trouble collecting their rents.
And late last year, one supplier who hadn't been paid had threatened to push Au Coton into bankruptcy. Mr. Lafford said he had intervened in the matter and helped settle it.
"It was an accident looking for a place to happen," he said. "We haven't recommended credit on this company for some time."
Among Au Coton's other significant creditors are mall developers Cadillac Fairview Corp. and Cambridge Shopping Centres Ltd., owed almost $327,000 and $331,000, respectively.
This isn't the first time Au Coton has tangled with bankruptcy laws. In 1993, its U.S. subsidiary sought protection from creditors under Chapter 11 of the U.S. bankruptcy laws. It once had as many as 96 U.S. stores but no longer operates south of the border.
Au Coton supplies Sears Canada Inc. with Boca branded clothing, but the department store chain is not affected by the filing and will continue to carry the merchandise, Sears spokeswoman Christine Hudson said.