The parent company of men's wear retailer Tip Top Tailors has become the latest victim of an increasingly tough apparel market.
Grafton-Fraser Inc. got court protection from its creditors this week after having racked up debts of more than $100-million, according to documents filed with Ontario Superior Court. It is now preparing to close some of its 158 stores, liquidate inventory and find a buyer, the filings say.
It's the second time in about eight months that Grafton-Fraser finds itself in court seeking protection. Last summer, the Toronto-based retailer, whose other banners are George Richards Big & Tall, Mr. Big & Tall and Kingsport Big and Tall Clothier, got court protection from its creditors after its Jones New York women's wear stores, which it had just acquired in 2015, faltered.
It has now closed its 37 Jones New York stores, but debts and lawsuits piled up as a result of that insolvency, contributing to the retailer's current woes, according to court documents filed on Wednesday.
Grafton-Fraser also blamed its liquidity problems on lower than expected sales; increased overhead costs tied to no longer sharing operations with Jones New York; delays in receiving seasonal inventory; and departures of key employees.
"The company is not able to successfully restructure its affairs outside of formal insolvency proceedings," said Mark Sun, chief financial officer of Grafton-Fraser, in an affidavit filed with the court.
Privately-held Grafton-Fraser is among mid-priced apparel merchants that have struggled in a market that keeps getting more intense. Retailers increasingly feel the pinch of cheap-chic fashion powerhouses such as H&M of Sweden and Zara of Spain as well as online shopping heavyweights – particularly U.S.-based Amazon.com Inc.
Two weeks ago, the Jean Machine chain filed for bankruptcy protection, saying it was looking at closing stores or finding a buyer. Other apparel retailers have followed a similar path, or closed altogether, over the past couple of years, including Mexx, Danier Leather, Jacob, Aeropostale and Smart Set.
"Retail is generally tough," Jamie Salter, chief executive officer of Authentic Brands Group of New York, which had bought Jones New York in 2015 (and from which Grafton-Fraser had licensed that chain in Canada.) Authentic Brands still has a deal with Grafton-Fraser to sell it its Jones New York men's wear but it's a very small part of the Authentic Brands' business, Mr. Salter said this week before the filing.
He said a chain such as Tip Top needs a very strong e-commerce operation to take on Amazon, and the cybershopping at Grafton-Fraser is relatively small. And retailers need fewer, but more prominent, brick-and-mortar stores to serve today's digitally-savvy customer, he said.
The Grafton-Fraser filing says the Jones New York insolvency last June touched off a series of lawsuits and other difficulties. "The company's management has had to divert considerable time and effort from attending to the company's business operations to respond to these claims," Mr. Sun said in his affidavit.
The company owes CIBC about $12.8-million in secured debt and, as a co-borrower in the Jones New York operation, is liable for about $1.6-million of its debt under the CIBC credit agreement, the documents say. As well, Grafton-Fraser owes lenders tied to GSO Capital Partners LP about $39.4-million. New York-based GSO, a unit of private equity firm Blackstone Group, is a large credit-oriented alternative asset manager.
A GSO-related company has a "stalking horse" deal to buy all or almost all of Grafton-Fraser's assets through a "credit bid," the filings say. The stalking horse offer is part of a process of soliciting other bids for the sale of, or investment in, the men's wear retailer.
Liquidation sales to clear out merchandise at Tip Top and the retailer's other chains are scheduled to start on Feb. 4 and end by April 30, the documents say.
The company, with about 1,226 employees – 526 of them being full-time – owes suppliers about $4.5-million and landlords roughly $3.1-million, the filings say. It has $1.2-million in outstanding gift cards and $1.7-million in accrued sales tax, they say. In the 11 months ended Dec. 31, it lost $6.5-million. The company has assets of almost $76-million.
Grafton-Fraser plans to honour outstanding gift cards and credit notes as well as its existing warranty and return policies during the court proceedings, Mr. Sun said.
The post-holiday season tends to be a period when strained retailers decide to restructure, close stores or file for bankruptcy or court protection to revamp its operations. By then, they have cashed in on the holiday period, which is typically the busiest time of the year. Industry sources say other retailers are contemplating filing for court protection or receivership to close stores and liquidate unsold inventory.
Still, despite the challenges, sales growth in men's wear is outpacing that of women's wear – and Grafton-Fraser had tried to capitalize on men's rising interest in fashion.
In 2010 it hired as its chief executive officer Dave McGregor, a retail veteran who worked to overhaul Grafton-Fraser's various divisions and, most notably, its flagship Tip Top chain, which has about 100 stores. He stocked more up-to-date styles and renovated stores. But he left the company last spring followed by other executives.
Moore's, another mid-priced men's clothier which is owned by U.S.-based Tailored Brands, has also had a rougher time. It reported its sales at existing sales fell 1.8 per cent in its first three quarters of 2016, ended Oct. 29, and dropped 0.4 per cent in its third quarter.
Moore's third-quarter slide in sales at existing stores was tied to a decrease in average purchases per store and "weak macroeconomic conditions in Canada," the parent company said. The decline was offset a bit by higher prices in the quarter, it said.
Despite the challenges of mid-priced fashion retailers, overall sales of men's apparel in Canada rose 4 per cent to $7.5-billion in the 12 months ended Nov. 30 while those of women's clothing gained just 1 per cent to $12.4-billion in that period, according to market researcher NPD Group.
Still, the sales growth overall was largely a result of increases in prices rather than selling more goods, said Tamara Szames, fashion analyst at NPD. On volumes alone, and excluding price hikes, sales of men's clothing sales declined by 4 per cent in the year ended Nov. 30 while volume sales of women's apparel dropped 3 per cent.
The market is also getting more crowded as a result of the expansion of U.S. fashion specialists Nordstrom Inc. and Saks, which is owned by Hudson's Bay Co., as well as La Maison Simons of Quebec. And Amazon keeps adding new lines to its apparel offerings.
At Tip Top, Mr. McGregor, a former executive at Hudson's Bay, had worked at improving the quality of its lines, adding extra details such as taped seams and non-roll collars on dress shirts. Tip Top's brands include Daniel Hechter, Calvin Klein and Kenneth Cole New York.
Grafton-Fraser, one of the country's oldest men's clothiers, goes back to at least to 1853, according to its web site. In 1967, it acquired Jack Fraser Stores Ltd. and changed its name to Grafton-Fraser. It made its biggest acquisition – expanding to 200 stores – in 2000 when it snapped up Tip Top Tailors from the troubled, and now defunct, fashion giant Dylex Ltd.
Today the controlling owner of Grafton-Fraser is the private equity arm of U.S.-based liquidator Gordon Brothers Group LLC.