Fashion retailers fight headwinds
After a punishing year, we check in on two of Canada’s oldest apparel retailers
Reitmans Canada Ltd. will close 40 stores this year and Le Château will close 18, as two of Canada’s oldest apparel retailers continue to grapple with a rapidly changing retail environment that has claimed many longtime competitors.
The closures follow on the heels of a painful 2016, during which Reitmans shuttered 104 stores, including the entire Smart Set chain (29 locations), and 42 Reitmans stores.
“Good language prevents me from using the real particular terms, but it’s been difficult,” said Jeremy Reitman, Reitman’s chief executive officer, in advance of the company’s annual meeting in Mon- treal next week.
In fact, said Reitman, the past few years have been the most challenging in the 90-year history of the family-owned retailer, which operates 677 stores under the banners Addition Elle, Penningtons, Reitmans, RW & Co., Thyme and Hyba.
Reitmans is one of Canada’s few publicly traded apparel retailers. Last year, Danier Leather folded, joining a long list of retailers defeated by a marketplace in upheaval, and leaving Reitmans and Le Château to keep duking it out with global fast fashion brands like H&M and Uniqlo.
Reitman said one challenge is that mall traffic is down at all but the biggest shopping centres.
And the way people shop has changed fundamentally, largely because of the rise of online shopping. People used to go to the mall and walk between the two anchor stores at either end — typically department stores like Hudson’s Bay or Sears, and stop in at the stores in between, like Reitmans.
These days, people go to the mall with a single item in mind, go to the store where they know they can buy it, buy the item they need and leave the mall, Reitman said.
Reitmans is scheduled to report firstquarter earnings next week, but there were signs of improvement in the year ended Jan. 30. Same store sales increased 7.6 per cent and sales were up $14.8 million or 1.6 per cent, despite a net reduc- tion of 90 stores over the year. E-commerce sales increased 50.7 per cent.
Reitman said the company is focused on making the remaining stores more inviting to customers. This year, Reitmans will open seven stores and renovate 34, at a cost of $17 million. It is looking at ways to expand the wholesale business internationally in plus-size apparel.
“I think we’re getting it right — we’re still not there yet — but we’re moving in the right direction, I think,” Reitman said. Retail consultant Wendy Evans agrees. “They clearly, from a design sense, have upgraded without raising prices to any significant extent.”
“I think we’re getting it right — we’re still not there yet — but we’re moving in the right direction, I think.” JEREMY REITMAN REITMAN’S CEO
“There’s been a bit of a buzz,” said Evans, of Evans & Company Consultants Inc.
Reitmans has an advantage over some of its fast-fashion competitors, says Maureen Atkinson, senior partner, research insights, J.C. Williams Group Global Retail Advisors.
“Their sizing is really much more a North American sizing than H&M and Zara and Uniqlo. It’s more suited to the North American market,” said Atkinson.
Le Château, meanwhile, is struggling with debt coming due in early June.
In March the company asked to be voluntarily delisted from the TSX, because it no longer meets listing requirements, according to Le Château spokesperson Pierre Boucher.
The company has applied for a listing on the TSX Venture Exchange.
Le Château has been borrowing money from founder Herschel Segal, and has lost more than $35 million a year for each of the last three years, according to financial filings.
In Le Château’s annual report filed in April, the company pointed to material uncertainties that may cast “significant doubt” on the ability of the company to continue as a going concern, including a net earnings loss of $37.2 million for the fiscal year ending Jan. 28, 2017, negative cash flow from operations of $7.4 million and a loan of $54.6 million maturing on June 5, 2017.
In addition, Segal is owed $33.8 million.
“While the Company believes that it will be able to obtain the necessary financing and has been successful in renewing its facility in the past, there can be no assurance of the success of these plans,” according to the report.
“If they’re taking on more debt and their cash flow is decreasing at the same time and they’re issuing a warning — I would say the combination of the three indicates something,” said Richard Arthurs, partner and national leader of governance and risk management at MNP LLP.
“I think all together they raise a red flag.”
However that doesn’t necessarily mean the company is in jeopardy, especially if the credit crunch is temporary debt, Arthurs added.
Le Château spokesperson Boucher said that kind of language is triggered by certain financial reporting requirements and that Le Château is actually moving toward a better business model that includes fewer stores.
“Like many other retailers — and this is not new — we are over-stored,” said Boucher. “We identified approximately 150 stores which we think are really performing well and these are the stores we want to keep so we are headed towards 150.”
The brand began repositioning and rebranding in 2012, and in 2015, ran an advertising campaign that focused on its roots in Montreal, where 30 per cent of the company’s name brand apparel is still manufactured.
“We see ourselves as being wellpositioned for the future,” said Boucher.
“We think we’ve got a strong brand. I think we’ve got good market positioning.”
Signs of progress at Le Château in 2016, included a slight increase in comparable store sales and an increase in online sales of 43.6 per cent.
Nonetheless, Zara, H&M and Forever 21 have created a new league of competition, and new retailers continue to enter the market, including Quebec-based Simon’s and Japan’s Uniqlo.
Retail consultant Ed Strapagiel says that apparel sales for women, as measured by Statistics Canada, have actually been doing well for the past five years, leading to success for retailers like H&M.
“People are still buying the stuff, they’re just not buying it from all the same places,” said Strapagiel.
Industry expert Randy Harris points to off-price retailers as another growing competitive threat for ap- parel retailers in Canada.
While off-price — defined by Harris as retailers providing a continuous mix of high-quality apparel and footwear brand names at a 40-per-cent to 80-per-cent discount — has been well developed in the U.S., it is just beginning to grow in Canada.
Historically, Winners was Canada’s only true off-price retailer, according to Harris. That changed with the arrival in Canada of Marshalls and Sak’s Off Fifth.
Harris predicts that by the end of 2017, the off-price store count should rise to 355 from the current 322, and up to 380 by the end of 2018. Sales through the channel could hit $3 billion by the end of 2018, according to Harris, writing in the industry publi- cation Canadian Apparel Insights.
“The growth of off-price apparel retailing will at a minimum result both in less cross-border shopping by Canadians and a major disruption in the middle of the Canadian apparel market,” according to Harris. Seung Hwan (Mark) Lee, a researcher and associate professor at the Ted Rogers School of Retail Management, believes that as virtual reality technology becomes increasingly integrated into online shopping, bricks and mortar stores will face even greater challenges.
“There is always going to be room for bricks and mortar stores, but they will have to find ways to differentiate because digital is catching up,” he said.