Son of DavidsTea founder calls for leadership overhaul, accusing company of poor governance

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The son of the late DavidsTea Inc. DTEA-X founder Herschel Segal is calling for an overhaul of the retailer’s leadership, accusing the company of “abysmal corporate governance and management,” and saying his half-sister is not fit to continue as chief executive officer.

The family fight began after Herschel’s death in May. Philip Segal, a lawyer based in New York and Herschel’s eldest son, says he and his sister – the children of Herschel’s first marriage – were left out of their father’s will.

According to Philip, that means their only inheritance, held through a trust, is a stake in Rainy Day Investments Ltd., a private family holding company that owns nearly 45 per cent of DavidsTea.

But Rainy Day’s shares in DavidsTea are controlled by Herschel Segal’s widow, Jane Silverstone Segal, who has voting control of Rainy Day and is also the chair of the DavidsTea board. Her daughter, Sarah Segal, has been chief executive officer of the company since December of 2020.

“We can’t sell the shares and we can’t vote,” Philip Segal said in an interview. He added that the turn of events prompted him to “take a good hard look” at the performance of the specialty tea retailer, which is based in Montreal.

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That began with a blog post he published in August. Among his criticisms of DavidsTea’s management, he cites years of net losses by the company, which sought creditor protection in July, 2020, early in the COVID-19 pandemic, and closed more than 200 stores in the United States and Canada.

Since emerging from restructuring, the company has continued to lose money, but has forecast a return to profitability this year.

“While we anticipate some seasonal softness in the second and third quarters, our leaner cost structure, adequate liquidity and diversified channel mix positions us to achieve our objective of full-year profitability,” the company wrote in a news release announcing its first-quarter earnings in June.

In its last fiscal year, which ended Feb. 1, 2025, DavidsTea reported a net loss of $3.2-million, narrowing from a net loss in the previous year of $13.8-million.

Mr. Segal said the company’s expenses are another concern, noting that selling, general and administrative expenses were $32.5-million in the last fiscal year, or more than 50 per cent of its sales.

DavidsTea is scheduled to report its second-quarter results on Tuesday.

“DavidsTea does not comment on personal matters,” said a company statement provided to The Globe on Monday by Pierre Boucher of Maison Brison Communications, which handles public relations for DavidsTea.

The elder Mr. Segal built his fortune in retail, founding the Montreal-based Le Château fashion chain in the 1950s. He and his cousin, David Segal, launched DavidsTea in 2008.

The company went public on the Nasdaq stock exchange in June, 2015, at US$19 a share, but the stock price has declined significantly over the years. The company voluntarily delisted from the Nasdaq, and now trades on the TSX Venture Exchange – as of Monday’s close, it was priced at $1.17 a share.

David Segal left the business in 2016, and the company cycled through three CEOs in as many years. In 2018, Herschel Segal took over as interim CEO, after winning a bitter proxy fight for control of DavidsTea. Sarah Segal was then appointed to the top job in the midst of the restructuring. The company emerged from the process with just 18 locations in Canada, and closed all its stores in the U.S.

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In an interview with The Globe last year, Ms. Segal called the store closings “heartbreaking,” and said the company was working toward opening new locations in Canada. DavidsTea currently has 19 stores in malls across the country, according to its website.

In the last fiscal year, roughly half its sales were online, another one-third were in the company’s stores and the remainder came from wholesale, including partnerships with grocery stores that sell its products.

“Our focus is on our return to profitability and consistently executing on our omnichannel growth plans,” the company statement provided to The Globe said.

But Philip Segal believes new leadership is needed.

“Most companies with underperformance this bad for that many years would say, ‘Gee, maybe it’s time to have a new person running it.’ But this company doesn’t do that,” he said.

Mr. Segal believes part of the issue is the governance of the public company. He says that during a conversation with Ms. Silverstone Segal in July, she expressed the opinion that “nobody else” could run DavidsTea, a statement he believes is inappropriate for the chair of the board.

While Mr. Segal’s criticism of the company is deeply intertwined with family conflict, and his own reaction to being excluded from the will, he is also not the first person to raise concerns with the company’s management.

Justin Dopierala, president and portfolio manager at Domo Capital Management, which used to hold roughly 11 per cent of the company’s shares, told The Globe last year that he was aware of an interested buyer who had contacted DavidsTea but received no “meaningful response.” He said at the time that the company should consider any offers to sell, and he called the revenue decline in recent years “shocking.” Domo no longer holds shares in DavidsTea.

For his part, Mr. Segal says if the trust had been empty, he likely would not have gone public, because he would have had no standing to criticize the company as a non-shareholder.

“No one cares about me, and my disappointment with my father, and why he would have done this,” he said. “... Most people in the world, this is a problem they wouldn’t mind having, because we’re still comfortable. But it’s about corporate governance.”