Two Canadian clothing retailers that underwent restructuring during the pandemic have sought creditor protection once again, underscoring a challenging time for the industry as consumers cut down on unnecessary spending and stores face competition from online fast-fashion sellers.
On Tuesday, Vancouver-based retailer Comark Holdings Inc. announced that it would permanently close all of its Ricki’s and cleo stores, with liquidation sales to begin soon. The company is looking for a buyer for its Bootlegger store chain, and plans to close some of those locations as well.
Comark, which currently operates 221 stores across the country, was granted protection under the Companies’ Creditors Arrangement Act (CCAA) on Tuesday.
Just before the holidays, the owner of Montreal-based fashion retailer Frank and Oak also sought creditor protection under the Bankruptcy and Insolvency Act, a lower-cost option compared to the CCAA, which requires companies to propose a restructuring plan within a shorter time period.
New York-based investment company Unified Commerce Group bought Frank and Oak during its last restructuring in 2020. Executives told The Globe and Mail at the time that they had plans to expand the retailer to international markets.
The brand tested out pop-up stores in China and the U.S. in 2021 and 2022. The store and warehouse in Shanghai were temporarily shuttered during Omicron lockdowns, which negatively affected the business.
“The U.S. pop-up stores were a good experiment, and we believe there is strong growth potential to expand into the USA market with the right investment partner,” UCG chief brand officer Elisabeth de Gramont wrote in an e-mail to The Globe on Wednesday.
But while the business has grown in recent years, Frank and Oak “has struggled to recoup losses experienced in the aftermath of the COVID-19 pandemic,” UCG chief executive Dustin Jones wrote in a Dec. 16 notice to creditors. The company is now looking for a viable path forward, he wrote. That could include selling the business. As of Dec. 16, UCG Canada Holdings Inc. had roughly $71-million in debt, including $14-million owed to unsecured creditors and more than $55-million owed to UCG Holdings Inc.
Frank and Oak was founded in 2012 by former Deloitte consultants Ethan Song and Hicham Ratnani. The brand initially focused on selling online to millennial men, and later opened brick-and-mortar locations and expanded into women’s clothing. At the time of its last restructuring it had 20 stores, and now operates 15 in Quebec, Ontario and British Columbia.
Comark’s store brands are older and largely known for their presence in shopping malls, suburban plazas and big box power centres. Ricki’s was founded in 1939, Bootlegger in 1971 and cleo in 1994.
But even after emerging from restructuring in 2020, the company faced further challenges. A cyber attack the following year temporarily shut down its stores and led to $8.2-million in lost revenue. Comark has also struggled to compete with “ultra low-cost fashion retailers” including online brands Shein and Temu, according to court documents.
Comark has faced supply chain issues that have delayed shipments of seasonal merchandise, forcing it to mark down products. Like other retailers, the company was also affected by rail and port strikes last year, as well as protests at some of its vendors’ factories in Bangladesh.
More recently, Comark has also been hit by the weakening loonie. The company pays for merchandise in U.S. dollars but sells products online and in stores in Canadian dollars. This is relatively common for Canadian retailers, who can be impacted by currency fluctuations.
Comark’s net sales fell 13 per cent year-to-date as of Nov. 23, 2024, to $130.7-million, and the company’s net losses were more than $21-million, according to court documents.
The company is now insolvent, and does not have sufficient cash to pay its bills, including roughly $44-million owed to vendors for its merchandise, and $5-million owed to landlords. Several of the company’s vendors have filed lawsuits seeking repayment and damages. The company has breached certain covenants on a loan from Canadian Imperial Bank of Commerce.
As they begin liquidations, the Ricki’s and cleo chains will honour gift cards and accept returns until Jan. 17, according to court documents. Some returns for exchange may be accepted for a longer period of time.
Comark has more than 2,000 employees across Canada, and the closing of the stores will likely lead to hundreds of job losses. Ricki’s and cleo stores together employed 1,149 people as of Dec. 17, and an additional 129 people at their two head offices. Bootlegger, which plans to close some locations, has 466 store staff and 53 head office employees. There are also 39 combined locations that operate more than one of Comark’s store banners under a single lease. Those locations have 349 employees.
For clothing retailers, the field has become much more crowded, said Liza Amlani, founder of consulting firm Retail Strategy Group. While consumers are still spending, they are turning to competitors including off-price retailers such as Winners, and e-commerce sites that offer cheap “dupes” of popular items. Many are also buying secondhand at vintage stores, and online platforms such as Facebook Marketplace.
“A compelling and delightful product assortment will lure a customer to spend, rather than looking for discounts and deals,” Ms. Amlani said, adding that she believes the stores seeking creditor protection weren’t offering merchandise that customers wanted.
“If you have a product that can wow a consumer, they’ll buy it,” she said. “If you’re competing against marketplaces, and it’s a basic item, it’s much more difficult.”