Clothing retailer Le Chateau files for CCAA protection, plans to close its doors
The Canadian Press
Published Friday, October 23, 2020 9:13AM EDT
Last Updated Friday, October 23, 2020 4:38PM EDT
TORONTO - Canadians who flocked to Le Chateau Inc. stores for the last 60 years will need to find a new place to pick up formal wear for dances, galas, clubbing and prom.
The Montreal-based retailer that was beloved by shoppers looking for dressy apparel without the luxury prices announced Friday that it is seeking court protection from creditors and wants to close its stores.
Le Chateau has spent much of the COVID-19 pandemic trying to refinance or sell its business to a third party that would keep it in operation, but the attempts were unsuccessful.
“Its already evident impact on consumer demand for Le Chateau's holiday party and occasion wear, which represents the core of our offering, has diminished Le Chateau's ability to pursue its activities,” the company said in a release.
“Regrettably, these circumstances leave the company with no option other than to commence the liquidation process.”
Le Chateau intends to remain fully operational as it liquidates its 123 stores, but the eventual closures will mean the end of about 1,400 jobs - 500 at its head office and 900 at stores.
“We regret the impact this will have on our people and can assure you that we explored all options available to us prior to taking this difficult decision,” the company said.
Its application for protection from creditors under the Companies' Creditors Arrangement Act (CCAA) was due to be heard by a Quebec court on Friday.
Le Chateau expected Gordon Brothers Canada ULC and Merchant Retail Solutions ULC to be appointed as consultants to implement the liquidation and PricewaterhouseCooper Inc. to become its monitor in CCAA proceedings.
If Le Chateau's CCAA application is granted, the company will obtain interim financing from Wells Fargo Capital Finance Corp. Canada to help it fund post-filing working capital requirements.
Le Chateau was started in the late 1950s by Herschel Segal, who went on to co-found DavidsTea Inc.
The brand eventually became a mall staple and a hit with young shoppers in the 1980s and '90s before foreign retailers like H&M and Zara “steamrolled” into the Canadian market and caused trouble for Le Chateau, said Bruce Winder, an independent analyst and author of Retail Before, During and After.
Segal forked over millions of dollars - multiple times - to help the company fund extensive renovations and compete with its new rivals, but it struggled to regain the popularity it once had.
Part of why Le Chateau met its demise is because it is hard to be an evergreen brand that appeals to every generation, said Winder.
“I think it was a brand that resonated very well with Generation X, and maybe baby boomers, but it probably struggled a bit with millennial shoppers and Gen Z,” he said.
Winder wasn't surprised by Le Chateau's CCAA filing because of how the pandemic has impacted malls, brands targeting fancy occasions and businesses that were falling out of favour before COVID-19.
“To be honest, I thought this would happen to Le Chateau a lot earlier, even before COVID,” said Winder.
The company's CCAA application comes after several other Canadian retailers have shuttered or downsized operations in the wake of the pandemic.
Reitmans Canada Ltd., Aldo Group Inc., DavidsTea Inc., Mountain Equipment Co-operative, Moores the Suit People Corp. and Laura's Shoppe Inc. are among the dozens of retailers that have all filed for creditor protection.
Winder expects the wave of CCAA applications from retailers and other Canadian businesses to continue as several provinces plunge deeper into a second wave of COVID-19 and politicians implement business closures and other restrictions to quell the virus.
Many stores will hang on for the holiday season, keeping their fingers crossed that the retail outlook improves, but Winder isn't optimistic.
“The holiday won't generate as much cash as they wanted for all the obvious reasons,” he said.
“There is going to a huge parade of CCAA folks.”
This report by The Canadian Press was first published Oct. 23, 2020.