By Craig Patterson

On Tuesday and Wednesday of this week, two major retail groups in Canada filed for bankruptcy protection as businesses struggle after prolonged shutdowns due to the COVID-19 pandemic.

Montreal-based Bestseller Canada, which operates Jack & Jones and Vero Moda branded stores filed on Tuesday afternoon. On Wednesday, Mississauga-based Comark Holdings Inc., which operates Bootlegger, Ricki’s, and Cleo storefronts in Canada, also announced that it had filed for bankruptcy protection.

Both retail conglomerates operate stores primarily in suburban shopping centres. Landlords have demanded rents be paid despite stores having been closed by law, which has resulted in many retailers looking to bankruptcy protection to maintain operations while getting out of some leases and rent obligations.

Bestseller Canada:

Bestseller Canada, which operates 60 Jack & Jones and Vero Moda stores in Canada, filed for creditor protection on Tuesday of this week. At one time, Bestseller-branded multi-brand stores operated in Canada, though all closed earlier this year. Bestseller Canada said in court documents that it owes $39 million to creditors.

Most of the 60 store locations operate under the Jack & Jones label. Jack & Jones is a youthful fashion line featuring men’s apparel and accessories. Canada is home to several Vero Moda store locations as well — the brand is known for its value-priced women’s apparel. Both brands can also be found in multi-brand retailers such as Hudson’s Bay. Other Bestseller brands carried in multi-brand retailers include Only&Sons, Selected Homme, Noisy May, and others.

Bestseller Canada is a division of the Denmark-based Bestseller group which operates globally. In February, Retail Insider reported that Bestseller Canada had shut all five of its Canadian multi-brand stores with locations in the Montreal area as well as in Winnipeg (the Winnipeg store was converted to a Jack & Jones). Canada was the first international market for the Bestseller store concept and it was expected to be expanded across the country after launching in 2015.

Family-owned Bestseller was founded in 1975 in Brande, Denmark with an aim to provide "fast affordable fashion for women, men, teenagers, and children", according to its website. The company is one of Europe's largest fashion companies and its products are available in markets across Europe, the Middle East, Canada, and India.

One source said that 13 of the 51 Jack & Jones store locations in Canada would be “handed back to landlords” with more information forthcoming. All Vero Moda locations are expected to close according to another source familiar with the situation.

Comark Holdings:

On Wednesday of this week, Ontario-based Comark Holdings Inc. announced that it had filed for creditor protection and that it plans to remain operational while shutting some stores. Comark operates retail banners in Canada including Bootlegger, Cleo, and Ricki’s. Comark filed for bankruptcy protection in 2015 as well.

According to its website, Comark operates 310 store locations in Canada under the three banners. Denim-focused Bootlegger was founded in Vancouver over 45 years ago and operates 82 stores across the country with apparel for both men and women. Cleo and Ricki’s are female-focused fashion brands also with stores across the country. Comark, which was founded in 1976, grew by 58 stores in 1979 when it acquired the Mississauga-based Irene Hill brand and renamed it Cleo in 1994. In 1982, Comark added Winnipeg-based Ricki’s stores to the group. The Cleo banner employs more than 850 people in its 99 stores, and the Ricki’s banner includes 129 stores across Canada.

About 40% of Comark’s stores are in Ontario. Stores in malls lacking exterior entrances are not permitted to reopen in the province until at least the end of this month. As of June 10, 210 of Comark’s 310 stores will have reopened — the 92 Ontario locations will remain closed as well as eight units in Newfoundland.

In a statement on Wednesday, Comark said that its goal is to remain operational while shedding some less productive storefronts. “Comark commenced proceedings under the CCAA to restructure its operations and address the impacts of a challenging retail environment and the COVID-19 pandemic. The restructuring proceedings will provide Comark the opportunity to optimize its store footprint and leasing costs with the aim of emerging as a stronger business, better able to serve and support its loyal customers,” the statement said.

The majority of stores will remain open, according to Comark, with safety measures in place as stores reopen. Gerry Bachynski, President of Comark, said, “Top of mind for our loyal customers and employees is that the majority of our Ricki's, Cleo, and Bootlegger stores across Canada continue to be open for business, with physical stores scheduled to re-open in conformity with local guidelines.

“Each of our banners will continue to stock our exclusive apparel and all of our rewards and gift card programs will continue to be honoured at this time. As has been the case since the start of store closures brought on by COVID-19, each banner’s webstore continues to remain open,” he went on to say.

As part of the CCAA proceedings, Comark says that it intends to seek the Ontario Court’s authorization to solicit proposals for sale or investment transactions involving the company.

Prior to the March 2020 store shutdowns due to COVID-19, Comark was in the process of streamlining its business operations according to court filings. When stores shut temporarily, the majority of Comark’s 2,500 employees were laid off — most employees are described as being “of short-tenure, non-union retail employees”. The closures hit cash flow which was already strained and as of last month, Comark estimated that it had lost about $50 million in sales during the temporary store closures.

A “severe liquidity crisis” resulted and according to court documents, Comark cannot remain a going concern without bankruptcy protection. Borrowing more money is not an option according to documents, and Comark said that it had not paid rent for its retail stores for the months of April, May, and June — the amount now owed is about $9 million according to court documents. As of Tuesday, Comark had received notices of default for 56 of its store locations.

Comark said in court documents that it needs “a significant show of support” from its landlords to restructure the business. Negotiations will be ongoing and “a workable solution with landlords must be reached by June 19, 2020 to determine the future viability of business and implement a restructuring by the end of June”. Some store closures and permanent employee layoffs will “right-size the Applicants’ business”.

Reopening stores is proving challenging for Comark. Court filings stated that “there are many challenges associated with reopening safely,” going on to say that “It takes one to two weeks to determine whether store employees can return, additional time to find replacement employees if needed, and at least two days to sanitize reopening stores, plus any time required to purchase personal protective equipment for employees”.

As of May 2, Comark’s book value was $66.9 million and liabilities stood at $82.3 million. In the fiscal year ending February 29 2020, the company saw same store sales decline 6.5% — in the year prior, sales had remained about the same as they were in 2018. In fiscal 2020, Comark saw a decline in store level cash flow of 28% or $15.6 million, resulting in a net loss of about $7.6 million.

Interestingly, the Ricki’s banner has traditionally been the most profitable and court documents stated that “In past years, Ricki’s profits have been used to support Cleo and Bootlegger’s losses”. As of April 2019, however, all three banners had seen a decline which Comark attributed to a “decline (which) has affected much of the retail industry”.

In the month of June, Comark will experience a negative cashflow of approximately $6.5 million, including $3.2 million in June rents according to court filings.

The situation is now dire for Comark. “For the week of May 24th, comparable store sales for open stores are 52% lower than the previous year’s sales,” according to filings. A liquidity crisis has resulted as Comark is unable to make further draws under the CIBC Credit Facility. Its parent company Parentco is “not prepared to advance further funding” either.

Landlords will be notified by a standardized letter “setting out the concessions needed by (Comark). The effectiveness of these agreements will be conditional on a critical mass of landlords signing such agreements on or before June 19, 2020.”

Inventory is an issue as well — it’s almost time to place orders for the fall fashion season. Comark said in court documents that its “placing orders for additional inventory is contingent on securing sufficient landlord support to proceed with a going-concern restructuring”.

Concluding Remarks:

While stores were mandated to be shut because of the COVID-19 pandemic, landlords have demanded that rents be paid. Some landlords have given breaks including rent reductions and deferrals, while government programs have been put in place with the intention to help retailers with rent obligations. Nevertheless, the financial burden placed on some retailers because of rents and other costs have led to bankruptcy protection filings and one of the reasons is for retailers to shut less productive store locations.

Insiders are saying that more retailers in Canada are expected to file for bankruptcy protection in the coming weeks and months. And while stores have started reopening across the country, a consumer slowdown is expected to result in challenging times that will continue into the fall and beyond. Many Canadians have lost jobs while others have lost wealth due to stock market declines and low oil prices. At the same time, many consumers are staying away from visiting physical retail spaces out of the concerns of potentially becoming infected with the coronavirus. While others work from home, the need for new fashions has been reduced — all are bad news for many retailers seeking to grow retail sales at a critical time.