*mendocino store at square one shopping centre. photo: oxford properties*

By Craig Patterson

Toronto-based women’s fashion retailer Mendocino says that it will shut most or all of its stores amid insolvency. The company’s 20+ units, operating under Mendocino and M Boutique banners, are located in Southern Ontario, primarily in the Greater Toronto Area.

MENDOCINO TO SHUT MOST OF ITS STORES AMID INSOLVENCY

Publication Insolvency Insider reported that the insolvent Mendocino filed a Notice of Intention pursuant to the Bankruptcy and Insolvency Act to restructure the business. A filing document by KSV Advisory Inc. notes that Mendocino is not bankrupt at this point although some or all of the company’s stores will be closing as the retailer focuses on selling online.

Mendocino was founded by husband-wife team Jan Kaplan and Norma Caron in 1987. The multi-brand retailer carries a range of popular brands focusing on a mid to upper-mid price-point. About a decade ago Mendocino launched the M Boutique concept which features a fast-fashion offering at a lower price point. The M Boutique website notes that the retailer focuses on “lifestyle” while “empowering women, embracing your curves and a shared love for all things fashion.” In-store stylists are part of the mix.

The Mendocino website states that its stores are closed due to COVID-19, though the M Boutique website is operational. Using a web archive, we were able to access the Mendocino website which noted five Mendocino-branded stores as of January of this year. That includes units at 2526 Yonge Street in Toronto, Bayview Village in Toronto, CF Sherway Gardens in Toronto, Square One in Mississauga, and 283 Lakeshore Road East in Oakville. Mendocino had other stores in the past including at CF Toronto Eaton Centre, a large unit in the 2016 expansion wing at Toronto’s Yorkdale Shopping Centre which closed in 2017, as well as a store at The Colonnade at 131 Bloor Street West in Toronto which was replaced by Escada in 2013, among others.

*m boutique at sqaure one shopping centre. photo: oxford properties*

The lower-priced M Boutique concept has considerably more stores in Ontario, including in Toronto: on Queen Street West, Queen Street East in Toronto’s Beaches area, 2526 Yonge Street, CF Shops at Don Mills, Yorkdale, CF Fairview, CF Sherway Gardens, and Scarborough Town Centre. Other Ontario stores include Square One in Mississauga, Vaughan Mills near Toronto, Oshawa Centre in Oshawa, Mapleview Centre in Burlington, CF Masonville in London, and CF Lime Ridge in Hamilton. Other units presumed to have closed permanently include First Canadian Place in Toronto, CF Toronto Eaton Centre, the Holt Renfrew Centre in Toronto, Upper Canada Mall in Newmarket, Bloor West Village in Toronto, Yonge-Eglinton Centre in Toronto, and Promenade in Thornhill.

Mendocino filed its Notice of Intention last week noting, “At present, creditors are not required to file a proof of claim. The Trustee will provide you with further information and a proof of claim form, if necessary, at a later date.”

Documents obtained by Retail Insider show that Mendocino has debts of $5,783,300.49. The one secured creditor for the debt is the Toronto Dominion Bank which is owed $2,693,726.64.

Other unsecured creditors range from vendors to landlords to even cleaning companies and the Workplace Safety and Insurance Board (WSIB). The WSIB alone is owed over $10,000 according to disclosure documents. American Express Canada is owed over $300,000 and the US division of American Express is owed over $393,000.

Vendors owed money include Levi Strauss Canada with more than $300,000 outstanding, Bestseller Canada (which itself filed for bankruptcy protection this year) being owed more than $141,000, Citizens of Humanity owed about $25,000, and Dex Bros being owed nearly $12,000, among others. Getting future deliveries could be a challenge for Mendocino if credit insurance is an issue particularly at this time.

HIGH RENTS ARE PARTLY TO BLAME FOR MENDOCINO’S FINANCIAL CHALLENGES

Several major landlords are also owed money by Mendocino for outstanding lease payments — it’s clear that high rents are partly to blame for the retailer’s financial challenges.

Mendocino owes Cadillac Fairview more than a million dollars in rents according to documents. That includes almost $243,500 for space at CF Toronto Eaton Centre, almost $330,000 at CF Sherway Gardens in Toronto, more than $108,700 at CF Fairview Mall in Toronto, over $51,000 at CF Shops at Don Mills, over $85,500 at CF Markville near Toronto, nearly $132,000 at CF Masonville Place in London, and nearly $87,000 owing for the space at CF Lime Ridge in Hamilton.

Oxford Properties is another landlord owed substantial money by Mendocino. That includes nearly $273,000 outstanding for real estate at Toronto’s Yorkdale Shopping Centre, over $136,000 for space at Scarborough Town Centre in Toronto, nearly $85,500 owing for rent at Upper Canada Mall in Newmarket, and more than $71,500 owing at Hillcrest Mall in Richmond Hill.

Various other landlords are also owed money according to Mendocino’s filings. That includes to landlord Ivanhoé Cambridge which is owed over $111,000 for unpaid rents at Vaughan Mills near Toronto as well as nearly $84,500 at Mapleview Centre in Burlington. Brookfield is owed over $72,000 for outstanding rents at Toronto’s First Canadian Place. RioCan is owed about $86,000 in rents for its midtown Toronto shopping centre. The landlord for the Promenade in Thornhill is owed almost $69,000.

Mendocino’s business model will transform substantially as part of its restructuring in an effort to remain a going concern. The company was said to be struggling financially before the COVID-19 store shutdowns which accelerated the restructuring process. “As a result of challenges resulting from the pandemic, the Company recently made the very difficult decision to discontinue all or substantially all of their stores and focus on an e-commerce model.” The company went on to note that “The protection resulting from filing the NOI will provide the stability required in order to advance and execute the Company’s restructuring plan.”

Closing all of its stores would likely be a bad move for Mendocino, especially if it plans to rely on web sales to keep the company going. Last year the International Council of Shopping Centres published a report noting a ‘halo effect’ where physical stores help substantially drive online sales while offering consumers both channels. Having no stores could pose a challenge for future operations, particularly if home delivery would be required for customer purchases. Some have said that Canada may be over-saturated with women’s fashion retailers and despite challenges to many, some will continue to operate stores in Canada while offering some of the same brands as those carried by Mendocino.

A landlord Retail Insider spoke to on Monday said that more retail chains in Canada will be announcing significant store closures in the weeks and months to come. Rents, staffing and other costs have resulted in challenging finances for many businesses in Canada that were particularly hit hard by the March 2020 COVID-19 store closures. It remains to be seen if consumers will come back to stores over the summer and into the fall. Some landlords are reporting encouraging sales numbers for some retailers which is good news — while foot traffic is down in many places, those who are venturing out are often buying as opposed to browsing. At the same time, online shopping has exploded in Canada and the trend is expected to continue indefinitely as many are spending more time at home to prevent becoming infected.

Now located in Toronto, Craig is a retail analyst and consultant at the Retail Council of Canada. He's also the Director of Applied Research at the University of Alberta School of Retailing in Edmonton. He has studied the Canadian retail landscape for the past 25 years and he holds Bachelor of Commerce and Bachelor of Laws Degrees. He is also President & CEO of Vancouver-based Retail Insider Media Ltd. Email Craig: craig@retail-insider.com

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