Canadian fashion retailer Reitmans granted creditor protection while restructuring its 576 stores

Women's fashion chain Reitmans has been granted protection from its creditors while it restructures, the latest retail victim of the COVID-19 pandemic.

The Montreal-based company sought and was granted protection by a Quebec court under the Companies' Creditors Arrangement Act (CCAA), a federal law governing companies that can't pay their bills.

"Filing for protection under the CCAA is truly the hardest decision we have had to make as an organization in our almost 100 years of history, but this pandemic has left us no choice," chief executive officer Stephen Reitman said. "We believe that this is the only course of action to ensure we remain successful in the future."

Founded in 1926, the TSX-listed company currently has 576 stores across Canada, including 259 Reitmans outlets, 106 Penningtons, 80 RW & CO. stores, 77 Addition Elle stores and 54 Thyme Maternity locations. System-wide, the company has more than 6,800 employees.

Like many other retailers, Reitmans has been hit hard by the pandemic, as physical distancing requirements forced the company to close its stores. 

But the company had financial problems before the current crisis. In its last fiscal year, the company said sales fell by $53.5 million, or 5.8 per cent from the previous year's level. And the company lost money on those reduced sales, posting a net loss of $87.4 million for the year up to Feb 1.

Then COVID-19 came along and exacerbated the problems. In its last quarterly earnings release, the company made it clear that the pandemic was making it hard to pay the bills, even though it continued selling online.

In early May, Reitmans warned that unless it could secure short-term financing to pay the bills "it may be unable to continue as a going concern."

Retail consultant Doug Stephens said just as it does in humans, for retailers "COVID-19 really does seek out pre-existing underlying problems," he said in an interview. "And one of those is an over reliance of physical stores for the distribution of your goods."

Reitmans was trying to address that problem before the pandemic, by shutting underperforming stores, particularly in the plus-sized segment, through the Penningtons and Addition Elle brands.

Regardless of what happens in the restructuring, the company plans to have fewer physical stores in the future than it does today.

"As the restructuring gets underway, the company will look to optimize its retail footprint in Canada to emerge from this process in a stronger state," the chain said.

The chain has temporarily laid off more than 90 per cent of its retail staff and almost a third of the employees at the company's Montreal head office. Any remaining staff are on a reduced salary.

Court filings suggest the company has about $361 million worth of assets to its name, including $147 million worth of merchandise. That's against a debt load of $109 million, $24 million owed to its pension plans, and millions of dollars in unpaid rent it owes to its landlords for April and May. The chain also says it has a liability of  $14 million of unused gift cards out there, which the chain said will be honoured if customers use them.

The company was worth more than $24 a share in 2007, but the stock price has fallen precipitously since then, losing 98 per cent of the value in the past year alone. The company's stock closed at just over 0.07 cents on Monday. Trading in Reitmans was halted on the Toronto Stock Exchange on Tuesday because of the restructuring news.