The company that operates retailers Ted Baker, Lucky Brand and Brooks Brothers plans to close a number of stores in Canada and the U.S. after months of declining sales pushed the operations into insolvency proceedings.
Ted Baker Canada announced the launch of liquidation sales on Friday, covering nine out of 25 Ted Baker stores in Canada and all of the brand’s locations in the U.S. The sales also affect all Brooks Brothers and Lucky Brand stores in Canada. The company has shut down its e-commerce operations for the time being.
The company was granted protection from its creditors on April 24 under the Companies’ Creditors Arrangement Act (CCAA) in Canada, and on the same day commenced Chapter 15 bankruptcy proceedings in the U.S. The proceedings resulted from “liquidity constraints caused in part by negative cash flows and working capital issues,” according to court documents filed in the Ontario Superior Court of Justice.
The proceedings followed shortly after Ted Baker entered administration in March, a process under U.K. insolvency laws that allows companies to restructure or sell a business.
The North American operations fall under four companies – Ted Baker Canada Inc., Ted Baker Ltd., OSL Fashion Services Canada Inc. and OSL Fashion Services Inc. – which run the stores under license with affiliates of New York-based Authentic Brands Group. In addition to Ted Baker, Brooks Brothers and Lucky, Authentic Brands owns a number of retail and fashion labels, including Barneys, Forever 21, Juicy Couture, Nautica and Nine West. Authentic Brands owns the intellectual property of those brands and often licenses their operations to other companies.
Authentic Brands partnered with mall operator Simon Property Group to purchase Brooks Brothers out of bankruptcy in 2020 in a US$325-million deal. The same year, the two companies purchased denim retailer Lucky, also out of bankruptcy, for $140.1-million. Authentic Brands acquired Ted Baker for £211-million in 2022.
Management in North America blamed the financial troubles on “generally poor sales performance” in Canada and the U.S., according to court filings. The documents noted that the operations were also affected by supply chain disruptions, resulting from operating partners in Europe who had failed to pay suppliers leading up to and following the administration filing in the UK.
The licensees acquired the rights to the North American operations early last year. Since then, revenues have declined significantly and “the consolidated business has failed to achieve positive cash flow,” according to the court documents.
As a result of the cash crunch, the North American operations stopped paying vendors, and owed more than $2-million to Authentic Brands Group as of April 1. That led Authentic to issue a “notice of breach” on April 17, giving it the right to terminate the North American license agreements if the payments were not made within five business days. The companies then filed under CCAA in Canada and Chapter 15 in the U.S., seeking “breathing room” to determine their next steps, according to the documents.
The following week, the companies sought court approval to liquidate the stores, writing in court documents that they had received no proposals “for other value maximizing alternatives,” and citing “limited liquidity and ongoing carrying costs.”
Many retailers have noted that Canadians who are feeling the pain of inflation and multiple interest-rate hikes have been pulling back on non-essential spending as they watch their budgets more closely. As a discretionary purchase, clothing is among the categories seeing sales declines.
In some cases, luxury retailers have been less susceptible to these trends. However, brands such as Brooks Brothers and Ted Baker fall more in the “premium” segment of the market as opposed to luxury, and serve shoppers who can be more price-sensitive, said retail consultant George Minakakis.
“If the brand is relevant, even in tough times, they’re doing well,” Mr. Minakakis said. “Stores that are doing well, the merchandising is amazing, they’re selling the brand story effectively, and they’re creating trends. I think Ted Baker and Brooks Brothers lost that some time ago.”
Some of the company’s stores could still be withdrawn from the liquidation process if a “going concern third party transaction” for some or all of the assets is identified before May 17, according to the court filings.
Liquidation firm Gordon Brothers Canada has been appointed to handle the sale, which will conclude within 12 weeks. Gordon Brothers has handled other retail insolvencies in the past, including Target Canada, Sears Canada, Bed Bath & Beyond Canada, the Mastermind Toys stores that closed before the chain was sold last year, and Nordstrom Canada. In addition to discount sales in the stores, the company will also sell off furniture, store fixtures and equipment for the locations that are closing.
Between April 28 and Aug. 4 – a period including the liquidation sales – Ted Baker Retail expects total sales of US$74.5-million and net cash flow of US$25.1-million after disbursements such as warehousing costs, rent, payroll and other expenses, according to a cash flow forecast provided in the court filings.
Ted Baker has roughly 280 employees in Canada and roughly 350 in the U.S. The retailer has not specified how many jobs may be cut as a result of the store closings. In addition to its own stores, the company also operates six concession stores inside Hudson’s Bay locations in Canada, as well as 31 concession locations inside Bloomingdale’s and one in Macy’s in the U.S. It also has a wholesale business selling products to other retailers.
