What led to Le Chateau closing its doors?

Once beloved by young, fashion-conscious Canadians, the retailer had struggled to make its 100-plus stores pay off.
Le Chateau entrance

After filing for creditor protection on Friday, Le Chateau revealed itself as the latest example of a story that has become common among Canadian fashion retailers: the new challenges of the pandemic have made some unable to recover from existing challenges they had been grappling with for years.

But unlike other retailers that have sought creditor protection with plans to emerge as a leaner company, Le Chateau is winding down operations entirely, with liquidation processes for its 123 stores in Canada proposed to begin no later than Nov. 1.

From the late 80s through to the early 2000s, Le Chateau was known for being one of the first places fashion-forward looks were made accessible to younger people. However, that role has since been overtaken by fast-fashion retailers, leaving Le Chateau to cater to a slightly older shopper – while the dresses, prom attire and club-ready looks remain, its assortment has been skewing towards professional and business-casual looks in more recent years at a slightly premium price point. That left the retailer in what has been the hardest hit segment of the fashion retail sector: it wasn’t cheap enough to be considered fast-fashion, but premiumization efforts did not deliver the allure of a luxury brand.

Over the last three fiscal years ending Jan. 25, as well as the current fiscal year-to-date, Le Chateau’s combined net loss was $130 million, according to filings from CCAA monitor PwC; losses for the most recent fiscal year alone totalled $69.2 million, citing a changing retail environment, increased competition from online retailers and the costs associated with operating a national chain of stores. This resulted in attempts to create a more manageable bricks-and-mortar network: after hitting a peak of 243 stores in 2012, Le Chateau has since moved to “right-size” its retail footprint, closing 122 over the last eight years to focus on top-performing stores and key markets.

While investments into ecommerce resulted in online sales totalling $23 million in the most recent fiscal year, that accounted for 13% of total sales, meaning the vast majority of its revenue came from the bricks-and-mortar channel that continued to be in steep decline.

That decline was worsened by the closure of all Le Chateau stores in Canada on March 18 due to the pandemic. The stores were later reopened from the beginning of May to the end of June, but ongoing consumer uncertainty about entering indoor retail spaces and a lack of demand for new fashion means the company has still been experiencing an average sale decline of 50% across its stores, with uncertainty about the COVID-19 pandemic making any future ramp-up of sales hard to predict.

In July, Le Chateau said as part of a delayed annual earnings report that its future would be determined by its ability to obtain necessary financing, refinance its debt or renegotiate terms with landlords and lease holders for its stores. While it had been able to secure rent agreements with several landlords, according to filings, Le Chateau solicited 105 possible investors, lenders or buyers for the company beginning in August; by the end of September, only one had returned with a letter of interest, which contained terms the company would not be able to achieve.

Of the nearly 30 Canadian retailers that have filed for creditor or bankruptcy protection since mid-March, 11 are in the fashion and retail business. Unlike Le Chateau, however, many entered protection in order to right-size their organizations or rebuild from scratch without the burden of debt and losses, or else find a new buyer for their company.

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