Shoppers walk past Ted Baker, an upscale British-inspired clothing store within Eaton Centre in Toronto on May 13. Ted Baker Canada filed for bankruptcy last month, launching liquidation sales at many of its stores this week.Sammy Kogan /The Globe and Mail
The company that operates retailers Ted Baker, Lucky Brand and Brooks Brothers plans to close a number of stores in Canada and the United States 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 store closings follow shortly after Ted Baker’s British operations entered administration in March, a process under U.K. insolvency laws that allows companies to restructure or sell a business.
Ted Baker Canada was granted protection from its creditors on April 24 under the Companies’ Creditors Arrangement Act in Canada, and on the same day commenced U.S. Chapter 15 bankruptcy proceedings. The company faces “liquidity constraints caused in part by negative cash flows and working capital issues,” according to documents filed in the Ontario Superior Court of Justice.
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 licence with affiliates of New York-based Authentic Brands Group.
Authentic Brands also owns a number of retail and fashion labels, including Barneys, Forever 21, Juicy Couture, Nautica and Nine West. It owns the intellectual property of those brands and often licenses the retail operations to other companies.
In 2020, Authentic Brands partnered with U.S. mall operator Simon Property Group to purchase Brooks Brothers out of bankruptcy in a US$325-million deal, and also bought denim retailer Lucky out of bankruptcy for $140.1-million. Authentic Brands acquired U.K.-based Ted Baker for £211-million ($362-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 failing to pay suppliers leading up to and following the filing in Britain.
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.
Amid 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 licence 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..
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.”
Many retailers have noted that Canadians who are feeling the pain of inflation and multiple interest-rate hikes have been cutting back on non-essential spending..
In some cases, luxury retailers have been less susceptible to these trends. However, brands such as Brooks Brothers and Ted Baker fall in the “premium” segment of the market just below luxury, and shoppers 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.
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, according to a forecast provided in the court filings.
Ted Baker has roughly 280 employees in Canada and 350 in the U.S. The retailer has not specified how many jobs may be cut as a result of the store closings.