Stokes, a Montreal-based tableware, kitchenware, and home décor retailer with 147 stores across Canada, intends to permanently close about 40 of its locations after it sought protection recently under the Bankruptcy and Insolvency Act.
Olivier Benchaya, partner with Richter Advisory Group, the trustee, told Retail Insider that the company had put into place its restructuring plan which included the closure of stores and it was liquidating the inventory in those 40 stores when the COVID-19 pandemic hit.
“And everything had to be brought to a halt,” he said. “The stores were closed I believe on March 19 and since then what the company has done is they’ve really tried to reduce expenses to minimize cash flow impact and preserve liquidity.
“The positive is their online platform responded very well. The volume increased significantly. So that has been helpful. The head office is partially functioning. The warehouse there’s distribution going out of there. But mostly the employees are working from home.
“What we’re doing now is working with the company and their advisors to put together a plan for go forward with the business post-COVID and what that can look like. That includes sales assumptions, perhaps further head count reductions, or additional store closures. We’re not certain at this point. We’re looking at the alternatives. We’re essentially putting together that post-COVID plan of re-opening the stores and how that can translate into sales and also more importantly how the online platform will now take on a larger role given what we’re faced with. They’re going to be investing in that technology even further and improving the overall customer experience on the online platform.”
He said the company has identified 40 stores that are being closed but it will take about two to three months to liquidate that inventory. That process began prior to the COVID outbreak.
“Once (Stokes) re-opens they will be opened for a period of about two months to liquidate the inventory, two to three months. And then after which time they will be permanently closed,” explained Benchaya of the stores set for closure.
On February 18, Stokes announced it had initiated the process to reposition its business for future growth and profitability by filing a notice of intention to make a proposal to its creditors.
“After many years of solid financial performance, Stokes, like most other retailers, is adapting to fundamental changes in the industry, including how customers shop. To better compete in today’s retail environment, Stokes will be reducing its retail footprint in Canada and streamlining its head office operations. The Company will continue investing in its online business which has experienced material growth over the last few years,” said the news release.
“Stokes will be closing its less profitable stores while maintaining the majority of its retail locations across Canada and its head office operations in Montreal, QC. Once the restructuring is completed, Stokes will continue to employ approximately 1000 Canadians. The Company’s management is confident that, through the restructuring process, Stokes will emerge as a healthier and more profitable business, well positioned for long term success to the benefit of all stakeholders.”
The company was founded in 1935. In a court document, Stokes said, like many other retail chains, it fell victim in recent years to adverse macro-trends, including changing consumer preferences, expensive leases and a general shift away from brick-and-mortar to online retail channels.
“Increased competition from discount and online retailers has exerted significant downward pressure on pricing and margins and, notwithstanding the Company’s efforts to implement measures to improve its performance, it has not been able to return to profitability,” it said.
Other factors included: store performance in Western Canada and Alberta in particular has been below expectations; the increase of the minimum wage across several regions has affected the cost of instore labour; the high cost of rent in certain store locations as a result of certain existing long term leases; and significant costs and lost revenue resulting from the implementation of a new enterprise resource planning system and new warehouse management system.
It said that for the 11-month period ending December 28, 2019, Stokes recorded a net loss before taxes of approximately $6,014,000. For the 12-month periods ending on January 26, 2019 and January 27, 2018, Stokes recorded net losses before taxes of approximately $656,000 and $2,456,000 respectively.
