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Groupe Dynamite Files for and Obtains Creditor Protection Amid Pandemic Struggles

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On Tuesday, Montreal-based fashion company Groupe Dynamite filed for and obtained creditor protection to restructure its operations. The company operates stores in Canada as well as internationally under the Dynamite and Garage banners.

French language publication La Presse first reported Tuesday that Groupe Dynamite had filed for and obtained protection under the Companies’ Creditors Arrangement Act. A Chapter 15 filing will be sought in the United States Bankruptcy Court in due course.

It’s not yet clear how many stores will be closing as negotiations with landlords are said to be ongoing to determine which stores will remain open. Groupe Dynamite operates 400 stores under the Dynamite and Garage banners globally in eight countries. While Canada is the biggest market in terms of store count, Groupe Dynamite operates 82 Garage stores in the United States as well as three Dynamite locations. The company has franchised stores in the Middle East as well.

EXTERIOR OF GARAGE LOCATION. PHOTO: GROUPE DYNAMITE

According to its website, Groupe Dynamite has 5,200 employees and has operated since 1975. Montreal-based Andrew Lutfy owns Groupe Dynamite as well as development firm Carbonleo which built the Montreal Four Seasons Hotel and Private Residences and is also building the highly anticipated multi-billion dollar Royalmount project in Montreal which will include a large shopping centre component as well as residential and other uses — Royalmount is said to be at least six months behind schedule according to a broker familiar with the situation.

As of press time, information on debts owing by Groupe Dynamite were not made available. Online sales grew substantially during the pandemic at Groupe Dynamite while stores were closed. Moving forward, the company will continue to focus resources to its online channels.

At about 7:30pm on Tuesday, Groupe Dynamite issued an English language press release on the filing. Included is information and quotes.

The release states, “After record performance in 2019, Groupe Dynamite, Inc. was again exceeding expectations early in 2020, but COVID-19 caused an unexpected and unsustainable strain on the business. The ongoing pressures of store closures, social distancing measures, closed borders adding to lack of tourism and global economic uncertainty, which have no end in sight, have led the Montreal-based retailer and its Board of Directors, to face the reality of a new retail paradigm and proactively restructure their business model.”

Andrew Lutfy began working as a store clerk at Dynamite in 1982 and he quickly took over operations for the business where he was promoted to President of the entire organization in the mid-1980s. Mr. Lutfy became the sole shareholder in 2002.

In late 2019, Groupe Dynamite put in place a legal Board of Directors, and had recently hired a new President and CEO, Liz Edmiston, as part of a strategy to build the retail brands and digital capabilities to compete on a global scale. That was until the pandemic hit in mid-March. Prior to Ms. Edmiston’s hiring, Mr. Lutfy himself ran the business after Anna Martini exited the company in the winter of 2017.

“This pandemic has created a corporate tsunami” said Mr. Lutfy. “At the end of the day there are many things we control, but unfortunately not the impacts of this global pandemic. We’ve come to terms that the impacts of COVID-19 will be felt until such time as we can dance at weddings and crowd into office elevators, and have open borders without quarantine restrictions.”

“Our digital channels have experienced incredible growth over the past six months, but unfortunately not enough to offset empty city centres, and change of consumer needs as a result of work from home policies. However, in these uncertain times our strong brands make customers happy, and emotional connections matter.”

“The last six months have accelerated a digital revolution and we must rapidly course-correct our business model to reflect this important shift. Therefore, making this incredibly emotional and difficult decision at this time speaks to our deep responsibility towards all of our employees, customers, secured creditors and key stakeholders, and we are confident the outcome will result in a stronger business model that can thrive – even in a crisis.”

Mr. Lutfy said that the restructuring will have no impact on the 530 head office and warehouse employees, and minimal impact to Groupe Dynamite’s 3800 store employees who will be offered transfer or relocation options should their store close.  As well, the press release noted that there will be no negative impact on any of his other affiliated businesses or investments.

Groupe Dynamite is one of numerous Quebec-based retail chains to file for creditor protection since this spring. Last week, Montreal-based men’s fashion retailer Ernest filed for creditor protection, joining other Quebec brands including Reitmans, Aldo, Tristan, Laura Shoppes, Lole, Frank And Oak, SAIL/Sportium, David’s Tea, Stokes, Bestseller Canada, and others. A record-breaking number of Canadian retail chains have also filed for creditor protection since the spring, with thousands of store locations closing as a result.

Landlords are struggling to fill all of the vacant spaces left by retailers closing stores. Many of Canada’s retailers are in the process of restructuring in one way or another and the store closures will continue to increase. One industry expert told Retail Insider that we are likely to see another wave of bankruptcy filings as wage subsidies end. January 2021 will also be a particularly challenging time as retailers assess operations following the December holiday shopping season.

Uncertainties leading into the fall will have retailers and analysts on their toes. As students return to schools, many are expecting Canada to see a spike in COVID-19 cases in Canada. One doctor in British Columbia said that they expected a second shutdown to happen in that province as soon as October. Further uncertainties include an election in the United States in November.

On the bright side, some retailers in Canada are saying that sales are up over last year at this time. That includes luxury brands and jewellers. Canadians with money who otherwise may have traveled internationally are staying at home and treating themselves by purchasing coveted goods. Retailers in tourist destinations in Canada are also saying that sales are up as domestic travel reaches new heights amid international travel bans.

Numbers from Statistics Canada are showing that retail sales have bounced back in Canada since the March economic shutdown. That doesn’t take into account lost profits during the shutdowns as well as current profitability given increased costs of doing business at the moment. The next few months will be critical to the survival of retail in Canada as well as the foodservice and fitness industries.

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