Le Château files for creditors protection, will go out of business

After more than 60 years, Le Château is going out of business.

The Montreal-based clothing retailer filed for protection from its creditors in Canadian court on Friday in order to liquidate its assets and shut down the business.

Le Château called the move “a very difficult decision,” one that comes after the company tried to refinance the business as well as sell it to a third party. The retailer said that the COVID-19 pandemic left it “with no option other than to commence the liquidation process.”

“The retail industry faced numerous challenges due to the ongoing COVID-19 pandemic and the second wave currently hitting our communities across Canada,” Le Château said in a statement.

“Its already evident impact on consumer demand for Le Château’s holiday party and occasion wear, which represents the core of our offering, has diminished Le Château’s ability to pursue its activities.”

The company’s application under the Companies’ Creditors Arrangement Act (CCAA) will be heard in Quebec’s Superior Court on Friday.

Le Château – which operates 123 stores across the country and employs 1,400 people – said it will remain fully operational throughout the liquidation process, if approved.

Le Château, a brand once synonymous with Montreal fashion and coolness, has been falling out of favour and struggling for years. Bruce Winder, a retail analyst who recently wrote a book about the impact of COVID-19 on the retail industry, says the company wasn’t able to connect with Gen Z and younger millennial shoppers.

“I think it had its heyday back in the ‘80s. When you needed to go to wedding or prom, or wanted something to go clubbing, you went to Le Château,” Winder said.

“When you’re a brand in retail, it’s difficult to be timeless. If you’re relevant to one generation, it’s incredibly difficult to be relevant to the next ones.”

Le Château’s decline coincides with rising challenges at traditional malls, which is where the company had focused its footprint. The company also struggled to compete with the rise of fast fashion retailers such as H&M and Zara, Winder said.

While Le Château’s turn to creditors protection was not surprising given its financial challenges, the decision evoked nostalgia among many Canadians on social media.

Le Château is certainly not the only retailer to file for creditors protection through the COVID-19 pandemic, which has exacerbated issues at some companies and left many retailers struggling. Aldo, Reitmans, DavidsTea, Groupe Dynamite, Sail Outdoors Inc. and MEC have turned to CCAA amid the pandemic.

Le Chateau had signalled its precarious financial position in previous earnings reports, saying that “there are material uncertainties that cast significant doubt upon the company’s ability to continue as a going concern.”

In its most recent financial quarter, the retailer saw sales fall from $49.7 million last year to $14.7 million in 2020, a drop of more than 70 per cent. In the first half of the year, the company lost $13 million, or 43 cents per share, compared to a loss of $11.1 million, or 37 cents per share, in 2019.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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