Canadian clothing retailer Frank And Oak is looking for potential buyers or investors as part of a plan to restructure its business after filing for protection under Canada’s Bankruptcy and Insolvency Act in June.
Shareholders advised Frank And Oak “of their clear intention to no longer fund the losses of the company.”
Montreal-based Modasuite Inc., which operates under the name Frank And Oak, has submitted a restructuring plan to the Superior Court in Quebec, which includes launching a sale and investment solicitation process (SISP), and reducing its retail footprint across Canada.
In a report submitted to the Superior Court in Quebec on June 25, Frank And Oak’s trustee for its insolvency proceedings outlined a three-part plan to help the company restructure. According to documents obtained by BetaKit, the plan includes significantly reducing Frank And Oak’s brick-and-mortar presence, implementing measures to reduce operating costs, and launching the SISP.
The decision to enter formal restructuring under the Bankruptcy and Insolvency Act follows Frank And Oak’s existing shareholders advising the company “of their clear intention to no longer fund the losses of the company.”
Frank And Oak has previously been backed by the likes of Rho Canada Ventures, Caisse de dépôt et placement du Québec (CDPQ), Goodwater Capital, and Investissement Québec.
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Filings for Frank And Oak under Québec’s business register list CDPQ, through its subsidiary CDPQ Investissements, as the largest shareholder in Frank And Oak, with Goodwater Capital listed as the second-largest shareholder, followed by Investissement Québec. The corporate registry documents list Marc Baillargeon, Frank And Oak’s chairman of the board and operating partner of private equity for CDPQ, as one of the retail company’s administrators.
Frank And Oak, which operates 20 stores across Canada, is looking to potentially close 17 locations. The reduction would leave Frank And Oak with one brick-and-mortar store in Ontario and two in Quebec.
As part of the plan to close the retail locations, the company is set to host a liquidation sale of all its retail inventory as well as furnishings, fixtures, and store equipment. The sale is set to be completed, according to the insolvency documents, no later than August 31.
Frank And Oak originally launched as an e-commerce-first clothing retailer for men in 2012. The following year, the company opened its first brick-and-mortar locations in Montreal and Toronto.
“Too many stores for the size of the market, particularly, given the continuing trend towards online purchases.”
In documents obtained by BetaKit, the startup, which at one point also opened United States locations before pulling out of the country, partly attributes its financial struggles to an excess of stores for the size of the Canadian market. The insolvency documents note “unsustainable occupancy costs” due to a “high proportion of stores not being profitable,” as well as an overhead cost structure that was too high for the level of sales it was making.
“[Frank And Oak had] too many stores for the size of the market, particularly, given the continuing trend towards online purchases,” the document reads.
The document also outlines financial difficulties and losses over the past few years. Frank And Oak recorded losses of $7.6 million and $3.8 million in the 2018 and 2019 fiscal years, respectively.
Like many retailers, Frank And Oak also faced significant challenges due to COVID-19.
On March 18, Frank And Oak was forced to close its stores, and subsequently laid off all retail employees along with approximately 30 percent of head office staff. Since businesses have been allowed to re-open, Frank And Oak has opened 13 of its 20 locations.
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“In addition to the significant losses and disruptions caused by store closings, the COVID-19 crsis has had … [a] material impact on Modasuite’s business: the profitability of stores that have reopened is dramatically decreased due to significant costs associated with safety measures and limited client traffic; and the investor landscape has been dramatically affected, hindering Modasuite from attracting additional investors,” the insolvency documents reads.
With a plan to re-focus its efforts on e-commerce, Frank and Oak is now seeking new investors or a potential buyer through the SISP. According to the insolvency documents, the sale and investment process was set to launch June 29, with offers due by September 2, 2020.
Frank And Oak is currently in debt for approximately $18.95 million, with $5.72 million of that owed as a line of credit and term loan provided by Desjardins in June 2019.
The retailer also owes $1.97 million in sales tax payables and vacation pay to staff. Another $11.26 million is listed as being owed to unsecured creditors. Frank And Oak’s projected cash flow for the period between June 14 and September 30, while it proceeds with the SISP, is expected to be $589,000 in net cash flow.
Image source Frank and Oak via website