BUSINESS

ALL HEMMED IN

THE FAILURE OF A ST. JOHN’S-BASED RETAILER IS THE LATEST SIGN OF SERIOUS WEAKNESS IN THE ECONOMY

BRENDA DALGLISH December 23 1991
BUSINESS

ALL HEMMED IN

THE FAILURE OF A ST. JOHN’S-BASED RETAILER IS THE LATEST SIGN OF SERIOUS WEAKNESS IN THE ECONOMY

BRENDA DALGLISH December 23 1991

ALL HEMMED IN

BUSINESS

THE FAILURE OF A ST. JOHN’S-BASED RETAILER IS THE LATEST SIGN OF SERIOUS WEAKNESS IN THE ECONOMY

Under different circumstances, the scene would have warmed the heart of any retailer. Dozens of bargain-hungry shoppers waited outside a crowded J. Michaels women’s clothing store in downtown Toronto last week, held back by a uniformed security guard who allowed customers to enter the shop only when others left. Far from signalling good times, however, the activity was the result of a financial crisis for the company that owns the J. Michaels chain, St. John’s, Nfld.-based Ayre’s Ltd. Earlier in the week, Ayre’s announced plans to close most of its 60-store operation, which also includes the Kristy Allan and Berries womenswear chains, by the end of the month, laying off 750 fulland part-time employees across the country. Company president Miller Ayre, whose family founded the firm in 1859, said that the company had not earned a profit since 1989. He blamed its problems on the year-old Goods and Services Tax, cross-border shopping and reduced consumer spending. Said an ashen-faced Ayre, who is also the current chairman of the Canadian Chamber of Commerce: “The last half of 1991 turned out to be much worse than we anticipated. We just did not have the war chest to withstand the drop in business.”

The impending shutdown is one of a series of developments that have sent shudders through Canada’s retail and clothing industries. Late last month, representatives of Toronto-based Dylex Ltd. said that it intends to close its 162 Town & Country stores across the country, eliminating 1,300 jobs by the end of February. Another major chain, Groupe sélection of Laval, Que., is currently negotiating with its creditors in an effort to keep open its 100 clothing stores in Quebec and Ontario. And on Dec. 2, the Bank of Nova Scotia registered a $20-million claim against the assets of Montre-

al-based Dalmys (Canada) Ltd., a 243-store operation that is experiencing its worst year since the firm’s shares began trading publicly in 1972. The bank’s action gives it the power to assume effective control of the money-losing womenswear chain if Dalmys defaults on its loans or fails to meet certain performance targets. Last week, Dalmys announced the shutdown of its 11-store U.S. division.

The downturn in consumer spending has afflicted other retailers, as well. Montrealbased Henry Birks & Sons Ltd., which is carrying about $100 million in debt, last week sold one of its U.S.-based jewelry-store chains and announced plans to close 12 of its Canadian locations over the next two years.

The closure of so many clothing stores has had severe repercussions for Canada’s gar-

ment makers. In the past two years, dozens of manufacturers have shut down or reduced their operations, eliminating 23,000 of 113,000 jobs. Now, in addition to being owed money by stores that have gone out of business, manufacturers have lost valuable clients—retail chains that used to place orders for millions of dollars’ worth of clothing each year. And garment makers face the additional threat of other major customers, such as the Hudson’s Bay Co., buying more of their goods from foreign manufacturers that offer wider selections at prices lower than those available in Canada.

The uncertain business climate has made it difficult for manufacturers to plan production of next season’s fashions. Says Peter Nygard, chairman of Toronto-based Nygard Interna-

tional Inc., one of the country’s largest garment makers: “It seems like every day or so, we hear of another retailer or manufacturer closing up. It’s very difficult to predict what to make in the future when you don’t know which customers are going to be around next year.” Nygard, who met his company’s accountants last week to discuss that concern, says that he has decided to decline orders from retailers who appear to be in serious financial trouble. Added Jack Kivenko, vice-president of Montreal-based blue-jean maker Jack Spratt Manufac-

turing Inc.: “In the past, our charge for bad debts was negligible. Today, it is a significant percentage of our sales.”

A further complication is that many of the garment retailers and manufacturers in Canada are privately owned and do not make public their financial statements. As a result, suppliers often have to rely on rumors and guesswork when taking stock of their customers’ financial condition. Earl Lipson, executive vicepresident of sock manufacturer McGregor Industries Inc. of Toronto, says that his firm, which supplies more than 3,000 retail clients across Canada, has “aggressively” increased its financial reserves to cushion the company in case one of its large customers goes out of business.

In addition to facing a low level of consumer confidence across the country, clothing manufacturers and retailers are being squeezed by

increased competition from U.S. companies that have moved into the Canadian market. Under the Canada-U.S. Free Trade Agreement, which went into effect in 1989, tariffs on apparel shipments between the two countries are being phased out over 10 years. The duty on U.S. garment exports to Canada now averages about 17 per cent, compared with 24 per cent in 1988. At the same time, several large U.S. retail chains have opened stores in Canada. They range from the Gap, which sells casual wear, to Talbot’s, a Hingham, Mass.based chain that specializes in high-priced womenswear.

Fearing the loss of customers, some Canadian retailers are looking abroad for suppliers that can offer them lower prices than those in Canada. Indeed, the Bay last month hosted a cocktail party in New York City for about 350 U.S. apparel manufacturers, all of whom are potential suppliers. The company's chief executive officer, George Kosich, told the group that he hopes to discourage Canadians from shopping in the United States by offering them lower prices and a broader assortment of goods at his company’s 89 Bay stores across Canada. Canadian consumers would benefit, but the development would be a further blow to Canadian clothing suppliers.

Although most economists predict that the Canadian economy will grow gradually next year, some apparel manufacturers are bracing themselves for another downturn. Says McGregor’s Lipson: “People are talking about the economy coming out of recession, but when you take a hard look at what’s going on out there, the D-word starts to become much more meaningful. We have to be concerned about what a depression implies for how we compete in North America.”

Still, a few suppliers claim that there will be positive longer-term developments from the shakeout. They add that current harsh conditions have put pressure on garment manufacturers as well as retailers to operate more efficiently. “There’s definitely a shift going on in the industry,” says Joseph Segal, chairman of Vancouver-based womenswear manufacturer Mr. Jax Fashions Inc., an Ayre’s supplier. “The good ones will get stronger, and the weak ones will go out of business.” In the meantime, bargain-conscious consumers can expect to reap the benefits of additional going-out-ofbusiness sales.

BRENDA DALGLISH

BARBARA WICKENS