The Physique Store Canada Ltd. is searching for creditor safety and shutting a 3rd of its shops as a result of its mum or dad firm stripped the Canadian arm of money and pushed it into debt, in accordance with court docket paperwork.
An affidavit printed by way of the corporate’s court docket monitor from Jordan Searle, who heads the Canadian arm, describes how troubles befell the retailer, whose mum or dad firm The Physique Store Worldwide Ltd. was purchased by European non-public fairness agency Aurelius for $355 million Cdn.
The Physique Store Canada introduced Friday it should shut 33 of its 105 shops and its e-commerce operations because it seeks to restructure itself below the Chapter and Insolvency Act. The information got here simply weeks after its mum or dad firm filed for creditor safety in Britain.
The Canadian department had 784 employees earlier than the filings have been made and about 200 shall be laid off by the top of March, in accordance with the court docket paperwork. Twenty head workplace workers and two contractors had their employment terminated Friday, the paperwork present.
Now, the longevity of the 48-year-old worldwide firm identified for its cruelty-free skincare merchandise hinges on its means to restructure in a number of markets.
Scenario ‘deteriorated sharply’ in December 2023
In Canada, the place The Physique Store has been a mall stalwart since 1980, discovering a path ahead might contain untangling the corporate’s funds.
The affidavit from Searle, who has been The Physique Store Canada’s normal supervisor since February 2023 and in addition runs its U.S. affiliate, mentioned the retailer’s mum or dad firm had “full management” of The Physique Store Canada’s stock, human sources, accounts payables, money administration and knowledge know-how.
The Physique Store is shutting down 33 shops in Canada and stopping on-line gross sales. Some specialists attribute the chain’s downfall to elevated competitors within the ethical-beauty house.
Since at the very least 2007, The Physique Store Worldwide used a money pooling association, the place The Physique Store Canada’s funds have been often despatched to the mum or dad firm which then took care of its Canadian arm’s lease and payroll obligations, Searle mentioned.
“The money pooling association has allowed The Physique Store Canada to function with little to no institutional debt, serving to it to climate a very troublesome interval for the retail business: the COVID-19 pandemic,” the affidavit mentioned.
“Rising from the pandemic, The Physique Store Canada’s efficiency has proven important enchancment and was on observe to being cash-positive by the top of this yr.”
The Physique Store Canada’s state of affairs “deteriorated sharply” in December 2023, the affidavit mentioned. The Physique Store Worldwide stored taking its cash however wasn’t paying distributors as a result of it mentioned it had misplaced entry to its financing and was slowing funds to collectors to preserve money, Searle mentioned.
The Physique Store Worldwide filed for administration within the U.Ok. on Feb. 13. Administration is a authorized course of that enables firms to restructure or wind down with out paying off all of their money owed.
Dad or mum firm took $42.9M in earnings throughout holidays
Requested about The Physique Store Canada’s claims, a spokesperson for the joint directors being utilized in The Physique Store Worldwide’s U.Ok. proceedings mentioned in an e mail the corporate had lengthy used money pooling however that course of ceased on the time of the administration “with funds then remaining with every subsidiary entity.”
On Monday, the Ontario Superior Courtroom of Justice granted measures together with a requirement for the corporate’s suppliers to proceed to offer the retailer with items and providers whereas it restructures and permission for shops to stop accepting reward playing cards and returns.
The Physique Store Canada made about $12 million earlier than curiosity and taxes in the important thing vacation purchasing interval from the beginning of November 2023 to the top of January 2024, which wound up with The Physique Store Worldwide, Searle mentioned.
Searle mentioned the mum or dad firm had taken $42.9 million from The Physique Store Canada’s accounts over that interval and remitted $21.8 million for payables and payrolls.
Searle referred to as the administration submitting “fairly a shock” and mentioned the day it was made, he realized The Physique Store Worldwide would not proceed money pooling.
By then, The Physique Store Canada owed $3.3 million to landlords, utilities and logistics suppliers, insurers and advertising businesses. The Physique Store U.S. has about $3.3 million US in overdue funds, Searle mentioned.
The Physique Store Canada felt it needed to file for creditor safety final week as a result of it was “confronted with mounting debt, no prospect of help from the U.Ok. mum or dad or Aurelius or return of its funds, and an incapability to fulfil e-commerce orders,” he mentioned.
“However for the improper withholding of the corporate’s funds, The Physique Store Canada would be capable to pay all its obligations in full.”
No means to ship to wholesale prospects
The Physique Store U.S. introduced it might stop operations on Friday. The Physique Store Canada is so built-in into the U.S. enterprise that the closure will make it “exceedingly troublesome” for the Canadian arm to entry stock from its shuttering U.S. warehouse and course of future requests, Searle mentioned.
The corporate has additionally misplaced the power to ship to its wholesale prospects, Buyers Drug Mart and Amazon.ca.
Buyers Drug Mart has stocked Physique Store merchandise since final summer season, when the businesses introduced a partnership that will see merchandise, together with its widespread physique butters, hit 25 shops. One other 25 areas have been anticipated to roll out merchandise this yr.
The partnership marked the primary time Physique Store merchandise have been offered in Canada outdoors the corporate’s shops.
