Dive Brief:

• The U.S. unit of the Canadian outdoor apparel brand Roots is set to liquidate in bankruptcy.
• Roots said in a press release that the subsidiary, Roots USA Corporation, would close seven of its stores in Chapter 7 bankruptcy. That includes locations in Boston, Washington, D.C., Chicago, and a pop-up in New York. The parent company took over two stores, in Michigan and Utah, to keep them operating.
• For fiscal 2019, the seven U.S. stores that are closing generated an adjusted earnings loss of around CA$6 million ($4.2 million), according to Roots. The company said further that “the discretionary retail environment [has] become increasingly challenging as a result of COVID-19.” 

Dive Insight:

Roots hasn’t given up on the U.S. The company said that it “continues to believe in the U.S. market opportunity.” But its physical presence was a money-loser even before the pandemic crisis shut down most of the apparel retailers in the country. 

Going forward, Roots “believes a principally eCommerce-based distribution in the near-term is the best approach to continuing to serve its loyal U.S. customer base,” the company said. The exceptions are the stores in Utah and Michigan that it plans to continue operating, longstanding stores that “play important roles in the Company’s heritage and have well-established customer bases,” Roots said. 

The U.S. subsidiary entered Chapter 7 with about $9.6 million in assets and $15.4 million in liabilities, according to court documents. 

Last year, the retailer as a whole was able to slightly boost its sales with help from a 1.4% increase in its direct-to-consumer sales (comparable sales fell 0.3%). But the company’s operating profit fell and it posted a net loss, in part due to a fourth quarter that fell below expectations on “inefficiencies that drove increased costs,” interim CEO Meghan Roach said in the release. The company’s newer U.S. stores were also a drag, with their CA$6 million adjusted EBITDA loss for the year. ​ 

The pandemic has only heightened the company’s challenges. Like scores of other retailers, Roots has temporarily closed its North American stores as the world tries to slow the spread of COVID-19. With its business on pause, it has temporarily laid off employees at its stores as well as a leather factory in Canada. 

The pandemic has made a tough market for apparel and other discretionary retailers even more brutal, as closures eat up liquidity and the prospect of a deep recession and a protracted struggle with the coronavirus leaves many companies with an uncertain financial future. 

J. Crew and True Religion both entered Chapter 11 already citing challenges from the pandemic. Many more are on the edge, with experts predicting coming waves of retail bankruptcies and store closures this year.