Coronavirus pandemic forces Aldo to quicken its transformation plan

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Even before the COVID-19 pandemic stunned the retail sector with imposed shutdowns of stores and shopping malls that cratered sales, Montreal-based global footwear retailer the Aldo Group knew its business needed to change.

Last July, the company launched a transformation plan designed to increase the share of its sales from e-commerce, manage costs, and focus more on its wholesale and franchise businesses. The pandemic threw that plan into disarray. Financing the company was relying on fell through. Last week, Aldo secured creditor protection under the Companies’ Creditors Arrangement Act (CCAA).

Now, the evolution of the business has become more urgent – and Aldo has less time to get it done.

“The original transformation plan was going to take two and a half years. We’re now going to try to do the majority of it in the next six to nine months,” Aldo chief executive David Bensadoun said in an interview.

That will include closing approximately 300 stores, or more than 40 per cent of the company’s corporate-owned locations, where it will sell off inventory and equipment and terminate its leases.

Closings will be weighted more heavily in the U.S. market than in Canada, Mr. Bensadoun said. The company will be evaluating each of its locations, and shutdowns will include unprofitable stores and those with low customer traffic.

Even before the current crisis, the company recorded a loss from operations of $74.8-million for Aldo Canada and US$52.8-million for Aldo U.S. for the year ended Feb. 1, 2020. In total, Aldo Group had sales of US$1.28-billion for the year, according to court documents. The company has 725 corporately-owned stores and roughly 1,500 franchise locations around the world.

Aldo also needed capital for its transformation plans.

“We were going after long-term financing. We were at the end of that process in February and we had two offers on the desk,” Mr. Bensadoun said. “In early March when COVID hit, they were withdrawn."

Under those circumstances, the company expected to run out of cash by June, according to court documents. So, Aldo sought out interim financing instead. It now has a US$60-million credit facility from National Bank of Canada, which it expects to repay by May, 2021.

Aldo has been losing money for a few years, and the footwear business in general has been lagging, Mr. Bensadoun said. As the crisis hit the industry in March, those trends were exacerbated. According to data from research firm The NPD Group Inc., footwear sales fell 53 per cent in Canada in March, compared with the same month last year, and the category had already had a tough year.

“The top three hardest-hit segments [during COVID-19] – footwear, apparel and prestige beauty – are not too different than the segments that were hardest hit before the pandemic,” said Armin Begic, NPD’s executive director of the retail business group.

As for many retailers, Aldo’s e-commerce sales during the shutdowns have not been enough to make up for lost store sales. The company’s current sales volumes are only 25 per cent to 30 per cent of their usual levels.

Even so, it is clear that the pandemic is changing people’s shopping habits, and many retail executives – Mr. Bensadoun included – expect the pandemic will accelerate existing trends toward online shopping.

“As much as COVID is shaking our confidence in brick and mortar, we still very much believe in brick and mortar,” Mr. Bensadoun said. “I don’t believe in pure e-commerce plays for our kind of product. … We want to create a great shopping experience for the consumer. So we’re still very excited about shopping centres.”

With all its locations closed, the company has not paid rent at any of its stores in April or May. Asked whether that has created conflict with any of Aldo’s landlords, Mr. Bensadoun said that the company will be in discussions with them under the restructuring agreement.

Before the current crisis hit, Aldo had an internal name for its transformation plan: Sierra Nevada. The California mountain range sits next to Death Valley in the east; in the west, the landscape leads to the Pacific Ocean. The project is meant to reshape a company at the crossroads, hoping to steer clear of the desert.

“We’re going into this with a very clear plan,” Mr. Bensadoun said. “Aldo is going to come out of this stronger.”

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