The Body Shop Canada is exploring a sale as it struggles to get its hands on enough inventory to keep up with “robust” sales the retailer landed after announcing it would file for creditor protection and close 33 stores.
In an April 8 affidavit filed in a Toronto court on Monday, the head of the retailer’s Canadian operations said he has seen a “sufficient level of interest” in the business from parties to believe the company should pursue a sale.
Jordan Searle did not name who is interested in buying the skin care and cosmetics business that’s been in Canada since 1980. He and the company’s lawyers did not immediately respond to a request for comment.
Exploration of a sale marks the latest chapter for the beleaguered retailer, which announced plans to seek creditor protection at the start of March when its U.S. affiliate Buth-Na-Bodhaige Inc. also revealed it would close.
Parent company The Body Shop International, filed for administration – a form of creditor protection – in the U.K. on Feb. 13.
In the affidavit, Searle said it’s unclear whether the parent company would support a sale or try to preserve the retailer’s Canadian operations. A communications firm used by the company’s joint administrators in the U.K. said the business would not comment for this story.
Searle previously alleged in court documents that the parent company and its owner, European private equity firm Aurelius, of stripping the Body Shops’ Canadian arm of millions in cash and pushing it into debt, which forced it to file for creditor protection.
The Canadian, U.S. and British businesses are tightly intertwined through a cash pooling arrangement, in which the Body Shop Canada’s funds were regularly sent to the parent company who then took care of the Canadian arm’s rent and payroll obligations.
Searle’s affidavit said the parent would also ship inventory to a U.S. distribution centre and then arrange for logistics and shipping to Canada. Since the U.K. administration filing, The Body Shop Canada has received no inventory from the U.S. centre, where Searle estimates US$85 million in merchandise is sitting, court documents allege.
The situation has left the 72 stores that remain after The Body Shop Canada closed 33 last month in a crunch, where sales were $5.4 million higher than the company’s projections but inventory is lagging.
“Due to the robust sales, the company’s stores are facing the imminent risk of running out of core merchandise in the coming weeks, which would force it to close otherwise profitable store locations,” Searle said in his affidavit.
He added the company is trying to address the lack of merchandise by buying inventory from The Body Shop International’s U.K. warehouse and the U.S. distribution centre and purchasing goods that were en route to Canada when the creditor protection filing was made.
“A complicating factor associated with purchasing inventory located in the US distribution centre is that all of the inventory will need to be picked and packaged for delivery, but such individuals that would have previously performed such task were previously employed by The Body Shop U.S.,” Searle said in his affidavit.
The court filing was submitted to Ontario’s Superior Court of Justice as part of an application to extend to May 31 the deadline for the Body Shop Canada to file a creditor protection proposal under the Bankruptcy and Insolvency Act. The application was granted by Justice Peter Osborne.
Searle’s affidavit says the extension will give the Body Shop Canada “the requisite time to further its inventory replenishment efforts” and continue engaging with its parent company and others with “the goal of facilitating a going concern sale of the business.”
He added the company has been left with 570 employees and “does not have any further head count reductions planned.”