Reitmans shutting down Smart Set stores, refocus on its other brands

MONTREAL – Shoppers will be losing another Canadian retail option after Reitmans announced Tuesday that it is closing all of its Smart Set womenswear stores.

The Montreal-based retailer said it will shut 107 Smart Set stores over the next 12 to 18 months, including 31 by year end or early next year.

About 76 locations will be converted to other company banners, which include Reitmans, Penningtons, Addition Elle and RW&Co., as well as Thyme maternity stores.

Reitmans (TSX:RET.A) had tried to refocus the Smart Set banner over nearly two years to appeal to a slightly older woman willing to pay a little more, but decided to abandon the efforts in the face of intense competition that has driven down prices.

“It’s a very, very difficult market and I guess we never had the appropriate focus for that particular customer,” president and CEO Jeremy Reitman said in an interview.

He said the decision will help the company “refocus its sales and merchandising efforts” and improve overall results.

Smart Set represents about 10 per cent of the Montreal-based company’s annual sales, which were approximately $960 million for the year ended Feb. 1. Reitmans has previously closed stores and cut costs as sales and profits have fallen over the last few years.

The banner joins a series of Canadian names that have closed or face threat of bankruptcy. Among them was womenswear store, Jacob, which abandoned efforts to restructure the chain and announced in October the closure of its 92 stores across the country.

There has also been an influx of American fashion retailers that have gradually built a Canadian presence in recent years.

While Target and Marshalls are two of the more notable newcomers, other big foreign brands like H&M and Banana Republic have increased market share by driving down prices. Mid-priced retailers such as Ann Taylor, Loft and J. Crew have also moved into the country after building reputations with cross-border shoppers.

Meanwhile, high-end department stores Nordstrom and Saks are moving in to compete against Holt Renfrew.

But Reitman denied that Smart Set’s problems were the result of the influx of U.S. retailers.

“There’s a lot of people in the space that have closed down or are closing down, which led them to reduce prices dramatically and that put a pressure on our pricing structure,” he said.

“It’s a very, very busy space and we are not in a position of dominance and we didn’t think we could grow to a position of dominance.”

Retail analysts said the decision to close Smart Set is not surprising.

“You can take the approach where you continue to do battle and eat into your war chest or refocus and figure out which horses to ride so that you can compete,” said Terry Henderson of JC Williams Group.

He said Reitmans tried to avoid the intense competition from low-priced rivals by adjusting Smart Set, but probably should have started sooner and been more aggressive.

Henderson said he expects other struggling fashion retailers will “throw in the towel” and expects to see fewer domestic companies around by spring.

Reitmans said it will incur non-cash asset writeoffs of $2.2 million after tax associated with the closures, which will be recorded in its third-quarter results being released Dec. 4.

The company’s adjusted profits are expected to increase 42 per cent to $8.2 million or 11 cents per share on quarterly revenues of $254.6 million, according to analysts polled by Thomson Reuters.

“I think Reitmans is very secure. We have a very strong balance sheet,” Reitman said.

Brynn Winegard, a marketing analyst at Winegard and Company, said Smart Set stumbled at least partly because the retailer failed to convince shoppers of a value level when they contrasted the quality of its clothing against the relatively discounted price.

“If Canadian shoppers saw the value they’d continue to pay the prices,” she said in an interview.

Winegard said Smart Set, the closure of Jacob and Target’s struggle in entering Canada demonstrate the losing battle retailers face when they refuse to launch an e-commerce platform in a country enthusiastic about online shopping.

“Companies that are located singularly in bricks in mortar, like Smart Set, who don’t have an online shopping option or who are in their brand-maturity phase, are not going to survive,” she said.

It wasn’t immediately clear how many people will lose their jobs as a result of the closures. About 40 employees working with the Smart Set banner at the head office will be transferred to the company’s other banners. Reitmans employs about 10,000 full-time and part-time employees across Canada at all its stores.

On the Toronto Stock Exchange, Reitmans closed down a penny at $6.14 on Tuesday.

— With files from David Friend

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Note to readers: This is a corrected story: An earlier version incorrectly stated overall Reitman revenues were $96 million.