DavidsTea to 'significantly reduce' number of stores and shift to online selling

Canadian tea chain DavidsTea is restructuring under the Companies’ Creditors Arrangement Act, the Canadian law that covers insolvent companies.

Company will file for CCAA protection on Wednesday

DavidsTea has 222 stores across Canada and the U.S., but the company is turning its focus toward selling primarily online. (David Horemans/CBC)

Canadian tea chain DavidsTea is restructuring under the Companies' Creditors Arrangement Act, the Canadian law that covers insolvent companies.

The Montreal-based chain will make its case for court protection from its creditors in a Quebec courtroom on Wednesday. It said in a press release it plans to take similar steps toward bankruptcy protection for its U.S. business.

The tea chain owns more than 220 locations across the U.S. and Canada, but intends to focus on being primarily an online seller of tea and other hot drinks and accessories and "significantly reduce" its store count.

"We expect to pursue discussions with our landlords regarding our network of stores," the company said.

"We will assess a number of factors, including whether we can reach agreements with landlords on more favourable lease conditions and, ultimately, may terminate a significant number of our 222 leases as we seek to right-size our retail footprint."

Declining in-store sales

Like many retail chains, DavidsTea stores have been mostly closed for several months now because of the COVID-19 pandemic. But sales have been declining in physical stores for several years now, even before the pandemic, the chain says.

The company warned last month that it hadn't paid rent on any of its stores for April, May and June and that it may seek a formal restructuring.

Amid COVID-19, the company says a good number of its customers have moved to buying their tea products online, so the company sees that distribution method as its future.

"DavidsTea intends to create a leaner and more efficient company and to accelerate its transition to an online retailer and wholesaler of high-quality tea and accessories," the company said. 

"Following a careful review of available options to stem the losses from its brick and mortar footprint, the company's management and board of directors determined that a formal restructuring process is the best option in the context of an increasingly challenging retail environment, further exacerbated by the COVID-19 pandemic."