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DavidsTea seeks creditor protection and smaller store footprint

(Getty Images)
Quebec City: Old town street with David's Tea in french sign shop

DavidsTea (DTEA) filed for protection from its creditors on Wednesday, as the company looks to reduce its number of store locations and shift its focus away from bricks and mortar.

The Montreal-based tea seller, which operates more than 230 locations in Canada and the U.S., said in a news release that it is seeking protection under the Companies’ Creditors Arrangement Act “in order to accelerate its transition to an online retailer and wholesales of high-quality tea and accessories.”

All DavidsTea stores have been closed since March 17 due to the COVID-19 pandemic. The stores will remain closed through the restructuring process, but customers will be able to continue buying tea online through its website.

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The company said a formal restructuring was “the best option” available “to stem losses from its bricks and mortar footprint.”

“As we indicated before, our challenge is to restructure our North American retail footprint in order to decrease the ongoing losses caused by unprofitable stores,” Herschel Segal, the founder and interim chief executive of of DavidsTea, said in a statement.

“Both management and the board of directors believe that a formal restructuring leading to a significant reduction in our brick and mortar presence is the best path forward to ensure the long-term success and sustainability of DavidsTea and our beloved brand.”

DavidsTea chief financial officer Frank Zitella said in a statement that the company has been grappling with declining sales at its bricks and mortar locations for several years. The company had disclosed earlier that it did not pay rent at any of its locations from April to June. Zitella said the company will now try to reach more favourable agreements with landlords, but may end “a significant number” of its 222 existing leases.

“The transformation of our business model is necessary to position the company for a return to profitability,” Zitella said.

“We have to accelerate the transition of our business away from brick & mortar and focus on becoming the leading online purveyor of loose-leaf tea and accessories in North America, complemented by our growing wholesale business.”

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