What the Heck is Going on with Le Chateau?

Le Chateau’s financial performance in the last four years tells a story of a company currently in transition as they realign their business model to a new economic reality.
Le Chateau's financial performance in the last four years tells a story of a company currently in transition as they realign their business model to a new economic reality.

Canadian retailer Le Chateau sells apparel, footwear and accessories for men and women. Founded in Montreal by Herschel Segal in 1959, the company began importing trendy styles from the fashion capitals in Europe in 1962 after Segal’s initial business strategy failed and he lost all his money. In a 2003 Canadian Business interview by Ryan Starr, Segal is painted as a man ahead of his time who claims to have been responsible for ushering in a new era of style for the youth of Canada who had “nothing like [the clothes he was importing] in Toronto, or New York for that matter,” and who were excited to get their hands on the more trendier European fashions. Le Chateau as a fashion forward company may seem unfathomable today, but in 1969 John Lennon and Yoko Ono were photographed in bell-bottomed, velour jumpsuits from Le Chateau after their bed-in for peace — the modern day equivalent is akin to seeing snaps of Beyonce and Jay-Z dressed head to toe in the Canadian brand. If you think about it that way, the bed-in for peace was a pretty cool moment for the brand.  

le chateau
Image: National Post

In this century, Le Chateau is better known for producing clothing for many different occasions at mid-range prices for men and women. Although, it might be argued that they have a bit of a reputation for producing lower quality garments more suitable for nightclubs and bars (earning them the nickname “Le Crapeau”), they have been working hard to shake this perception and to elevate the quality of their clothing and their image.  Between 2012 and 2015, they underwent an enormous rebrand, completely updating the look and feel of their stores, improving the quality of their products and repositioning their brand to target former customers who were loyal in their youth but were now looking for stylish yet professional apparel. They hired creative agency Sid Lee to help reposition the brand and emphasize it’s Canadian heritage in what was their first advertising campaign in five years. If you haven’t noticed, Le Chateau is now often referred to as Le Chateau of/de Montreal which is undoubtedly meant to remind the consumer of a higher end fashion house as well as its city of origin and Canadian roots.

Their financial performance in the last four years tells a story of a company currently in transition as they realign their business model to a new economic reality. The company has reported net losses of over $35 million for the past three years ($37.2 million in 2016 and a loss of 35.7 million in 2015). Meanwhile their sales have been decreasing each year since 2013. They attribute this to the fact that they’ve been shuttering poor performing stores (down to 187 in 2016 from 222 in 2014) in order to consolidate their business and move more sales online. Le Chateau, as a business, is making less money each and every year, while also investing considerable amounts into store renovations, marketing, and more developed e-commerce capabilities, including a $1.1 million dollar warehouse to service online sales. They’ve been paying for this with debt. Lots of debt. And currently, with what is a negative cash flow, they can really only stay operational with appropriate external financing (i.e. borrowing money or issuing shares), should they be able to get it.

Le Chateau is clearly making big investments they believe will help them adapt to a market that is undergoing some big changes and that will pay off in the long term. The company seems to be not only committed to this gamble of a strategy but doubling down on it at a time when other Canadian brands are really suffering.

le chateau
Le Chateau’s Wedding Collection (Image: Instagram/@LeChateau)

In general, it’s nice to see a Canadian company being proactive about the changing marketplace, but it seems like their reorientation is a bit confused. They simultaneously want to remind people of their Canadian heritage and who they were in the past through their rebrand. However, they are also catering to an older more mature client base looking for stylish yet affordable office, evening and bridal wear. In a marketplace flooded with other fast fashion brands, differentiation is key and it remains to be seen if Le Chateau’s new strategy and identity will be enough to help it survive and stand apart from its competitors.

At the end of the day whether this gamble pays off or not is up to the Canadian consumer. Will their new strategy be enough to save them and if it doesn’t, what would the effect on the Canadian retail landscape and consumer really be? 

Would you miss Le Chateau if the store shuttered? 

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