The encyclopedia · Strategy & Leadership · Strategic decision · 2008–2020
DavidsTea built 200+ tea shops, then COVID gutted the format and it closed 124 of them
The Montreal tea chain built a huge retail footprint, and when the pandemic emptied its malls it shut 82 Canadian and all 42 US tea shops.
DavidsTea · 2020-07-09
What happened
DavidsTea, a Montreal-based tea merchant, grew from a founding in 2008 into one of North America's best-known loose-leaf tea retailers, selling its own blends through a large chain of bricks-and-mortar tea shops across Canada and the United States and listing on the Nasdaq under the ticker DTEA.
The retail-heavy model relied on footfall in malls and high streets, where customers could smell and sample the tea. When the COVID-19 pandemic shuttered indoor retail and emptied those spaces, the format's fixed costs — rent on over a hundred stores, staff, inventory — had no traffic flowing through them to cover the bill.
On July 9, 2020, the insolvent company said it was closing 82 stores in Canada and all 42 of its stores in the US, sending notices to terminate leases at 124 outlets effective in 30 days and cutting roughly half its workforce. Allowed to restructure under the Companies' Creditors Arrangement Act, it said it would focus on e-commerce and on supplying grocery stores and pharmacies instead of running tea shops.
Why it happened
- The format was a fixed-cost bet on footfall: a chain of sit-down tea shops whose rent and staff only paid off while shoppers passed through, so when traffic vanished the bill stayed.
- COVID-19 emptied the exact spaces the model lived in: mall and high-street retail were the first to be shuttered and the slowest to recover.
- High street tea shopping was a treat, not a routine: when the storefront was gone, customers could still buy tea online, so the shops had no captive reason to exist.
- The pivot was to sell tea where people already shop: groceries and pharmacies, plus the direct-to-consumer web business, which needed none of the 124 leases.
The lesson
A retail format built on a hundred leases is a fixed cost looking for footfall. When the traffic disappears, the stores become the bill — the survivors sell online and through groceries.
Aftermath
DavidsTea filed for creditor protection under the Companies' Creditors Arrangement Act, obtaining an Initial Order from the Quebec Superior Court to implement its restructuring plan. It announced on July 9, 2020 that it was sending notices to terminate leases on 82 Canadian and all 42 US stores, affecting about half of its workforce, and would focus on its growing e-commerce business and on supplying grocery stores and pharmacies with its tea products.
Sources
- CTV News (The Canadian Press), 9 July 2020 — DavidsTea closing 82 stores in Canada and all 42 stores in the US market (insolvent Montreal beverage retailer closing 82 Canadian and all 42 US stores, focusing on e-commerce and supplying grocery stores and pharmacies)
- Comunicaffe, republishing DAVIDsTEA Inc. (Nasdaq:DTEA) press release, July 2020 — DAVIDsTEA closing 82 Canadian stores and exiting all of its 42 US stores (further to obtaining an Initial Order under the Companies' Creditors Arrangement Act from the Quebec Superior Court, the Company is sending notices to terminate leases for 82 stores in Canada and all 42 US stores)
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