Montreal’s Beyond the Rack has fallen on tough times over the past year and now the company has obtained creditor protection in Quebec Superior Court.
According to the Toronto Star’s Francine Kopun, the beleaguered company burned through $100 million in venture capital funding from Investissement Quebec, Iris Capital, Tandem Expansion and Panorama Capital. Moreover, it owes $44.3 million, including $12.3 million in a secured loan and line of credit from Silicon Valley Bank and $6.1 million to Long Zone Holdings Inc.; $14.7 million to suppliers; $6.8 million in outstanding customer orders and $4.4 million in credit notes.
“We’ve solicited 423 potential buyers to date, and we’re asking for offers by April 18,” said a court appointed monitor representing Beyond the Rack. “We’re confident that we will find a buyer that will continue the business.”
Just two years ago Beyond the Rack was being hailed by investors and buzz word-enthusiasts as the next great venture to come out of Montreal (and it certainly did seem that way at the time). It’s co-CEO, former Saks executive Yona Shtern, has spoken at countless Montreal tech events, and is doubtless seen as a charismatic and well-liked figure in the community.
Unfortunately, as the Star made note of, the world of ecommerce has much changed over the past two to three years, with Amazon emerging and slowly boaconstricting its competition. It appears as though the American giant’s presence has played at least a small role in Beyond the Rack’s current fate.
According to the Wall Street Journal’s Khadeeja Safdar, many flash-sale sites like Beyond the Rack have struggled, despite signing up millions of members. Beyond the Rack struggled to turn a profit and spent its funds on “aggressive and costly marketing campaigns aimed at increasing customer growth,” according to court papers. It filed for protection with less than $1 million in cash, the documents show.
According to court documents, a conditional offer to purchase fell through on March 16.
The company launched in 2009 and sells a wide range of apparel and accessories, beauty and home decor products, primarily to customers in Canada and the United States. Beyond The Rack claims to have 14 million subscribers and more than 450,000 active buyers, but it has never made a profit and recently defaulted on its loans. The company lost $17.1 million in the fiscal year ending Jan. 31, as its sales declined 28 per cent to $96 million Canadian dollars ($73.4 million) in the fiscal year ended Jan. 31, down from C$133 million in the prior year.
In 2016, the marketing budget was slashed to $8.9 million from $23 million.
“Many (of) its peer companies are in a similar position, in that they have incurred financial losses and have yet to demonstrate a positive cash flow and financial stability,” according to court documents certified by CEO Yona Shtern.“Many of these companies have recently been acquired and have merged with traditional brick-and-mortar retail strategic partners.”
In advance of the filing, the company legally changed its name to 7098961 Canada Inc. The Star also mentioned that between the summer of 2014 and the end of 2015, the company reduced its workforce, which once stood at 450, by about 30 per cent.
“Financial losses accelerated in 2014 after a marketing-driven expansion strategy in the U.S. failed. A subsequent restructuring also failed to deliver profitability.”