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Montreal's Beyond the Rack files for creditor protection

Montreal eCommerce fashion retailer Beyond the Rack has filed a document in Quebec Superior Court, under the name 7098961 Canada Inc. (formerly known as Beyond the Rack Enterprises Inc.), demanding protection under the Companies’ Creditors Arrangements Act (CCAA) and appointing the Richter Advisory Group as a court appointed monitor.
The document concludes, “As a result of the Company’s deteriorated financial condition and liquidity issues, it is unable to continue operations in the near term absent (i) stay of proceedings and (ii) increased liquidity provided by an interim financing.”
Unaudited financial statements included in the document say the company lost $17.1-million in 2016. Audited statements say the company lost $29.5-million in 2016 and $11.0-million in 2014.
The document reports that Beyond the Rack’s net sales fell from $133.1-million in fiscal 2015 to $96.0-million in 2016 (unaudited).
Founded in 2009 by Yona Shtern and Robert Gold, Beyond the Rack successfully closed five funding rounds, totaling $98.6 million U.S., the most recent being a $10 million debt financing round facilitated by the Silicon Valley Bank in October 2014, and before that a $25 million Series C round led by Investissement Québec, Iris Capital and Tandem Expansion.
At the time, Iris Capital partner Alexander Wiedmer said, “As a global investor we have broad exposure to e-commerce internationally and have been impressed by Beyond the Rack’s world-class unit level economics and operations. It is ideally positioned to be an industry and market leader as e-commerce continues to expand in both Canada and the United States.”
The court document says, “Since inception, the Company has incurred significant financial losses as it engaged in aggressive and costly marketing campaigns aimed at increasing customer growth and establishing its e-commerce infrastructure. The financial losses were supported primarily through debt and private equity placements. Despite efforts deployed by Management and financial advisers, the Company was not able to raise new sources of capital and relied upon its existing investor base and secured lenders to fund operations and support its growth.”
Not too long ago, founder Yona Shtern claimed that Beyond the Rack was the number three eCommerce site in Canada behind Amazon and eBay and eagerly gunning for the number one spot, with sales topping $50 million in the company’s second year and $100 million in its third.
Beyond the Rack declared $150 million in sales in 2013.
In 2012, Shtern proudly speculated that Beyond the Rack was on track to become a $1 billion company within the next five years.
At least one ripple of trouble did present itself in recent times, however.
Last month, The Fashion Law reported that Beyond the Rack was being sued by Gucci, who filed a lawsuit in the Southern District of New York Court alleging that Beyond the Rack was selling fake Gucci bags.
And last week, an ex-employee sent a tip to Montreal radio station CJAD that he/she had been laid off without notice or severance by a supervisor citing “tough financial times”.
“He just started calling people into their offices and there were mass layoffs. It was across the board, it was our merchandising team, our tech team, our customer service,” said the ex-employee.
Only last month, Beyond the Rack appeared fit enough to be a rumored M&A target for brick-and-mortar off-price retailer Ross Stores.
Asked by Forbes to comment on the idea of a marriage between Ross and Beyond the Rack, Yona Shtern said, “We have always felt that there existed big synergies between online and offline players in off-price retail – especially when both parties served a similar customer demographic,” adding, “In the mid-market both Ross Stores and TJX would match up nicely with Beyond the Rack.”
Beyond the Rack’s actions highlight not only the challenges inherent in retail in general, but it also somewhat surprisingly calls into question the overall viability of eCommerce as an attractive investment vehicle in the tech sector, particularly given the level of hype that eCommerce receives relative to unsexier verticals such as cleantech or supply chain technology or robotics.
On the retail front, it has been a bad couple of years for high-profile physical retail fashion chains in Quebec, with Parasuco laying off half its staff and and closing stores before filing for bankruptcy last February, or Jacob closing all 92 of its retail stores in October 2014, in addition to Bikini Village and Mexx filing for bankruptcy.
The disappearance of yet another brick-and-mortar chain surprises no one these days, what with the apparent triumph of eCommerce suggesting that the physical world has effectively been “disrupted” through pressures imposed by the ephemeral convenience of online shopping.
Beyond the Rack, however, has been so regularly and consistently touted as a made-in-Quebec eCommerce success story that its failure somewhat begs the question: If Beyond the Rack can’t build a successful eCommerce fashion company, who can?

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  1. Great article, Terry. Beyond the Rack is a laughable company. No surprise an arrogant CEO with a specialization in marketing blew all the companys funds on marketing related endeavours.
    Yona Shtern – when BTR goes bankrupt, for your next company try putting some thought into how to properly take care of your customers first, before you go blowing your investors money on marketing. BTR had zero dedication to customer service, zero dedication to customer experience (do you even know the difference between the two?), zero dedication fast shipping and 100% dedication to marketing. You were marketing an atrocious excuse for an ecommerce business.
    Have you heard of this company called Amazon? Try contacting Jeff Bezos at jeff@amazon.com for more information on how to properly run an ecommerce business.

  2. He doesn’t give a shit about customer service or warehouse or anything outside of Merchandising and Marketing. I feel sorry for those working at BTR. It isn’t their fault when people rage, it is Yona’s

  3. the company has been running events on their Website for a Month now with no intentions of actually fulfilling customers orders. They have not paid their vendors nor their couriers, so no merchandise has entered nor left the building over the past month. This is pretty sad considering the company takes customers money up front when the purchase is made on the site.

  4. More disturbingly, the company laid off over 40 warehouse employees last week and are now using agency workers in their place. I hope the laid off employees file a complaint with the Normed du Travailles, that is just pathetic.

  5. How can a company be trusted when not only does the merchandise take forever to ship, but it’s also fake?
    I know first hand, as I purchased two Burberry scarves from BTR that were fake, and I’m not the only one. Scour the internet and you’ll get reviews after reviews of people receiving fake products from BTR.
    Apparently it’s been going on for a while now and BTR has done nothing to improve or take responsibility for fake suppliers. What corporate values does this company have when this happens?

  6. i would buying from them as they have laid off all warehouse people, no receiving, no picking no packing no shipping, nothing, so i have no idea why they still have the sight up and running for,

  7. I agree with you 100% Michael regarding BTR with customer service. What is surprising Mr. CEO Yogi sent me an email saying we are having difficulty and we will make it up; however, they already declared bankruptcy and he sent out the email after. How much integrity does he have. It is best that he sell his home and boats and pay back all those people that have credits. He is a pompous arrogant human being. I hope he can sleep at night. He sounds like the brother of Bernie Madoff.

  8. Yona Shtern should not be given credit for any success of this company, he was the main reason for it’s failure. It was doomed from the first day that I met and listened to how he spoke. He is amazing at speaking a good game, but Yona is about Yona, and that was clearly defined the moment we met. I do have to say that in all of my career history he is probably one of the strongest worst leaders a company could have had at the top, the board of directors should be held accountable for that decision. However, when you have a boy’s club running the show, as a former colleague taught me “It is What it Is”. The sad thing about this tragedy, are the employees and the customers. The marketing department was Yona’s baby, and both Richard and Yona were less than dishonest most of the time, which again is one of the reason’s for the continued downfall. In my time with Yona, the best life learning lesson I took away was what I never want to be in business. Yona will come out of this just fine, people like him always do. My hope is for the employees that were mislead that the next job they have, that they will take a job where they are truly appreciated for their hard work and efforts. Always a life lesson in everything.

  9. I believe I have been had by them also….I have an order outstanding with them and have sent back another item and want my money back….should I be contacting my credit card company do you think

  10. We sell on Beyond The Rack, They owe us $12,000. Any chance of us getting the money? Or do you know what we should do next?
    Thanks so much

  11. I think I am in the same situation. I have several orders not fulfilled and I also have a credit with BTR for items returned.

  12. Yes, contact your card company asap- that is what I’ve been advised to do with my issues with them. 🙁

  13. I had a BTR credit of $178.44 that disappeared one day towards the end of September, when I contacted them I was advised that it was due to a system update and that it would be rectified within 48 hours. I contacted them 3 days later and was told that they were still having technical difficulties and that it would be 3-5 days. I contacted them again the following week as my credit was still not reinstated and they told me they would advise me accordingly – whatever that means. I sent an email to customer service and they called me that day and informed me that “unfortunately they would not be able to honor my credit because it was in the old system” even though they can see it and they know that I am owed it there is nothing they can do. I am beyond outraged! This new company took over officially in May and my credit did not disappear until September so obviously they had no issue with me using it initially. I don’t believe for a second that they didn’t know their “update” would wipe out everyone’s credits! Anyone else in the same boat?

  14. Hi Lisa,
    I just had this same experience, I had a credit of almost $500, and i just noticed it wasn’t showing up last week, although it was there in September. I was told the same thing, that they won’t honour credits logged under old ownership and suggesting that I contact a consumer protection agency … have you done anything about this?

  15. I’m having the same problem with credit disappearing and they know how much down to the cent, so how could it be missing? I’m still waiting for 2 items to be shipped which I paid for cause my credit were “missing”. This is the last straw for me !!

    I had a credit on file with this company and a month after receiving the credit it disappeared and it has taken them 6 months to tell me I am SOL on the credit. They will not honour it. Here is the explanation from these crooks:
    “We apologize that it’s taken so long for us to advise you on this issue: Unfortunately, we can no longer honor those credits applied from orders made before May 25 due to the changes with our company ownership.
    As you may be aware, that Beyond the Rack went through a restructuring process that unfortunately took far too long to complete and has affected too many customers. The restructuring process, including the transfer of ownership was the reason why all orders made prior May 25, 2016, can no longer be refunded, in any form.”

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