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When Philippe Vanier took a top job at Dylex Ltd. in 1999, he figured it was a good place to crown a rising retail career.

The Toronto-based holding company, which operated six retail chains, had a strong balance sheet and solid earnings. It was touted as a shining example of a company that had rebounded from the near death of bankruptcy protection.

"But six months later, it was a completely different company," says Mr. Vanier, a Canadian-born, U.S.-seasoned manager who in time became the last president of Dylex as a public concern.

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Those six months represented the last reversal of Dylex's roller-coaster fortunes. From then on, it was straight downhill. The final chapter is still being played out as the fate of Dylex's last two divisions, BiWay and Fairweather, is clouded by lawsuits and controversy.

It marks the breakup of a 34-year-old company, which ran some of the household names of Canadian fashion retailing. Many Canadians bought their jeans at Thriftys, then their first suits at Tip Top Tailors and dresses at Fairweather and Braemar.

Six years ago, Dylex almost went bankrupt and moved to remake itself. But it continued to suffer from weak management and one particularly bad decision: It was determined to reinvent its BiWay discount chain.

Even in Dylex's better days, "there was no discernible reason for this collection of assets," says Donald Thompson, a business professor at York University's Schulich School of Business. There was very little rationale for so many ordinary concepts to be lumped together in one company, he says.

Interviews on and off the record with former Dylex managers, directors and suppliers paint a picture of a company that had difficulty defining its focus in almost all its chains and that became a victim of its inability to find talented senior executives.

Dylex's demise also can be traced to a lack of fundamental retail smarts at head office, which allowed shoddy practices to permeate a large part of the organization. It became a comedy of errors that has continued even in its current incarnation as a private company: This week, BiWay suppliers are trying to petition the parent company, Dylex, into bankruptcy.

Three of Dylex's chains have been sold to U.S. retailers, making the company an archetype of Canadian retailing, where merchants struggle to survive in a global market and U.S. interlopers are making huge inroads.

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It is ironic that the 45-year-old Mr. Vanier presided over the public company in its final days. When he was recruited to run Fairweather in 1999, the former executive at Duty Free Stores Group and Hudson's Bay Co. was just the kind of savvy retailer the company had been trying to hire for years.

By the time he came aboard, however, it was too late. The leadership vacuum had damaged the company beyond repair.

Much of the deterioration came under Elliott Wahle, the president of Dylex from 1995 to 1999. He was a strong motivator and public speaker whose experience included stints as a manager of player personnel for baseball's New York Yankees and Toronto Blue Jays. For 12 years, he was president of Toys "R" Us Canada, where he introduced the U.S. toy retailer's merchandising formula to Canada.

Mr. Wahle seemed to be the answer as he led Dylex out of bankruptcy in 1995. Two years later, it had every appearance of being a model of a successful restructuring. The balance sheet was in good shape and financial results were improving. A strategy was in place for each of the divisions.

He had a vision of Dylex as a "consolidator" of other retailers, buying up rival fashion and discount neighbourhood chains.

But Dylex fell flat in its unfriendly attempt in 1997 to snap up Mark's Work Wearhouse Ltd. of Calgary for $100-million, a move recommended by Dylex's investment banker First Marathon Securities Ltd.

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Given Mark's steadfast lack of interest in tying the knot, "I would have approached it differently," Mr. Wahle says today. "But I take full responsibility for it."

Mr. Wahle thought Dylex could centralize its scattered back-office operations to streamline costs, a departure from the old approach that allowed the chains a high degree of independence.

But the turnover of division chiefs was constant. From 1995 under Dylex, Braemar had three presidents and Tip Top and Fairweather two each.

The worst case was BiWay, whose crisis grew deeper as it went through five presidents in six years, including Marc Chouinard, now president of the Bay.

The full weight of the chain's problems was discovered after Mr. Chouinard left in 1999. Mr. Wahle stepped in to run the BiWay division, where the first full inventory count in four years revealed the extent of the troubles. A new distribution centre was in chaos, and Dylex was forced to take a $25-million hit to cover all the problems, leaving it deeply in the red.

A confidential report on BiWay in September, 1999, revealed that 10 per cent of its 280 stores did not have managers at that time.

Retail talent is thin in Canada, observers say, but Dylex faced bigger challenges. "It was very tough at times to attract people because of the fear factors," says Mr. Wahle, referring to "the rather checkered history that Dylex had . . .

"With the benefit of hindsight, certainly we made some mistakes in terms of the hiring side," he says.

Mr. Wahle's leadership itself became an issue, particularly in his choice of top management at head office, who were often non-retailers, and in the divisions.

His difficulty in recruiting suitable division heads -- even though most had retailing backgrounds -- triggered debate on the board. Some directors felt Mr. Wahle had failed in a fundamental duty -- he picked the wrong people to run his divisions. But most of the board chose to be patient.

In fact, the revolving door of senior managers cost Dylex a lot in the form of rich exit payments. After Mr. Wahle left in December, 1999, he collected almost $4-million in termination pay, on top of his $600,000 annual salary and $36,000 in benefits.

At the retail level, market positioning was a constant challenge for Dylex. Tip Top, a men's clothier founded in 1909 and an old reliable on Canada's main streets, moved upmarket too fast and too far. Braemar reached out to a younger crowd, robbing customers from sister chain Fairweather. Fairweather drifted before finding its way under Mr. Vanier in 1999.

BiWay, meanwhile, became a case study in retail dysfunction. It was plagued by internal and external theft, the absence of standard controls, inventory nightmares along with the weak leadership.

Alan Silverberg, a store manager and 25-year veteran of BiWay, recalls the "utter chaos" just before Christmas, 1998, when a $60,000 shipment arrived with no accounting for it. "We didn't know if we got the right goods," he says. "It's a huge loss prevention issue."

A confidential Ernst & Young report, dated Sept. 27, 1999, documented many problems at BiWay:

In 1998, the average store's thefts and damaged inventory amounted to $129,000 a month, a figure that jumped to $208,000 a month in the first half of 1999.

By 1999, more than $16-million of old inventory was just sitting there.

Turnover of store managers was running at 32 per cent in 1999. There were 12 changes among senior managers over 18 months.

Cash registers couldn't collect and reconcile daily cash receipts.

All this was happening while BiWay, once a successful retail format, was facing a huge threat from giant U.S. discounter Wal-Mart Stores Inc., which invaded Canada in 1994.

In the market, BiWay is positioned between big discounters, such as Wal-Mart, and neighbourhood dollar stores, but "it didn't really have a place -- the concept was wrong," Mr. Vanier says. "We would have needed $30-million to $40-million to reinvent the business."

Indeed, in Mr. Vanier's view, the decision to hold on to BiWay when Dylex emerged from bankruptcy protection in 1995 was a fatal mistake. He says the company should have made the tough call and operated strictly as a fashion retailer.

Even the limited reinvention at BiWay seemed to hit the wrong notes. The decision during Mr. Chouinard's term to open almost 50 new BiWay stores and refurbish outlets, starting in 1998, was flawed, Mr. Vanier says. "It didn't perform to expectations and turned out to be very expensive leases. They were not profitable."

BiWay is a price-sensitive retailer, but seemed to lack merchants who could go out and buy, say, 100,000 pairs of socks for 9 cents each, which would allow it to ring up meaty profits.

"Part of BiWay got lost because the entrepreneurship got out of it," Mr. Vanier says.

One problem was BiWay's streetfront stores, he says. Shoppers would buy two bottles of Javex at a cut-rate price, and might carry out little more. But they could drive to the closest Wal-Mart and stock up on everything they didn't buy at BiWay.

Mr. Wahle, who is now heading Toys "R" Us's soon-to-be-opened flagship megastore in New York, stands by the BiWay concept, although he's at a loss to explain how the discounter came so unravelled.

"I always believed there was a place in the market for BiWay," he says. "It required a hard-nosed operator, someone who was very detail-oriented, someone who was prepared to sweat the business."

He takes ultimate responsibility, but points out many others were involved: internal and external audit teams, a board of directors overseeing the audits, and regular meetings with executives. "If all those folks got blindsided, I can hardly understand how the devil I'm going to know before them . . .

"The depth of the problems and the magnitude of the challenge were decidedly greater than any of us had anticipated."

Perhaps the model itself couldn't work. The Posluns family, which had controlled Dylex before bankruptcy protection in 1995, had the idea of combining entrepreneurship with the financial clout of a multichain, publicly traded company. As Dylex folded various chains under its wings, the chains' former owners often came aboard and maintained equity stakes.

At its peak in the mid-eighties, Dylex operated more than 2,800 stores under 24 different retail banners that were mainstays in the malls: Suzy Shier, B.H. Emporium, L.A. Express and Big Steel Man. The sheer weight of these brands handed the company immense bargaining chips with shopping mall developers. The Dylex model was often seen as a blend of corporate might and small-business skills.

After bankruptcy protection, Dylex's new management took full control of its remaining chains and established more central systems. That project proceeded haphazardly, and Dylex was never able to fully replace the merchant skills that were lost in the process.

In the nineties, retailing's centre of gravity shifted from the shopping mall to the big-box store. Dylex, with its collection of mall-focused chains, lacked a coherent response.

Dylex became nothing more than a conglomerate, which tried to meld middle-of-the-road clothing concepts under one corporate umbrella -- as well as integrate the BiWay chain. As one former director puts it, it became an incompatible marriage of fashion and schlock.

"It just went downhill," says Mickey Maklin, who heads Thriftys, the only consistently successful Dylex division in recent years, which itself was swallowed by popular U.S. retailer American Eagle Outfitters Inc.

"They didn't have any retailers in the [head office]corporation. . . . There were a lot of mistakes."

Perhaps the most successful thing that happened to Dylex in recent years is that its various parts were sold.

"I think some of the brands were very good, got sold and continue on," says William Anderson, the investor who was named Dylex chairman while it was in bankruptcy protection.

But even this last act reads like a farce. The selling process dragged on more than 18 months, starting with Dylex's plan in October, 1999, to spin off BiWay into a separate company.

That came to nothing because liquidators alone expressed interest -- and they were interested in buying BiWay's inventory and leaving Dylex with the leases, which could have cost as much as $50-million to unload, Mr. Vanier says.

In December, 1999, the board put all of Dylex on the selling block, and Mr. Wahle stepped down.

"It put the entire organization of over 10,000 people under this cloud of not knowing what tomorrow brings," says Mr. Wahle, who calls the move "a fire sale."

By last fall, some of the better assets were sold off: Tip Top, Thriftys and Braemar. (The Braemar name will disappear under the American Eagle banner and Thriftys outlets are being rebranded as Bluenotes). Labels, a new discount chain, was closed but troubled BiWay, the single biggest holding, and Fairweather remained.

Two last-minute bidders emerged to challenge the ultimately successful $70-million, $1.30-a-share proposal from U.S.-controlled Hardof Wolf Group Inc. The suitors included Consolidated Group of Cos., a supplier to BiWay that submitted its offer the night before the May 15 shareholders' meeting set to approve the sale.

Consolidated came in with a higher bid (as had the other 11th-hour proposal) but it was barely considered by the board.

Shareholders, already bitter from the stock dipping to as low as 48 cents late last year from a post-bankruptcy peak of $9.10 in 1997, were angry about the handsome salaries, bonuses and change-of-control payments for departing executives.

"When you look at that whole scenario, I think there is some cause for concern," says Mr. Maklin, the Thriftys head.

Mr. Anderson and Robert Poile, his partner in an investing firm that had advised on the sale, got more than $2.2-million between them (not including stock options). In the last phase, they were both on Dylex's payroll.

Mr. Vanier, who walked away with almost $2.9-million, makes no apologies. He says he earned his stripes, having taken the risk of heading a problem-plagued company that could have gone bankrupt.

As for Mr. Vanier, he was unsuccessful in a management bid to buy Fairweather, and is spending the summer travelling with his family in the United States and Europe and pondering his next move.

He's reflective about the Dylex debacle. "The fundamental problem of BiWay remained and finally resurfaced and bit everybody. There were opportunities missed along the way." 1961: Posluns family founds company. 1967: The Posluns and James Kay, owner of Fairweather, buy the 52 stores of Tip Top Tailors and merge, taking the company public. 1970s and 1980s: Dylex expands by purchasing BiWay, Town and Country, controlling interests in Club Monaco and Harry Rosen. 1984: Dylex becomes the largest clothing retailer in Canada. It made forays in the United States by acquiring Brooks Fashion Stores and Foxmoor chains. Other acquisitions follow. 1986: Dylex operates more than 2,800 stores under 24 different retail banners, including Suzy Shier, B.H. Emporium, L.A. Express and Big Steel Man. January, 1995: Seventh year of losses, Dylex enters bankruptcy protection. July, 1995: Elliott Wahle named CEO a month after protection ends. May, 1996: Braemar president resigns and sells 25-per-centstake to Dylex. December, 1996: Sells 51 per cent of Harry Rosen Inc. to Mr. Rosen. February, 1997: Tip Top goes upmarket. March, 1997: Control of Club Monaco sold in initial public offering. August, 1997: Unsuccessful bid for Mark's Work Wearhouse. November, 1998: Tip Top moves downmarket again, takes writedown. October, 1999: Plan announced to spin off BiWay. December, 1999: Directors agree tosell all of Dylex; Mr. Wahle leaves. May, 2000: Agreement to sell Tip Top to Grafton-Fraser. August, 2000: American Eagle agrees to buy Thriftys and Braemar. November, 2000: Closing of Labels chain announced, a year after launch. May, 2001: Fairweather, BiWay sold to Hardof Wolf.

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