Malls were once paved with gold for tea merchants who reported average annual sales as high as $1,000 per square foot of retail space in the U.S. and Canada.
In 2015 Capital Teas, a successful retail chain based in Annapolis, Maryland, decided to dramatically increase its physical store presence throughout the eastern United States. Owners Peter and Manelle Martino, who launched the company in 2007, sought and received a substantial cash infusion from outside investors eager to replicate the previously successful expansion strategy of larger specialty tea retailers like Atlanta-based Teavana and Montreal-based DAVIDsTEA.
During the following two years Capital opened 22 locations plus one off-brand store, and improved the www.CapitalTeas.com website.
“Initially, this expansion strategy worked well,” reports Peter Martino. “But in 2017, there has been an unprecedented and rapid shift away from brick-and-mortar retailing to online retailing.
“Thus, while Capital Teas’ own web sales have blossomed dramatically this year, in-store sales began to respond negatively to severely depressed consumer foot traffic, especially in malls. This left the company with very high rents without sufficient shoppers and with major national landlords who refused to renegotiate any leases.”
The result is a restructuring through Chapter 11 that became “the only viable alternative for the company.” The court filing permits Capital Teas, which earned $7.3 million in 2016, to reject the leases from its unprofitable stores and close them while continuing to grow the company in its other, profitable channels, said Peter Martino.
Martino says the company will recover by “capitalizing on core strengths, especially in our home base area of the metropolitan Washington, D.C., area, while continuing outreach and sales to hospitality industry clients, and advancing web sales dramatically through our superb collection of organic and natural teas, plus modern teaware.
Eight stores have been closed as part of the Chapter 11 filing and two additional stores will close by month end. Staff was reduced from 149 to 109. The company will continue to operate 12 Capital Teas locations in Maryland, Washington, D.C., and Virginia, including its flagship store in historic Annapolis.
“The company will also keep a limited store presence in Florida to maintain the counter-seasonality of sales from those locations,” he said.
The company plans to bolster its online and wholesale sales dramatically and add additional in-store tea beverage options to enhance the customer experience.
“Capital Teas aims to restructure all its financial obligations and emerge from Chapter 11 early in 2018 while continuing to grow its customer base, its revenue and its profitability,” said Martino. “The company will do so by continuing to advance the education and inspiration of its patrons, and serving and selling them great teas, one cup at a time.”
Read next, the official press release.