What's next for Roots, the iconic Canadian brand that said it might put itself up for sale?
Roots Corp. made headlines last week after a surprise announcement that it had initiated a strategic review that could possibly culminate in a sale of the company. Roots’ latest quarterly results showed steady growth, but industry watchers say the retailer could consider entering the fold of a larger Canadian entity to leverage its homegrown identity during a time of national pride. Here’s a look at how the iconic beaver brand evolved over the years, what a strategic review entails and who could potentially land a deal to become Roots’ next owner.
How old is Roots and what made it a Canadian icon?
The founders of Roots, Michael Budman and Don Green, were kids from Detroit who spent their summers in the heart of Canada’s wilderness.
The pair met at Camp Tamakwa in Ontario’s Algonquin Park in the summer of 1963. (Budman later became co-owner of the very same camp that inspired his company’s ethos.)
“They (fell) in love with this Canadian ideal of the Muskoka lifestyle,” said Dimitry Anastakis, a professor and business historian at the University of Toronto’s Rotman School of Management.
Budman and Green took up permanent residence in Canada by the early 1970s and eventually conceived the first-ever Roots product — not a pair of cozy fleece sweatpants or the beaver-logo hoodie that the company is famous for today, but the negative-heel shoe.
The plain brown shoes featured a heel lower than the toe, with the aim of improving posture, and were sold out by the end of the month when launched in August 1973 at Roots’ first store on Yonge Street in Toronto. The negative-heel shoe was a key item in Roots’ original lineup of leather goods.
It wasn’t until the 1980s that Roots experienced an explosion of interest around its clothing, particularly sweatshirts, making the iconic beaver trademark a staple among Canadian households, said Anastakis.
“It had some pretty good success in an era of economic nationalism,” he said. “We were getting into a free-trade agreement with the United States and Canadians were seeking ways of expressing their identity.”
The 1998 Winter Olympic Games in Nagano, Japan, further cemented Roots’ reputation as a coveted Canadian brand, with athletes sporting scarlet poor-boy caps and red-and-white jackets designed by the company.
Roots continued to clothe Team Canada at the Olympics until 2004, but the company lost some of its mojo in the 2000s, said Toronto-based retail analyst Bruce Winder.
The company grappled with a few poor quarters but stabilized in the past five years and most recently experienced a modest upswing, though Winder said he hasn’t seen “a home run out of the park” for the retailer of late. “It’s a nice, steady kind of brand,” he said.
Who owns Roots and how big is it now?
Searchlight Capital Partners, a global private equity firm with offices in Toronto, New York and London, bought a majority stake in Roots in 2015 for an undisclosed sum, though co-founders Budman and Green remained substantial shareholders.
“Our investment will enable Roots to support its long-term growth ambitions,” said Searchlight co-founder Erol Uzumeri, a Canadian, at the time. “As one of the few iconic Canadian heritage brands, we see significant growth potential for Roots in both Canada and internationally across multiple distribution channels.”
In 2017, Roots went public at $12 per share on the Toronto Stock Exchange, selling nearly 16.7 million shares and raising over $200 million.
In 2020, Meghan Roach, a former managing director at Searchlight, became president and chief executive of Roots. Roach also held a stint as interim chief financial officer of Roots from 2019 to 2020 and served on the company’s board of directors from 2015 to 2017.
Roots currently has 115 stores nationwide, with more than 2,000 Canadian employees, according to the company website. There are also two stores in the U.S.
Why is Roots considering another sale?
Today, Roots finds itself in a bit of a strange place, said Anastakis.
“They’re very much identified as a Canadian brand,” he said. “That’s their appeal.”
However, it doesn’t appear that Roots has captivated younger consumers, Anastakis said , or that the Buy Canada movement has translated into an uptick in sales.
“Ironically, in an era where there has been a kind of elbows-up nationalism and a real reshaping of Canadian identity on a global scale … it doesn’t show up in sales, as far as I can tell.”
Anastakis noted that other homegrown companies such as Aritzia Inc. and Lululemon Athletica Inc. are not recognizably Canadian in the same way Roots is, which may have helped make them successful worldwide. Roots, on the other hand, operates in only two U.S. locations.
“I’m not surprised that they’re in a situation where they don’t know what they’re going to do with the company,” Anastakis said.
Last week, Roots announced that it had initiated a strategic review to “identify opportunities to maximize value for all shareholders.”
Winder said this is a fairly normal procedure, in which a company will hire an investment bank to evaluate opportunities, including the potential for a buyer. But unlike other scenarios for a sale, such as when the Hudson’s Bay Co. filed for bankruptcy and Canadian Tire Corp. Ltd. scooped up its intellectual property for just $30 million last year, Roots has some “good numbers,” Winder said.
In December, Roots reported positive third quarter results, with sales up 6.8 per cent year over year, at $71.5 million.
When a company performs well, they might decide it is an opportune moment to “take their chips and leave,” Winder said.
One alternative Roots could consider in its strategic review would be to seek a buyer of some, but not all, of the equity, he said. And it is entirely possible no sale or business changes take place.
A media spokesperson from Roots told Financial Post in an email that it would not be appropriate for the company to speculate on alternatives.
“This review does not reflect a change in our confidence in the company or its people, and it is not connected to the company’s performance,” the spokesperson said.
Who could be interested in buying Roots?
Anastakis said he wouldn’t be surprised if a larger Canadian entity such as Canadian Tire or the Quebec-based Groupe Les Ailes de la Mode Inc. considered adding Roots to its repertoire. Les Ailes de la Mode owns discounted retailers Fairweather Ltd. and International Clothiers Inc., as well as Zellers’ trademarks .
Canadian Tire ’s fleet of stores includes Mark’s Work Warehouse Ltd., FGL Sports Ltd. (which features banners such as SportChek, Sports Experts, Pro Hockey Life and Atmosphere) and Party City Canada.
Anastakis said he could see the automotive and hardware giant leaning into the sportiness of Roots and potentially leveraging it as a competitor against Lululemon or incorporating Roots goods in a SportChek or Mark’s. Roots could also still exist as standalone stores even if it was purchased by a company such as Canadian Tire .
Unity Brands Inc. could be another potential buyer, Winder said, though he called this a “long shot.” Unity Brands owns Vancouver-based technical lifestyle brand Kit and Ace Technical Apparel Inc., footwear maker Casca Design Inc. and the Mastermind Toys Inc. chain.
It is less likely, in the event of a sale, that Roots would get picked up by a U.S.-based company amid current trade tensions, he said. However, there could be more opportunity for global growth for Roots with significant investment over time, and in the event that the trade war subsides, Winder added.
“At a time when there may be some upside as an iconic Canadian firm, this is as good a time as any to put (Roots) on the marketplace,” Anastakis said. “If they’re in the bosom of a bigger entity, that could be very good for them.”
• Email: slouis@postmedia.com