Reference no: EM132828006
You will need to read two articles about Mountain Equipment Coop (MEC).
The first is an interview with the CEO of Mountain Equipment Coop (MEC) in 2019. The second article addressing the failure and sale of the company is found at https://www.theglobeandmail.com/business/article-outdoor-recreation-retailer-mec-sold-to-us-private-investment-firm/
(In 350) Reflecting on the CEO's comments in the 2019 interview and the story in 2020 about the company's failure, do you believe the company had conducted a thorough strategic audit in 2019?
The first article:
Money-losing sports and outdoor recreation retailer MEC is launching a new plan to return to financial health, which includes cutting costs, changing up its merchandise and making a major investment to try to prevent turnover of its store staff and improve customer service.
MEC (formerly known as Mountain Equipment Co-op) announced on Monday that more than 950 casual, non-permanent store staff will be given full-time or part-time roles. The change, which affects nearly 70 per cent of store employees, will give those workers access to benefits such as health and dental coverage, and a minimum number of guaranteed hours a week.
MEC has struggled with sluggish financial results and high turnover of its staff. The company recently went through arbitration after workers at its Vancouver and Victoria stores became the first in its store network to unionize. Workers were seeking improvements in wages, schedules and working conditions.
MEC chief executive Phil Arrata said the move to shift casual employees to more full-time and part-time work is aimed at ensuring staff at its 22 stores across Canada are knowledgeable about its products and services and are more engaged with customers. In the last year, the turnover rate of MEC's casual staffers was approximately 80 per cent, while only 18 per cent of part-time or full-time employees left the company.
"We're competing in a very tough environment. For us to remain competitive and to evolve and transform our operation, it starts at the front line and making sure that we have engaged staff," Mr. Arrata said in an interview. "When we have 80 per cent of staff turning over in a store, the reality is that, essentially, everybody's new. ... This is a big investment on our part."
Mr. Arrata, formerly the chief financial officer at Best Buy Canada, joined MEC in the summer. His priority is returning the stores to growth and profitability: MEC reported an $11.5-million net loss on $462.4-million in sales in the year ended Feb. 24, 2019. As a co-op, MEC pays out "patronage returns" to members (calculated based on how much they spent with the retailer) in years when it earns a surplus, but has not done so in the past two fiscal years. MEC employs roughly 2,400 people, about 1,400 of them in its stores (not including seasonal store workers) and the rest in warehouses in Vancouver and Toronto, at its customer-support centre and at head office.
In addition to spending money on staff, the organization is cutting costs. MEC is also set to announce that it is looking to sublet its headquarters in downtown Vancouver - the space is three to four times too large for the headcount at the head office, which is not growing, Mr. Arrata said - and move to a less expensive space. Other cost-cutting initiatives include reviewing contracts with IT providers and other vendors, and supply chain practices. For example, by cutting the number of times a week that inventory is delivered to stores, he said, MEC can save on freight costs, as well as reducing its carbon footprint.
Mr. Arrata is also evaluating the stores' merchandise offerings.
"There are categories where we need to shrink," he said. For example, while it makes sense for MEC to offer personal flotation devices for dogs, since some customers take their pets on canoe and other boating trips, the stores expanded too far into an assortment of products that competes with traditional pet stores. Yoga wear is another area that MEC will continue to offer, but in a smaller assortment.
"There is some very strong competition in that space," Mr. Arrata said. Companies such as fellow Vancouver-based retailer Lululemon Athletica Inc. have built a loyal following. Meanwhile, categories where MEC has traditionally been strong - especially climbing, camping and snow sports - are growing and changing. Indoor climbing gyms are becoming more popular, but MEC has not changed the space in its stores dedicated to climbing gear.
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"We need to keep up from a product assortment perspective," he said. MEC buys its merchandise 12 to 18 months ahead of time, so the changes will be gradual. MEC will also evaluate its house-brand products to ensure they don't overlap too much with other brands its sells and are the up to customers' quality standards.
Like many retailers, MEC is facing competition especially from online giants such as Amazon.com Inc. and Walmart Inc. French sporting goods retailer Decathlon has been expanding into Canada as well, and MEC also competes with Canadian Tire Corp. and its Sport Chek stores, and smaller local and regional players. The organization is working on improving its website to find growth through e-commerce, Mr. Arrata said. MEC is also looking for a new head of marketing.
MEC has been working to improve communications with customers to understand how it needs to improve. In the past, it included a note on receipts asking customers to fill out a survey; recently, it changed its system so that instead, it e-mails people who recently made a purchase. Survey responses increased to roughly 6,000 a month from 200 a month.
"We're on a transformation journey," Mr. Arrata said. "We're making these changes because we need to really remain relevant to Canadians."
The second article:
Struggling sports and outdoor recreation retailer MEC has obtained court protection from creditors and agreed to be sold to private investment firm Kingswood Capital Management LP, ending the retailer's 49 years as a co-operative. The retailer, formerly known as Mountain Equipment Co-op, had been losing money and was battered by the coronavirus pandemic this year. California-based Kingswood has created a B.C.-based affiliate to run the business, and appointed a new chief executive officer, Canadian retail veteran Eric Claus. Terms of the transaction were not disclosed. MEC, which operates 22 stores across Canada, was struggling even before the COVID-19 pandemic forced widespread store closings and dealt a significant blow to retail sales. MEC reported a net loss of $11.5-million on $462.4-million in sales in the year ended Feb. 24, 2019. While the co-op has not yet reported financial results for the most recent fiscal year, it released an update in April saying it faced "significant cash pressure" because of the pandemic. MEC laid off store staff during the closings, and cut jobs at its head office and distribution centre, maintaining essential operations in what it called "a 'keep the lights on' model." MEC relied on financing from a syndicate of lenders led by Royal Bank of Canada that expired on Aug. 3. Leading up to that time, MEC's board of directors launched a special committee review of the business to cope with the crisis, seek options for refinancing its debt, and to look for alternatives, including a possible sale. "After the pandemic hit, it became apparent that we were going to have a difficult time finding any refinancing on acceptable terms. And that's ultimately what happened," MEC's board chair, Judi Richardson, said in an interview. As part of the review, the board reached out to more than 65 lenders, and launched a process to explore a sale. Nine potential bidders signed letters of intent, and the board received a "handful" of offers, but chose Kingswood because it committed to keeping the largest number of stores open, Ms. Richardson said. Kingswood plans to retain a minimum of 17 of the 22 stores. "We have created a path forward for MEC," Ms. Richardson said. "They gave us the greatest opportunity to have a very large presence across the country." While the retailer operates as a co-op - paying out "patronage returns" to members in years when it earns a surplus - it can seek creditor protection like a corporation. Ms. Richardson said co-op members will be unsecured creditors in the restructuring and sales process under the Companies' Creditors Arrangement Act (CCAA). MEC stores and e-commerce will operate through the CCAA process. Steven Jones, a co-op member who has run for election to MEC's board in the past - including this year, when the election was halted due to a delay in MEC's annual general meeting - said he is disappointed at the sale of "an incredible Canadian institution."
"There was no communication with members," he said. "Members feel very passionately about the purpose of the co-op and we should have the first right of refusal to provide the funding to save our co-op." Before the pandemic, MEC had been in the midst of a program designed to return it to financial health. MEC hired former Best Buy Canada chief financial officer Phil Arrata as its chief executive last summer. In January, Mr. Arrata announced his plan, which included cost-cutting initiatives such as subletting the Vancouver head office and moving to a smaller space, and renegotiating contracts with suppliers. The team also began reviewing MEC's product assortment, with plans to scale back in areas where competition is stiff - such as pet accessories and yoga wear - while focusing on its core categories such as climbing, camping and snow sports. MEC also aimed to address high staff turnover to improve customer service in its stores. The retailer gave full-time or part-time positions to 950 employees - or about 70 per cent of store staff - who had been in casual and non-permanent roles. In total, as of January, MEC employed roughly 2,400 people, about 1,400 of them in the stores, not including seasonal retail workers. MEC has cut about 900 jobs since January, and now employs approximately 1,500 people, more than 600 in stores. Mr. Claus, who will take over as CEO, has more than 30 years of experience in retail in the United States and Canada, including past roles as CEO of U.S. discount retailer Save-A-Lot and CEO of grocery chain Co-Op Atlantic. Stay-at-home measures in the spring hurt retailers, and surges in e-commerce demand in most cases did not make up for lost sales in stores. Many Canadian retailers have sought creditor protection to restructure, including DavidsTea Inc., Comark Holdings Inc. - which owns Ricki's, Cleo and Bootlegger stores - Reitmans Canada Ltd. and Aldo Group, among others. While travel restrictions during COVID-19 have led more people to pursue outdoor activities such as cycling, hiking and camping, retailers in these categories have not been immune to the industry's woes. Laval, Que.-based Sail Outdoors Inc. filed for protection in June under the Bankruptcy and Insolvency Act. Like many in the industry, MEC is facing competition especially from online giants such as Amazon.com Inc. and Walmart Inc. French sporting goods retailer Decathlon SA has been expanding into Canada as well, and MEC also competes with Canadian Tire Corp. and its Sport Chek stores, as well smaller local and regional players. Editor's note: MEC operates as a co-operative and isn't legally a corporation, as stated in an earlier version of this article.