MEC Files for Creditor Protection Amid Acquisition by US-Based Kingswood Capital


Share post:

Vancouver-based outdoor cooperative retailer MEC, formerly ‘Mountain Equipment Co-op’, won’t be a cooperative much longer following a filing for creditor protection and acquisition. Los Angeles-based Kingswood Capital Management was approved by MEC’s board to acquire substantially all of MEC’s assets through the Companies’ Creditors Arrangement Act (“CCAA”) to keep MEC a going concern in Canada. Several of MEC’s stores are expected to close according to one source familiar with the proceedings, and the retailer’s CEO will also be replaced.

MEC is a retail cooperative with a network of 22 large-format stores across Canada. The retailer also has a strong e-commerce site which will remain operational throughout the CCAA proceedings, according to a press release. MEC was established in 1971 and is Canada’s largest consumer co-operative with more than five million members in Canada, and has invested more than $44 million into non-profit organizations that support recreation and conservation.

MEC has been in financial trouble. In July, the retailer announced 200 frontline layoffs after stores were closed temporarily due to COVID-19. MEC lost more than $11 million for the year ending February 24 2019 on sales of about $462 million. The retailer restructured last year and continued to lose money as it tightened operations. MEC had been expanding its base of stores rapidly into markets across Canada. It currently has stores in British Columbia, Alberta, Manitoba, Ontario, Quebec and Nova Scotia.


Los Angeles-based Kingswood Capital Management LP will acquire substantially all of MEC’s assets through the CCAA proceedings and will keep MEC a going concern. It appears to be the case that MEC’s status as a cooperative will be decommissioned as part of the process, which complicates things. While the board of directors at MEC unanimously support Kingswood’s acquisition, a percentage of members in theory would have to agree as well. One source noted that several members will be asked to speak at upcoming court hearings relating to the deal. The acquisition remains subject to Court and regulatory approvals and is expected to close in the fourth quarter of 2020.

Eric Claus, a longstanding MEC member based in Canada, will lead Kingswood’s newly formed Canadian affiliate as Board Chair and CEO. He’ll take over from Phil Arata who became CEO of MEC in July of 2019 after the retirement of David Labistour. Claus was formerly CEO of US discount grocer Save-a-Lot and prior to that, Canadian discount apparel chain Red Apple. Analysts are hoping that Claus will recognize the importance of customer experience at MEC rather than simple looking at the bottom line.

In January of this year, Arrata provided statements on the company’s restructuring which included cost-cutting such as subletting the Vancouver head office which was about “three times the size that was required” and moved into a smaller location. Contracts with suppliers were renegotiated and competitive categories such as yoga wear and pet goods were reduced as MEC focused on sporting goods for snow, camping and climbing.

High staff turnover became an issue for MEC, which in January gave full or part-time employment positions to about 70% of its casual and non-permanent store staff, or about 950 employees. Since then, MEC has cut more than 900 jobs — in January the retailer had about 2,400 employees which has been reduced to about 1,500 people with 600 of those working in the 22 stores that are currently open.

Kingswood Capital is a private investment firm, “focused on businesses that are undergoing varying degrees of operational, financial or market-driven change,” according to its website. “In addition to access to capital, we bring relevant industry relationships and a broad network of internal and external operating resources that can strengthen the business and enhance value.” Kingswood’s portfolio includes companies such as AVAD, Versar, AutoAnything and WAVE Electronics.

Photos of the new Mountain Equipment Coop location in Kelowna. Photo: Robb Thompson

“MEC is an iconic brand founded on strong values and has a loyal following,” said Kingswood’s Managing Partner, Alex Wolf. “We have tremendous respect for those values and the loyal membership and are honored to be partnering with Canadian operating partners who will represent us on the ground in Canada working with MEC’s management team following the closing to ensure a bright future for MEC. Upon completion of this transaction, we – together – can inspire and equip Canadians in leading an active outdoor lifestyle for years to come.”

“After careful consideration of all viable options, the Board made this difficult decision,” said MEC’s Board Chair Judi Richardson. “Despite significant progress on a thoughtful turnaround strategy undertaken by new leadership, no strategy could have anticipated or overcome the impact of the global pandemic on our business. Today’s announcement, including the transition from a co-operative structure, is creating a positive path forward for MEC. Kingswood’s commitment to honouring the MEC ethos and the solid financial footing that this transaction will provide gives us tremendous confidence in the future. Since our founding in 1971, MEC’s deeply loyal customers have been synonymous with who we are and what we do. That won’t change.”

One source noted that talks had been ongoing to save MEC after the cooperative saw insurmountable financial struggles with costs growing substantially higher than revenues. A special committee of the Board spoke to multiple venture capital firms and Kingswood was ultimately chosen. The committee sought refinancing from potential lenders, looked for government support, and examined voluntary member assessments prior to striking a partnership with Kingswood.

Alvarez & Marsal Canada Inc. is the court-appointed monitor of MEC. Since February 2020, Alvarez & Marsal Canada Securities, an affiliated company, has been acting as financial advisor to MEC to get operations back on track.

Photos of the new Mountain Equipment Coop location in Kelowna. Photo: Robb Thompson

Sales forecasts for the 11 weeks ending November 29, 2020, are optimistic. The forecast period expects to see sales of $68,410,000 for the time period, with an additional $6,442,000 being paid to MEC from the Canada Emergency Wage Subsidy. Expenses are expected to surpass revenues however, with projected costs of $86,606,000 during the 11 week period resulting in a net operating cash flow loss of $11,753,000 over the same period. Adding in professional fees, debt service and contingency expenses, MEC will see a cash flow shortfall of $17,369,000 over the 11 week forecast time period. The company will also be indebted in the amount of $92,432,000 over the period, up from less than $80 million at present. 

The CCAA cash flow forecast indicates that MEC may require financing up to $89 million during the forecast period, provided by its incumbent senior lenders RBC, CIBC and TD Bank. Interim financing could be terminated early. 

MEC’s store fleet could shrink according to one source, with as many as five of the retailer’s 22 stores possibly closing as part of the acquisition. The future of a new MEC store at Midtown Plaza in Saskatoon, Saskatchewan, is now also in question.

Competition in the sporting goods space in Canada has grown substantially in recent years, particularly with the entry of French sporting goods behemoth Decathlon into Canada in the spring of 2018. Decathlon plans to open stores across Canada and is currently negotiating lease deals with brokerage Oberfeld Snowcap. Other competitors include Canadian Tire which owns the Sport Chek and Sports Experts retail operations. At the same time, Quebec-based competitor Sportium, owned by SAIL which filed in the spring, shut down operations as part of the restructuring. As of late, Canadians have been buying record-breaking quantities of outdoor goods following store shutdowns and an international travel ban. Bicycles, camping gear and other outdoor categories have seen strong sales since the spring.

Craig Patterson
Craig Patterson
Located in Toronto, Craig is the Publisher & CEO of Retail Insider Media Ltd. He is also a retail analyst and consultant, Advisor at the University of Alberta School Centre for Cities and Communities in Edmonton, former lawyer and a public speaker. He has studied the Canadian retail landscape for over 25 years and he holds Bachelor of Commerce and Bachelor of Laws Degrees.


Please enter your comment!
Please enter your name here

More From The Author



Subscribe to the Newsletter


* indicates required

Related articles

Iconic Flo’s Diner in Toronto’s Yorkville Forced to Close After 33 Years Amid Landlord Dispute 

Retail Insider interviewed Flo’s co-owner who discusses the “heart wrenching” situation where he is being forced to close his business that began on Bellair Street in 1991.

Anatomy of a Leader: Teresa Spinelli, Owner of Alberta-Based Italian Centre Shop Ltd.

Spinelli discusses her leadership of the popular retailer which has expanded over the years, describing how she struggled to run the company at first and grew to love it.

Upscale Canadian Fashion Brand SMYTHE Expands with New Standalone Calgary Store [Interview/Photos]

It's the second store location for the Toronto-based brand, which is seeing success with its exclusive womenswear collections.

Toronto’s CF Sherway Gardens Hits Sales Milestone with Exciting Retail Growth and Future Plans [Interview]

The shopping centre is adding new retailers as sales per square foot hit an all-time high, with plans to re-tenant Nordstorm as foot traffic grows following Eataly's opening in the mall a few months ago.

ECS Coffee Opens Canada’s Largest Coffee and Espresso Equipment Gear Showroom and Retail Space in Toronto [Interview]

The new Etobicoke location is unique to Canada if not North America, according to its founder, with coffee roasting, equipment showroom, over 500 varieties of coffee, Youtube studio and various in-store experiences. He has plans to expand the concept nationally.

New Loblaws City Market Opens in Vancouver’s ‘The Post’ Building, Adding Grocery Competition to the Downtown Core [Podcast]

Craig and Lee discuss the opening of a new Loblaws City Market in downtown Vancouver's renovated Post building, and they explore its potential impact on local grocery shopping.

Loblaw Announces $2 Billion Investment in Canada for 2024 with Dozens of New Stores and 7,500 New Jobs [Expert Comment]

The retail behemoth will be growing substantially this year, following backlash over profits as inflation continues to impact Canadians.

Dubai-Based Asian Street Food Concept ‘Wok Boyz’ Expands into Canada with Plans for Multiple Locations [Interview]

The company's founder says the popular concept, with personalized meals, has an opportunity to grow substantially with its high-quality ingredients and theatrical flare, complete with fiery customer-facing woks.

Calgary Surge Basketball Team Launches Innovative Pop-Up at CF Chinook Centre to Boost Community Engagement [Interview]

The retail activation, which opened this month, is resulting in heavier foot traffic in a quieter part of the mall.

Upscale Pusateri’s Fine Foods to Close Yorkville Grocery Store in Toronto After 20 Years

The 5,500 square foot store opened to much fanfare in 2003, with valet parking, private chefs and pricey goods. 

Loblaw and Walmart Could be Forced to Adhere to Grocery Code of Conduct with Legislation [Op-Ed]

Sylvain Charlebois says that it's rare for all of Canada's political parties to agree, signalling a shift that could force grocers to comply amid record inflation.

Factory Direct to Shut All 14 Stores Amid Bankruptcy, Liquidation to Begin Saturday

The company, founded in 1995, is one of Canada’s largest privately owned discount retailers which struggled with declining sales and increasing costs following the pandemic.