A company controlled by Canadian retail veteran Joe Mimran is buying the faltering store chain Mastermind Toys, taking on the majority of its locations after the company said it might have to wind down the business entirely.
Mastermind announced on Monday that it had struck a deal with Unity Acquisitions Inc. Unity is owned by Mr. Mimran, his long-time business partner and seasoned retailer Frank Rocchetti, and former Canadian Tire marketing executive David Lui, who is Unity’s chief executive officer.
Earlier this year, Unity acquired another Canadian retailer, Kit and Ace, for an undisclosed sum, as well as Vancouver-based shoe brand Casca Footwear.
Mastermind, which operates 66 stores across Canada, is still going ahead with planned liquidations at 18 of its stores, according to a press release issued on Monday.
“Mastermind Toys is a beloved Canadian retailer with a loyal customer base driven by quality, curiosity and play,” Mr. Mimran wrote in the press release. “The acquisition aligns with Unity’s strategy to enhance and grow extraordinary Canadian brands.”
Mastermind employs roughly 800 people – 625 of them part-time store staff and 175 full-time employees. According to Monday’s press release, “a significant portion of employees” will remain with the company. The terms of the deal, which still requires approval from the Ontario Superior Court of Justice, were not disclosed.
Toronto-based Mastermind GP Inc. was granted protection from its creditors less than two weeks ago. The chain, which is currently owned by Canadian private equity company Birch Hill Equity Partners Management Inc., has been losing money for several years, according to court documents, and was facing the possibility of winding down the business unless a new owner could be found.
The court overseeing Mastermind’s restructuring under the Companies’ Creditors Arrangement Act (CCAA) approved liquidation sales at 18 of its stores on Nov. 30. Unity will not be acquiring those stores. The liquidation sales began late last week and will continue through the holidays.
The company also announced on Monday that it is introducing an extended return and exchange policy for the holidays, other than for purchases at the liquidating stores. The company had previously said it would stop accepting returns from customers while under creditor protection.
Mastermind’s new owners will face the challenge of bringing the company back to profitability. Mastermind has total liabilities of $62.1-million and continues to lose money. In the first 10 months of this year, it recorded $65.5-million in revenue and a net loss of $18.1-million. Facing a “liquidity crisis,” according to the affidavit, Mastermind has been cutting costs, scaling back its inventory purchases and delaying payments to its suppliers.
The Canadian store chain operates in a highly competitive category, where mammoth rivals such as Walmart Inc. and Amazon.com Inc. can offer deep discounts on toys.
The company was weakened by “commoditization” in the category and steep competition, according to an affidavit sworn by Lucio Milanovich, a Birch Hill employee who has been acting as interim chief financial officer of Mastermind since October, 2022.
Like other retailers, Mastermind has faced additional financial strain as manufacturers have raised the prices they charge to retailers to stock their products, and consumers have been cutting back on non-essential purchases to cope with the effects of inflation.
Birch Hill had been trying to find a buyer for Mastermind for months. In September, the company struck a deal with an unnamed bidder, but that deal fell apart in early November. In court documents, Mastermind blamed delays in the approval process with the federal Competition Bureau for scuttling the deal.
The documents do not name the bidder, but the Competition Bureau’s website lists two recent merger reviews involving Mastermind. One involved British private equity firm Hilco Capital Ltd., and concluded in August, according to the bureau’s site.
The second review involved Toys “R” Us (Canada Ltd.) and Everest Toys, both owned by retailer Doug Putman, who also owns the Sunrise Records and HMV store chains. The Competition Bureau’s site says the latter transaction was “abandoned by merging parties” in November.
The company continued to look for a buyer while in creditor protection.
“We’re in an economic era right now of, at best, flat demand, with costs rising. So it’s not going to be a big volume business; it’s going to have to find a way to profitable growth,” said Vancouver-based industry consultant David Ian Gray. “ … Go back to some core roots of what attracted people to Mastermind in the first place. It was more educational toys, stimulating and creative products.
“The whole store experience was very differentiated from the mass selling of toys and games,” he said. “That is where there is an opportunity.”
It has been a busy few years for Mr. Mimran, who is known for founding Club Monaco before selling it to Ralph Lauren, as well as spearheading the Joe Fresh fast-fashion line.
Aside from Unity’s acquisitions, Mr. Mimran and Mr. Rocchetti are also running Tilley Endurables Inc.
In 2020, the pair also launched Rise Little Earthling, a clothing brand for babies and children under six years old, which is sold at retailers including Toys “R” Us.
Mr. Mimran also launched an office accessories brand called Gry Mattr in partnership with Staples Canada in 2019.