Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

The MEC store in downtown Toronto on Sept. 21, 2020.

Fred Lum/The Globe and Mail

Struggling outdoor retailer MEC considered turning to members for funding to save the business before selling it to a U.S. private equity firm, but ultimately decided the option would have been “impractical to impossible.”

The disclosure came in an affidavit filed on Wednesday by Robert Wallis, a member of the MEC board and chair of the special committee that was formally created at the end of March to seek “strategic alternatives” for the business.

MEC announced on Sept. 14 that it had reached a deal to sell the chain to a Canadian subsidiary of California-based firm Kingswood Capital Management LP. Since then, members of the co-operative who objected to the deal have raised funds and hired legal representation. They plan to petition for representation in the process at MEC’s next court appearance on Monday. MEC obtained protection under the Companies' Creditors Arrangement Act (CCAA) last week, which could allow a sale to proceed if it receives court approval.

Story continues below advertisement

The co-op member group has said they should have been consulted in the process, and want the chance to suggest an alternative plan. In his affidavit, Mr. Wallis said that the co-op needs significant funding to pay out its line of credit and to cover continuing losses from the stores' operations, among other expenses.

“I am aware there is discussion online about the prospect of member funding to solve MEC’s financial predicaments, which does not seem to appreciate the gravity of MEC’s financial difficulties,” Mr. Wallis wrote, adding that the board believes there is a “negligible” chance members would be able to raise sufficient funds.

The member group is aware that MEC faces financial challenges, said Kevin Harding, a representative with the “Save MEC” campaign.

“Raising capital from members can be one part of a broader strategy to engage credit unions and co-operative businesses,” Mr. Harding said in an e-mail. “...It’s just a shame that we’re trying to do this in 10 days when the sale to the American firm has been in the works for some time from when MEC began exploring alternatives.”

In another filing on Tuesday, MEC said that it is losing approximately $1.6-million a week, and predicted that it would lose more than $17.4-million between now and the end of October. It said the cash losses highlight the “urgency” of approving the sale.

MEC reported a net loss of $11.5-million on $462.4-million in sales in the year ended Feb. 24, 2019. Mr. Wallis’s affidavit stated that the chain’s adjusted losses were $31.4-million that same year and $24.5-million in its most recent fiscal year, which ended in February.

As part of the deal, Kingswood has promised to keep 17 of MEC’s 22 stores open and to offer jobs to at least 75 per cent of its “active" employees. The chain employs approximately 1,500 people.

Story continues below advertisement

Any “public plea” for funding from members could have had a negative impact on MEC’s business, including its relationships with suppliers and landlords and its search for new financing or for a buyer, Mr. Wallis wrote in his affidavit.

MEC’s board has said that they tried to refinance the co-op’s debt, and began exploring a sale when they were unable to do so. The special committee also tried unsuccessfully to merge with or find refinancing through other co-operatives, according to the affidavit from Mr. Wallis. A plan to sell off real estate to obtain cash flow was “not viable,” he wrote, because the value of retail real estate fell as a result of the pandemic.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies