Mastermind Toys says it has obtained an initial order for creditor protection from the Ontario Superior Court of Justice as it faces financial challenges and a slowing economy.
The Toronto-based specialty toy and children’s book retailer characterized the decision to file for the protection as “difficult but necessary” and said the move was the product of increasing competition, disruptions from the COVID-19 pandemic and, more recently, a deteriorating macroeconomic environment.
“Despite implementing a series of operational improvements and cost reductions, and undertaking an extensive strategic review and conducting a robust sale process, the challenges facing the company’s business have become too significant to overcome,” Mastermind said in a news release.
The company declined an interview with CBC News, saying that it was prioritizing communication to its employees and other stakeholders on Friday.
News of the company’s creditor protection filing came on Black Friday, a sales period that is typically a boon for retailers, especially those selling toys, which people often purchase in advance of the holiday season.
Creditor protection allows companies facing financial difficulties to restructure their operations in hopes of helping the business overcome its challenges and rebound.
As part of its creditor protection proceedings, Mastermind said all 66 of its stores across Canada will remain open for business, and all ongoing sales and holiday promotions, including its Black Friday sale, will continue.
However, it will immediately liquidate and close some “underperforming” stores while exploring alternatives for the business with an unnamed buyer, who has been in “accelerated negotiations” to buy the company, management consulting firm Alvarez & Marsal Canada Inc. said in court filings made on behalf of Mastermind.
“If a transaction with such purchaser materializes, it is the Mastermind Entities’ intention to conduct a holiday sale for continuing stores in the normal course,” court documents say.
“If the proposed transaction is not finalized imminently, the Mastermind Entities will have no choice but to commence a full liquidation of all 66 of their retail locations.”
Specialty retailers feeling the pressure
“I’m surprised because they have some really good quality stuff in there,” said Sophia Espinoza, a Toronto shopper who was exiting a Mastermind store in Toronto’s Summerhill neighbourhood on Friday.
“I’ve bought the odd item once in a while but not [on] a frequent basis, such as other stores like Toys ‘R’ Us or Indigo,” she said, adding that should the store close, it would leave her with one less option for Christmas shopping.
Sam Care, the owner of Toronto independent toy store Playful Minds, says it’s a challenging time for all small businesses.
“A lot of people are looking for better deals, and it’s just a hard time for small independent toy stores or any store,” she said. Care added that her business is well supported by the neighbourhood but that the store still has to compete with Amazon.
“Probably about 38 per cent of our business comes from this holiday season … we need it now,” she said.
Sam Care, the owner of Toronto independent toy store Playful Minds, says that it’s a challenging time for most small businesses. (Tess Ha/CBC)
Mastermind’s circumstances are “indicative, really, of the pressure that many, many retailers are finding right now,” said Doug Stephens, the founder of consulting firm Retail Prophet.
Stephens said that a few patterns in the retail sector are impacting companies like Mastermind, including the decline of specialty retail: “We live in a world where just about everything is available just about everywhere.”
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Another is the pressure that online marketplaces like Amazon have put on traditional brick-and-mortar retailers.
“When you have that kind of competitive pressure and a potentially weak economy ahead of us with job insecurity and financial insecurity, it makes for a tough environment,” Stephens said.
These factors, combined with a changing consumer market — with children increasingly turning to online or digital games instead of analog toys — put Mastermind in a tough spot, he said.
Company has been trying to sell since April
Mastermind began trying to sell the business in April, after experiencing material net losses and financial strain.
A bidder was found, but the deal was subject to “a lengthy review process with the Competition Bureau, which involved both Mastermind LP and the proposed purchaser responding to extensive information requests and making numerous submissions,” court documents say.
A Black Friday promotional sign is shown at a Mastermind toy store in Toronto’s Summerhill neighbourhood on Friday. (Tess Ha/CBC)
Because of the “material cost and length of time that would have been required to respond” while the company faced “challenging circumstances” and the upcoming holiday season, it filed for creditor protection instead.
It plans to seek further authorization from the Ontario Superior Court of Justice to close an unspecified number of stores during the proceedings under the Companies’ Creditors Arrangement Act. It also expects to seek additional relief at a court hearing next Thursday.
Mastermind owes $22.2 million to merchandise vendors and $2.6 million to logistics and other vendors. It also has about $5.6 million in outstanding gift card liabilities.
These amounts are owed to unsecured creditors, who typically have no collateral and are thus often unlikely to recoup outstanding amounts.
Its secured creditors include Canadian Imperial Bank of Commerce, which is owed $25.7 million.
The debts come as Mastermind said its same stores sales have declined materially, trending about 22 per cent below prior year results.
Mastermind’s history dates back to 1984, when brothers Andy and Jon Levy opened an educational software store in Toronto. Its popularity convinced the brothers to turn the store into a chain and to broaden its merchandise assortment.
By the 2000s, they had rebranded the company to focus on educational toys rather than software and renamed the chain Mastermind Toys.
The company also has an e-commerce platform, which it said accounts for about 10 per cent of sales and employs roughly 800 non-unionized workers.
HALIFAX – Ottawa is negotiating a $500-million bailout for Nova Scotia’s privately owned electric utility, saying the money will be used to prevent a big spike in electricity rates.
Federal Natural Resources Minister Jonathan Wilkinson made the announcement today in Halifax, saying Nova Scotia Power Inc. needs the money to cover higher costs resulting from the delayed delivery of electricity from the Muskrat Falls hydroelectric plant in Labrador.
Wilkinson says that without the money, the subsidiary of Emera Inc. would have had to increase rates by 19 per cent over “the short term.”
Nova Scotia Power CEO Peter Gregg says the deal, once approved by the province’s energy regulator, will keep rate increases limited “to be around the rate of inflation,” as costs are spread over a number of years.
The utility helped pay for construction of an underwater transmission link between Newfoundland and Nova Scotia, but the Muskrat Falls project has not been consistent in delivering electricity over the past five years.
Those delays forced Nova Scotia Power to spend more on generating its own electricity.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
