MEC lost C$11.5M as costs grew 2.5 times faster than sales, and its new CEO sounded alarm

Mountain Equipment Co-op, Canada's largest outdoor gear retailer, lost C$11.487 million in its last fiscal year on sales of C$462 million, according to KPMG-audited financial statements posted on its website, CBC News reported on 28 November 2019. New CEO Philippe Arrata, a former Best Buy CFO who took over in July 2019, said sales grew 1.7% while costs grew 4.4%, and blamed slow sales, inventory backups, supply chain problems and competition from big-box and online retailers.

The audit also showed C$8 million in restructuring and reorganisation costs in 2018–19, C$7.2 million of it paid out to staff. The co-op's balance sheet showed no cash assets and no dividends paid to members. Arrata launched an internal rallying cry about an 'unsustainable trajectory', and was restructuring how it merchandised and staffed its 22 stores.

Longtime members told CBC the co-op had lost money by spending too heavily on Toronto and Vancouver stores and taking on debt while inventory piled up. Critic Steve Jones, who ran unsuccessfully for the board in 2018, questioned 'aggressive expansion' and the push into jean jackets and running shoes, and members objected to dropping 'co-op' from the logo in 2013 and replacing the 1% for the Planet donation programme with an internal one.

Costs grew 4.4% against sales growth of 1.7%, so the gap widened each year, per the CEO.

Inventory was not moving, so cash was tied up in stock while competitors sold similar gear online.

Members said MEC had expanded stores in Toronto and Vancouver and into general apparel categories beyond its core of tents, snowshoes and technical gear.

Two B.C. stores had just unionised, which CBC said creates the potential for higher labour costs.

A retailer that spends on bigger stores and wider assortments before the sales arrive will see costs outrun revenue, and its members, not investors, are the ones left asking why.

Arrata promised to rely on price matching, product guarantees and staff, and said he had sought advice from another co-op that had faced similar struggles. CBC contrasted MEC with REI Co-op, which listed US$570 million in cash assets and US$129 million in member dividends in 2018. A UBC accounting professor said Arrata had a good shot. The CBC article does not report what followed.