MEC Members Protest Co-op Sale
Thousands of member-owners of Mountain Equipment Co-op have banded together to prevent an American investment firm from buying the company
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Members of the struggling Canadian retailer Mountain Equipment Co-op have raised more than $90,000 in recent days to prevent an American investment firm, Kingswood Capital Management, from acquiring the company. More than 132,000 people have also signed a petition opposing the sale and calling for an “open, fair, and democratic” election to replace the board members who approved it.
The grassroots initiative, which organizers are calling “Save MEC,” grew rapidly after the company announced the potential sale in a press release on September 14. A Facebook group created just hours after the announcement quickly spun into a larger campaign with multiple petitions circulating online and a GoFundMe that has received donations from more than 2,200 people.
Members Speak Out
Elliot Hegel, a student at Dalhousie University in Nova Scotia and a former MEC retail employee, says he got involved with the effort after organizers of the Facebook group put out a call for volunteers. He now works as a communication manager for Save MEC.
“What we’re really trying to do is get representation for the members,” Hegel told OBJ. “The board decided, without consulting the members, to sell our co-op. We’re trying to get a seat at the table.”
To do that, organizers of Save MEC have retained Victory Square Law Office in Vancouver to represent co-op members at upcoming court proceedings meant to finalize the sale between MEC and Kingswood Capital. Funds collected through the group’s GoFundMe campaign will be used to cover legal costs.
We're launching a legal strategy to #saveMEC – trying to get our voices into the proceedings, represent members, and tell the Court and lenders that there's a different way to do this that keeps the co-op a Canadian co-op. We need your support!
— kevin harding | 何凱文 (@kevinharding) September 21, 2020
Hegel and other organizers of Save MEC say they do recognize the difficult position the company finds itself in. In 2019, the retailer lost a reported $11.487 million on annual sales of $462 million—a harsh slump that capped years of disappointing performance. This year, the pandemic brought the situation to a crisis.
“We do realize there is a problem at MEC. It has drifted from its mission,” said Hegel. “We’re trying to get representation so we can actually suggest alternatives.”
Asked what those alternatives might be, Hegel says members of Save MEC have shown widespread support for increased, ongoing member dues. For many years, MEC has charged members a one-time fee of $5.
“I think a lot of people would be willing to give $5 a year, or even more,” Hegel said. “People pay $60 or $70 a year for their Costco membership.”
Questions About the Co-op Model
The news of MEC’s potential sale has stirred some debate in the industry over the long-term viability of retail co-ops more generally. In response to the MEC acquisition, some have questioned whether a co-op can survive for decades without losing its core values, its profitability, or both.
A representative for REI—one of the largest retail co-ops in the world—declined to comment. However, Jerry Stritzke, REI’s chief executive from 2013 to 2019, offered some thoughts to OBJ this week.
“When it’s executed well, is a pretty compelling way of doing business,” Stritzke said, echoing sentiments he expressed in an interview with The Atlantic in 2017. “Any business would kill to have its customers feel a sense of ownership in the company. That relationship is great to have, from a business perspective.”
At the same time, Stritzke says, it’s harder for a co-op to define success when thousands of member-owners bring their own ideas to the table about about what the company stands for and how it should be run. The key to managing that challenge, Stritzke says, is to maintain clear and honest communication between members and company leadership.
“There was certainly an opportunity to do a much better job communicating,” he said of the MEC deal, though he pushed back against the idea that MEC leadership pursued the sale “without the permission of MEC members,” as Save MEC has claimed.
“The directors of the co-op are elected to represent the membership. They’re accountable to the membership in that role, but ultimately they have the ability to make decisions about the future of the co-op.”
Still, Stritzke says he understands the passion of members who feel slighted.
“Frankly, that just represents how much people care about the idea of a co-op and what it’s there to do,” he said.
‘The Only Option’
Despite the widespread dissent among MEC members, the company’s board of directors has stated publicly that the only way to save the company from bankruptcy is to move forward with the acquisition.
“[MEC] sought refinancing from over 65 potential lenders, proactively explored and leveraged applicable government support programs, and examined funding MEC through voluntary member assessments,” the board wrote in a statement. “Ultimately, a sale was the only option.”
On September 18 and 21, respectively, both MEC and Kingswood Capital released letters to co-op members explaining the rationale behind the sale and offering assurances about the company’s future.
In MEC’s letter, board chair Judi Richardson cited “increasing performance issues since 2016” and “exacerbated financial challenges” during the pandemic as the primary reasons for pursuing the sale under protection of the Companies’ Creditors Arrangement Act, which has allowed the business to continue operating while the acquisition is finalized.
“In exercising our fiduciary duty, the board’s top priority was preserving jobs and saving MEC from bankruptcy or liquidation. In short, we prioritized MEC’s survival,” Richardson wrote.
Kingswood Capital’s letter laid out specific goals for the future of the company and asked MEC members to “give us a chance to earn your trust.” In addition to promises of streamlining product development, investing in store renovations, and improving ecommerce, the firm also wrote that it expects to “keep at least 17 of MEC’s 22 stores open and retain over 75 percent of its active employees.”
Representatives from MEC and Kingswood Capital declined to comment further.
In spite of these appeals, organizers of Save MEC remain unconvinced that the new owners will be able to maintain the community spirit built over the company’s 49 years as a consumer cooperative. The fundamental promise of the co-op model—that members are central to stewardship and decision making—hangs in the balance, they argue.
“MEC is Canada’s largest cooperative, and we’re very worried about the precedent this will set if it can just be sold without anyone batting an eye,” Hegel said. “We still own MEC. We’re member-owners. The board is supposed to represent the members and they’re not doing that, so we’ve had to start a movement to fight for our own representation.”