MEC’s next steps: How the outdoor and sports retailer plans to stay in the race

Benj Gallander, Ben Stadelmann, and Philip MacKellar
Monday, January 20, 2020

Money-losing sports and outdoor recreation retailer MEC is launching a new plan to return to financial health, which includes cutting costs, changing up its merchandise and making a major investment to try to prevent turnover of its store staff and improve customer service.

MEC (formerly known as Mountain Equipment Co-op) announced on Monday that more than 950 casual, non-permanent store staff will be given full- or part-time roles. The change will give nearly 70 percent of store employees access to benefits such as health and dental coverage and a minimum number of guaranteed hours a week.

The chain has struggled with sluggish financial results and high staff turnover. The company recently went through arbitration after workers at its Vancouver and Victoria stores, seeking better wages, schedules and working conditions, became the first in its store network to unionize.

Chief executive Phil Arrata said that shifting casual employees to more permanent status is designed to ensure staff at its 22 stores across Canada are knowledgeable about its products and services and are more engaged with customers.

In the last year, the turnover rate of MEC’s casual staffers was approximately 80 percent, while only 18 percent of part-time or full-time employees left the company.

“We’re competing in a very tough environment. For us to remain competitive and to evolve and transform our operation, it starts at the front line and making sure that we have engaged staff. When we have 80 percent of staff turning over in a store, the reality is that, essentially, everybody’s new. . . . This is a big investment on our part.”

Arrata, formerly the CFO at Best Buy’s Canadian operation, joined MEC last summer. His priority is returning the stores to growth and profitability: MEC reported an $11.5 million net loss on $462.4 million in sales in the year ended February 24, 2019.

As a co-op, MEC pays out “patronage returns” to members (calculated based on how much they spent with the retailer) in years when it runs a surplus, which it has not done in the past two fiscal years.

MEC employs roughly 2,400 people, about 1,400 of them in its stores (not including seasonal store workers) and the rest in warehouses in Vancouver and Toronto, at its customer-support centre and at head office.

While the company is spending more on staff, it is cutting costs overall. It will be looking to sublet its headquarters in downtown Vancouver — the space is three to four times too large for the headcount at head office, which is not growing — and move to less expensive digs. Contracts with IT providers and other vendors are being reviewed, as are supply chain practices. By cutting the number of times a week that inventory is delivered to stores, Arrata said, MEC can save on freight, while at the same time reduce its carbon footprint.

Arrata is also evaluating the stores’ merchandise offerings. “There are categories where we need to shrink,” he said. For example, while it makes sense for MEC to offer personal flotation devices for dogs, since some customers take their pets on canoe and other boating trips, the stores expanded too far into an assortment of products that compete with traditional pet stores. Yoga wear is another area that MEC will continue to offer, but in a smaller assortment.

“There is some very strong competition in that space,” Arrata said. Companies such as Lululemon Athletica, also based in Vancouver, have built a loyal following. Meanwhile, categories where MEC has traditionally been strong — especially climbing, camping and snow sports — are growing and changing. Indoor climbing gyms are becoming more popular, but MEC has not devoted more store space to climbing gear. “We need to keep up from a product assortment perspective.”

MEC buys its merchandise 12 to 18 months ahead of time, so the changes will be gradual. It will also evaluate its house-brand products to ensure they don’t overlap too much with other brands its sells and are up to customers’ quality standards.

Like many retailers, MEC is facing competition especially from online giants such as Amazon and Walmart. French sporting goods retailer Decathlon has been expanding into Canada as well, and MEC also competes with Canadian Tire and its Sport Chek stores, as well as smaller local and regional players. The organization is working on improving its website to find growth through e-commerce and is looking for a new head of marketing.

MEC has been working to improve communications with customers to understand how it needs to improve. In the past, it included a note on receipts asking customers to fill out a survey; recently, it changed its system so that instead, it emails people who recently made a purchase. Survey responses increased to roughly 6,000 a month from 200 a month.

“We’re on a transformation journey,” Arrata said. “We’re making these changes because we need to really remain relevant to Canadians.”