Mastermind Toys says it has obtained an preliminary order for creditor safety from the Ontario Superior Court docket of Justice because it faces monetary challenges and a slowing economic system.
The Toronto-based specialty toy and kids’s e-book retailer characterised the choice to file for the safety as “troublesome however essential” and stated the transfer was the product of accelerating competitors, disruptions from the COVID-19 pandemic and, extra not too long ago, a deteriorating macroeconomic atmosphere.
“Regardless of implementing a sequence of operational enhancements and value reductions, and endeavor an intensive strategic evaluate and conducting a sturdy sale course of, the challenges dealing with the corporate’s enterprise have develop into too vital to beat,” Mastermind stated in a information launch.
The corporate declined an interview with CBC Information, saying that it was prioritizing communication to its workers and different stakeholders on Friday.
Information of the corporate’s creditor safety submitting got here on Black Friday, a gross sales interval that’s usually a boon for retailers, particularly these promoting toys, which individuals typically buy prematurely of the vacation season.
Creditor safety permits firms dealing with monetary difficulties to restructure their operations in hopes of serving to the enterprise overcome its challenges and rebound.
As a part of its creditor safety proceedings, Mastermind stated all 66 of its shops throughout Canada will stay open for enterprise, and all ongoing gross sales and vacation promotions, together with its Black Friday sale, will proceed.
Nevertheless, it would instantly liquidate and shut some “underperforming” shops whereas exploring options for the enterprise with an unnamed purchaser, who has been in “accelerated negotiations” to purchase the corporate, administration consulting agency Alvarez & Marsal Canada Inc. stated in courtroom filings made on behalf of Mastermind.
“If a transaction with such purchaser materializes, it’s the Mastermind Entities’ intention to conduct a vacation sale for persevering with shops within the regular course,” courtroom paperwork say.
“If the proposed transaction will not be finalized imminently, the Mastermind Entities may have no selection however to start a full liquidation of all 66 of their retail places.”
Specialty retailers feeling the strain
“I am shocked as a result of they’ve some actually good high quality stuff in there,” stated Sophia Espinoza, a Toronto shopper who was exiting a Mastermind retailer in Toronto’s Summerhill neighbourhood on Friday.
“I’ve purchased the odd merchandise infrequently however not [on] a frequent foundation, comparable to different shops like Toys ‘R’ Us or Indigo,” she stated, including that ought to the shop shut, it might depart her with one much less choice for Christmas buying.
Sam Care, the proprietor of Toronto unbiased toy retailer Playful Minds, says it is a difficult time for all small companies.
“Lots of people are on the lookout for higher offers, and it is only a exhausting time for small unbiased toy shops or any retailer,” she stated. Care added that her enterprise is nicely supported by the neighbourhood however that the shop nonetheless has to compete with Amazon.
“In all probability about 38 per cent of our enterprise comes from this vacation season … we want it now,” she stated.
Mastermind’s circumstances are “indicative, actually, of the strain that many, many retailers are discovering proper now,” stated Doug Stephens, the founding father of consulting agency Retail Prophet.
Stephens stated that just a few patterns within the retail sector are impacting firms like Mastermind, together with the decline of specialty retail: “We dwell in a world the place nearly the whole lot is accessible nearly in all places.”
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One other is the strain that on-line marketplaces like Amazon have placed on conventional brick-and-mortar retailers.
“When you will have that form of aggressive strain and a probably weak economic system forward of us with job insecurity and monetary insecurity, it makes for a troublesome atmosphere,” Stephens stated.
These elements, mixed with a altering client market — with youngsters more and more turning to on-line or digital video games as an alternative of analog toys — put Mastermind in a troublesome spot, he stated.
Firm has been attempting to promote since April
Mastermind started attempting to promote the enterprise in April, after experiencing materials web losses and monetary pressure.
A bidder was discovered, however the deal was topic to “a prolonged evaluate course of with the Competitors Bureau, which concerned each Mastermind LP and the proposed purchaser responding to in depth data requests and making quite a few submissions,” courtroom paperwork say.
Due to the “materials value and size of time that may have been required to reply” whereas the corporate confronted “difficult circumstances” and the upcoming vacation season, it filed for creditor safety as an alternative.
It plans to hunt additional authorization from the Ontario Superior Court docket of Justice to shut an unspecified variety of shops throughout the proceedings beneath the Corporations’ Collectors Association Act. It additionally expects to hunt extra reduction at a courtroom listening to subsequent Thursday.
Mastermind owes $22.2 million to merchandise distributors and $2.6 million to logistics and different distributors. It additionally has about $5.6 million in excellent reward card liabilities.
These quantities are owed to unsecured collectors, who usually don’t have any collateral and are thus typically unlikely to recoup excellent quantities.
Its secured collectors embrace Canadian Imperial Financial institution of Commerce, which is owed $25.7 million.
The money owed come as Mastermind stated its similar shops gross sales have declined materially, trending about 22 per cent under prior yr outcomes.
Mastermind’s historical past dates again to 1984, when brothers Andy and Jon Levy opened an academic software program retailer in Toronto. Its reputation satisfied the brothers to show the shop into a series and to broaden its merchandise assortment.
By the 2000s, that they had rebranded the corporate to give attention to academic toys somewhat than software program and renamed the chain Mastermind Toys.
The corporate additionally has an e-commerce platform, which it stated accounts for about 10 per cent of gross sales and employs roughly 800 non-unionized staff.
