The future looks bleak for Canadian specialty retailer Mastermind Toys, which filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) on November 24.
The CCAA process is similar to Chapter 11 bankruptcy in the US, allowing the company to stay in business while restructuring its obligations. According to a release, market conditions that have contributed to Mastermind’s decision include increased competition (from the likes of Walmart, Amazon, Costco and Canadian Tire), disruptions from the COVID-19 pandemic and a slowing economy.
Earlier this year, Mastermind tapped business management consultancy Alvarez & Marsal Canada to start identifying a potential buyer. All interested candidates, except for one, have withdrawn from the sales process as the retailer’s financial position has deteriorated. Determined to keep pursuing a buyout, Mastermind is seeking more time from the court for negotiations.
According to motion materials, Mastermind has been in the red since 2018. Its sales for 2023 are sitting at US$47.9 million (excluding the Black Friday sales period), and its year-to-date operating loss is around US$13.5 million. The retailer’s tangible assets total US$34.9 million, but its liabilities are more than US$45.5 million.
Mastermind is also asking for the court’s authorization to start closing an initial group of stores while it explores alternative strategies for the rest. The company operates 66 storefronts across eight provinces in Canada that account for 90% of its annual sales.