Despite facing financial difficulties and the continuous downturn in the economy, Mastermind Toys GP Inc. announces that an Ontario court has issued an interim creditor protection order.
The children’s book and specialty toy company Birch Hill Equity Partners Management Inc., located in Toronto, described the protection as “difficult but necessary.” The corporation attributed the change to the COVID-19 pandemic, heightened competition, and a deteriorating financial climate.
“Despite implementing a series of operational improvements and cost reductions, undertaking an extensive strategic review, and conducting a robust sale process, the challenges facing the company’s business have become too significant to overcome,” according to a press release issued by the corporation.
The date of the company’s creditor protection filing coincided with Black Friday. Retailers earn from Black Friday, especially toy producers who sell before the holidays.
Organizations going through financial troubles may change how they operate to get better with the aid of creditor protection.
As part of its creditor protection efforts, Mastermind claimed that all 66 of its Canadian websites will continue to be operational and that all sales and holiday promotions, including Black Friday, will take place as scheduled.
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According to court documents, Mastermind’s monitor, Alvarez & Marsal Canada Inc., declared that it would close a few “underperforming” stores and proceed with “accelerated negotiations” to buy the business.
“If a transaction with such purchaser materializes, it is the Mastermind Entities’ intention to conduct a holiday sale for continuing stores in the normal course,” the documents stated.
“If the proposed transaction is not finalized imminently, the Mastermind Entities will have no choice but to commence a full liquidation of all 66 of their retail locations.”
Mastermind started selling the company in April after suffering severe net losses and other financial difficulties.
Notwithstanding the discovery of a buyer, according to court documents, there was “a lengthy review process with the Competition Bureau, which involved both Mastermind LP and the proposed purchaser responding to extensive information requests and making numerous submissions.”
Because of the “material cost and length of time that would have been required to respond” during “challenging circumstances” and the holiday season, the company filed for creditor protection.
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The company will seek permission from the Ontario Superior Court of Justice to close any number of outlets during the processing of the Companies’ Creditors Arrangement Act.
The goal is to go to court and ask for more relief next Thursday.
Of its $22.2 million, Mastermind owes $2.6 million to logisticians and other non-merchandise providers. It also has a $5.6 million gift card debt.
It is unlikely that unsecured creditors—those without collateral—will be able to recoup these sums.
Its debt to the Canadian Imperial Bank of Commerce is $25.7 million.
After Mastermind revealed same-store sales that were 22% lower than the previous year, the company accrued the debts.
Andy and Jon Levy, brothers, founded Toronto-based Mastermind, an instructional software company, in 1984. Because the firm was prosperous, the brothers made the decision to expand its selection and chain it.
In order to concentrate more on educational toys than software, the company changed its name to Mastermind Toys in the 2000s.
Ten percent of the eight hundred-person nonunion company’s revenue comes from its e-commerce platform.
“E-commerce businesses require significant scale to be profitable, which Mastermind LP has not yet achieved, making it difficult to compete against online behemoths such as Amazon and Walmart,” the company wrote in its court filings.
The Canadian Press published this report on November 24, 2023.
We have updated this narrative. Previous reports incorrectly claimed that non-merchandise businesses owed over $22.2 million. Specialty stores have difficulties.
Sophia Espinoza, a Toronto client, commented, “I’m surprised because they have some really good quality stuff in there,” on Friday as she was leaving the Summerhill Mastermind store.
She said that if the business closed, she would have one less location to shop for Christmas presents. “I’ve bought the occasional item here and there, but not [frequently], like other stores like Toys ‘R’ Us or Indigo,” the lady replied.
Sam Care, the owner of Playful Minds, an independent toy retailer in Toronto, believes that these are difficult times for all small businesses.
“A lot of people are looking for better deals, and it’s just a hard time for small independent toy stores or any store,” she said. Care claimed that despite the community’s support, Amazon remains a rival for her company.
“Probably about 38 percent of our business comes from this holiday season. We need it now,” she said.
Mastermind is “telling, really, of the pressure that many, many retailers are finding right now,” according to Doug Stephens, CEO of Retail Prophet.
Stephens claims that basic ideas in the retail business, including the death of specialty retail, have an effect on Mastermind. “We live in a world where just about everything is available, just about everywhere.”
Physical firms are facing pressure from online sellers such as Amazon.
“When you have that kind of competitive pressure and a potentially weak economy ahead of us with job insecurity and financial insecurity, it makes for a tough environment,” he stated.
In addition to these issues, he continued, youngsters are choosing video games on the internet or other digital gadgets for real toys, which has left Mastermind in a challenging situation.
Since April, the corporation has set a target to sell.
Due to significant net losses and other financial problems, Mastermind began liquidating the company in April.
According to court filings, the Competition Bureau discovered a bidder after a lengthy review process, which involved both Mastermind LP and the proposed purchaser responding to extensive information requests and making numerous submissions.
The holidays and the “material cost and length of time that would have been required to respond” under “challenging circumstances” led the company to decide to pursue creditor protection.
The Companies’ Creditors Arrangement Act will be used to request the Ontario Superior Court of Justice to mandate the closure of a specific number of stores. On Thursday, it will make a court appearance to ask for additional relief.
Mastermind owes $2.6 million to contractors for logistics and other services and $22.2 million to suppliers of goods. Additionally, it owes $5.6 million on gift cards.
Without collateral, unsecured creditors have less chance of recovering these sums.
The Canadian Imperial Bank of Commerce is a secured creditor with a $25.7 million value.
Along with a 22% decline in same-store sales from the prior year, Mastermind disclosed their debt.
In 1984, the brothers Andy and Jon Levy established Mastermind, a Toronto-based provider of educational software. After the store became well-known, the brothers decided to open a franchise and increase the range of products they offered.
In the 2000s, the chain rebranded itself as Mastermind Toys and shifted its emphasis from software to educational toys.
The company states that it employs 800 non-union workers and that 10% of its sales come from e-commerce.
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