View from the C-Suite: MEC moves forward post-acquisition

CEO Eric Claus discusses how the outdoor retailer is launching new initiatives that build on the strengths of the former cooperative.

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Tasked with keeping Mountain Equipment Company (MEC) on track following its transition from cooperative to corporate-run outdoor retailer, chairman and CEO Eric Claus believes the business is moving in the right direction since it was bought by American private equity firm Kingswood Capital Management in September, pulling it out of bankruptcy protection and ending its fifty-year run as one of the country’s most celebrated cooperatives.

“So far so good,” Claus told strategy in one of his first media interviews since taking over as chief executive. “We’ve been able to be cash-flow-positive from day one of [Kingswood] owning the business, even though we’re in a really difficult time with the pandemic.”

With backing from Kingswood, MEC plans to execute a turnaround plan – its second in almost as many years – that includes fixing operational issues, streamlining its merchandise strategy and cutting back on expenditures, such as head office space. The deal enabled MEC to keep 21 of its 22 stores open, more than the minimum 17 stores Kingswood had initially planned to keep.

But in turning the ship around, MEC will also need to overcome a reputational crisis that alienated some customers and left a trail of negative headlines in its wake: many long-time members vocally opposed the takeover deal that ultimately ended MEC’s cooperative structure (and their ability to vote on the company’s management decisions). All this during a debilitating pandemic whose end still feels far off.

On Monday, an annual brand-trust ranking by the Gustavson School of Business at the University of Victoria placed MEC at number seven, a drop of seven spots from its first-place finish in 2020, with the report attributing the slide to “the lack of communication and member inclusion in the decision-making process tied to the company’s sale to a U.S. private investment firm.” However, MEC is still the most-trusted apparel and footwear retailer, earning “best-in-class” marks for its commitment to environmental consciousness and societal well-being, according to the study.

Claus spoke to strategy about the company’s post-acquisition future on the occasion of its 50th anniversary, a milestone it’s marking with a $1 million donation to Canadian non-profits through its Outdoor Impact program – which helps fund organizations like Avalanche Canada, Spirit North and Parks Canada that support the “shared priorities” of diversity, equity and inclusion, responsible outdoor recreation and accessible outdoor skill building.

The retailer has also announced new sustainability commitments – including having at least one environmental or social responsibility feature listed on every product label by 2025 and having 30% of its clothing made in a Fair-Trade Certified factory by 2023 – as well as a free membership program.

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In recent years, MEC has ranked consistently near the top of brand reputation surveys. Experts have said one of the reasons is that membership orgs typically benefit from higher levels of trust. How are you working to rebuild trust with consumers, coming off a difficult year for the brand, now that you are no longer a co-op? 

I don’t think our trust with the consumer has been eroded as much as you might think. The percentage of people that are happy just to have MEC around is far greater than those that believe we [have gone from] being a good co-op to a bad corporation.

You can be a corporation and be good for society, good to staff and do a lot of good things. The difference with a co-op, in reality, is that shareholders are the members. [As a corporation], it’s what you do, how you act, and the way in which we conduct ourselves as a business – things like sustainability, diversity and inclusion, the way we treat the people in the company – that’s what gives you credibility and trust. Most of the things that MEC stood for that were really good are things that are continuing. As a matter of fact, I think we’re building on a lot of those.

In 2018, MEC became one of the first companies to acknowledge it had failed to adequately represent the country’s diversity and to put measures in place to address that. Does DEI remain a priority for your company today? And if so, what are you doing to advance that commitment? 

Through our HR department, we’ve organized – and I have partaken in several of them – diversity and inclusion training [sessions], which are about making people aware. A lot of people are well intentioned, but they’re not aware that some of the things they say can be hurtful, or they’re not aware of the different aspects of diversity and inclusion. So we’ve actually invested a fair bit of money and time in training. More importantly, from a management point of view, we have zero tolerance for non-inclusion and people that are not open to diversity and inclusion.

MECSo it’s a combination of things. One, we’re investing in it in terms of the monies that we’re giving to certain organizations [through our MEC Outdoor Impact program, for example], because they have to meet those criteria. [All but one of MEC’s Outdoor Impact partners have funding specifically intended to fund inclusive programming and equity-seeking groups in the outdoors].

Then, internally at the company, it’s not just the training, it’s also walking the talk. It starts with me and the whole leadership team. We have zero tolerance for anybody [at MEC who doesn't] demonstrate that [they're] open and inclusive – and that doesn’t mean because somebody made a faux pas and said the wrong thing to somebody by mistake, but the people that clearly do not respect the values that we do – then there’s no place for them in our organization.

[When it comes to marketing], if you look at our website for things that we do put out, it’s consistently a diverse group of individuals that represent the brand. That’s important to us. And that will continue to be one of our mainstays for sure.

Why launch a new membership program, and what does it entail? 

One of the things about membership in a co-op is that you’re actually an owner, and in theory when the co-op has a surplus, the funds that aren’t required for the business are then given back to the members, through typically a cash rebate that’s based on the amount that you purchase – so the more you buy, the more you get back. But for the past number of years, MEC has been losing money and not been able to give anything back. So although it was a co-op, there wasn’t any real benefit to being a member other than you can shop at the store.

MEC2When we took over, what we wanted to do was give value and meaning to membership. We wanted to reward membership through things like being able to book a one-on-one video call with an expert… [It also includes bike and exclusive ski service promotions at the start of the season, new products and exclusive promotions, bonus offers throughout the year, access to outdoor skill building workshops and seasonal events and 30-day price match].

Right now, we’re a little more generic in terms of the things that we want to offer as a benefits. But going forward, we want to be more member-specific. So we’re putting a lot of resources into better technology [so that we can be] much more tailored to the individual. It’s going to be an evolving program over time.

As companies come under greater scrutiny from consumers, how will your new sustainability commitments help you stand out? 

I don’t think we look at it in the sense that it’s going to give us a competitive advantage. Where we want the advantage is in the knowledge of our people in the stores – they’re not internet trained, they’re actually outdoors people that understand the product and have used our gear.

You can take, for example, Patagonia, which we sell. Patagonia has done an amazing job… in terms of environmental and social, impact on people, as well as production overseas. We’re heading exactly down the same path. But we don’t look at making MEC product compete with Patagonia, because they’re doing something good. If we’re all doing good stuff, then that’s great. And, frankly, it’s impressive to see this industry in general move in that direction.

This interview has been edited for length and clarity. It is part of a series for Strategy C-Suite, a weekly briefing on how Canada’s brand leaders are responding to market challenges and acting on new opportunities.