Some Canadian bike shops and distributors are angry, claiming Mountain Equipment Co-op is using its unfair competitive advantage to push its own bike line. Read on.
Its foray this month into bike selling has been criticized by rival specialty retailers for everything from unfair competition because of its tax-exempt status, to a Wal-Mart-style money grab, to unethical sourcing.
This meme about the co-operative being "tax-exempt" has been around for many years. Back in the day it was the outdoor stores that were complaining (oh wait, they still are) about it. The truth is that the co-op, like any business, is taxed on what it retains and since it returns much of the earnings back to the customer as a "patronage allocation" or refund, it has no earnings and only keeps 3% for capital improvements and 1% as an environment fund.
The group of competitors of MEC years ago demanded and got a meeting with "government tax policy officials in Ottawa where they were they were told the same thing that co-ops already knew: the Income Tax Act does not favour co-ops over other corporations." All co-ops pay income tax at the same rates and under the same rules as their competitors.
Bike enthusiasts' ire toward MEC intensified when an executive at the non-profit chain slammed the bike industry in a blog on the company's website, calling it “grey, dusty and dirty.” The blog entry was later removed.
Some bike-parts suppliers have even refused to ship to MEC, while one Quebec distributor last month dropped a major Canadian parts manufacturer from its roster because the supplier is selling to MEC.
“It's no different to me than somebody buying a product at Wal-Mart that they could buy at their local mom-and-pop store,” says Pete Lilly, owner of Sweet Pete's Bike Shop in Toronto and former president of the Bicycle Trade Association of Canada, which represents suppliers and retailers in the estimated $1-billion industry.
Lilly is really stretching the comparison between Wal-Mart and MEC. There are no billionaires with MEC; no one is making a profit. MEC is by far the most concerned about labour conditions and environmental standards of any large corporate citizen.
“Independent bicycle retail offers something very different than Mountain Equipment Co-op can,” Mr. Lilly says.
“It's moved to a Wal-Mart model but because they've opted to give a small percentage of their money back to green causes, they wrap themselves in this green cloak and appear to everybody to be fair and just and clean and green. For somebody like me, I simply don't buy it.”
MEC started years ago as a small co-op. To this day it is still owned by the customers, not by a small group of capitalists.
MEC started as a co-op in a single store in Vancouver in 1971, but has grown into the country's leading retailer of outdoor sporting goods gear and apparel with 13 big-box stores and annual revenue of about $265-million. It doesn't make a profit, but budgets 3 per cent of sales as surplus for capital funding and gives 1 per cent of sales to environmental initiatives.
Many small bike shops have it hard. I can feel for Pete Lilly. My friend just opened a bike shop, while it's doing well the margins are thin. But the issue of unprofitable bike shops was around long, long before MEC got into the business. MEC is not doing anything wrong, it pays its taxes. The bike shops will just need to find another shibboleth. Or here's an idea: they could all start up their own buyers co-operative; the farmers have known this trick for decades. My father was a member of the United Farmers of Alberta, of which all that's left are the chain of stores and purchasing power for the farmers.