25 August 2016

Pivoting large old retailer - MEC lures new customers, but at what cost?

Or how "Mountain Equipment Co-op" became "MEC", like "Kentucky Fried Chicken" became "KFC", only less greasy.


Over the past 3 to 6 years, it's obvious of MEC that its product line, style, and relationship with its member-customers has changed drastically.  Today, we're going to talk a little about how MEC pivoted its business from serving its (stereotypically) backcountry traveling, alpine mountaineering, co-op members, and instead now serve the gigantic market of people who ostensibly do things "outside", i.e. outside buildings (and sometimes inside them too), like yoga and running.

This is not a rant against MEC, but pointing out references and information about an interesting business transformation.  I feel one day MEC could be a standard business case study of how to pivot an existing business --- and a very successful democratic consumers' cooperative, rather than a standard corporation, no less.


In 1998, Mountain Equipment Co-op showed us the allure of forests as far as the eyes can see, snow capped mountain tops, and people climbing up those mountains --- well, at least as much as web graphics could in 1998.

(I'm sorry to future historians if MEC bans the Internet Archive robots and asks them to delete their old web pages from its history after this. What? Haven't we always been at war with Eastasia?.)

MEC's product line has in the past 6 or so years become less technical, meaning less for functionality, utility, and purpose of backcountry specialized activities (think alpine mountaineering, multi-pitch ice climbing, 6 month expeditions in the middle of nowhere).  Instead, MEC's product line was "broadened" to be more "inclusive", i.e. watered down and retargeted at common popular activities to appeal to the masses.   This means targeting fresh styles, new fashions, and vibrant colors, for jogging, yoga, eating ice cream, etc.  (If you think this kind of talk is "elitist" of me, read on --- we'll see why MEC had intentionally set up the discussion this way.)

You think I'm joking about the ice cream?  These are from MEC's front page today (well, Aug 8th):

In 2016, I too like eating ice cream outside my place.

MEC's company culture changed too, with customer service emphasizing enthusiastic salespeople, instead of deeply knowledgeable outdoors-people who could give expert, experienced advice about the products they themselves have used in the woods.


Long-time customers bemoan those changes.  Even some of the founders of MEC has publicly expressed dismay.  I've personally felt the changes were bad, and briefly tried to engage MEC a number of times to see why the changes occurred, and to encourage improvements.

But I've come to realize the changes MEC went through weren't accidental, and weren't due to some conspiracy of the C-Suite and Board of Directors.  Despite many die-hard members and traditionalist employees' unhappiness with the changes (to put it lightly), it's clear now that the changes were meticulously planned from the start, implemented publicly and very intentionally, and accepted by the vast majority of MEC's member-customers.

I might not like those changes, but perhaps it's for the best (more on this later).

Crisis in 2008

In the story MEC's executive would like us to believe, the impetus that prompted all the changes to MEC's board governance rules, its product lines, and its branding, is that there was a crisis and they had to respond.

MEC CEO, David Labistour, wrote a blog post (“Looking Toward MEC’s Future", 2013 June 18), and talked publicly ("MEC without the Mountain", Jeff Beer, Canadian Business) about the impetus for their changing branding.  According to Beer:
the executive team could clearly see a pattern [in MEC's consumer data] forming among their customers. In 2008, store sales were declining, and MEC lost 5% of its female customers. Meanwhile, international retailers and new domestic competitors like SAIL were opening across the country, coupled with the rise of e-commerce options like Backcountry.com and Amazon. “The writing was on the wall,” says Labistour. “We had to move.”
You can see Labistour wanted to convey a sense of urgency in an existential crisis, and that it's the impetus for all the changes we see at MEC.  What would you rather they do, go out of business?

I say it's the story MEC's execs would like us to believe, because they're the ones telling it.  It's a narrative with a beginning, middle, and end.  I'm not saying they're being intentionally dishonest, I'm saying they rationalized what was happening, and what they wanted to do next, in order to be able to live with it.  They just hope that they could convince everyone else to believe their story too, so that MEC's members / customers could also live with it, so that they'd go back and buy more stuff.

And it worked.

What "they" wanted #1: Executive control

Without a doubt, MEC's business was in trouble in 2008: declining sales, loss of customers, new competitors both online and off.  None of that, though, requires changing how the co-op was governed.

As a co-op, they sell only to its members, who pay a small one time membership fee to buy into the business.  So MEC's customers are exclusively its members / owners.  Like any public corporation then, owners democratically elect a Board of Directors to oversee the whole thing, with C-Suite people running the day-to-day.

You can easily see that in such a structure, the co-op is only as democratic as its members / owners / customers are able to exercise control of the co-op via its annual membership meetings, member motions, and election of the Board of Directors.

Democracy is, however, the antithesis of fast moving business pivots and execution of hard long-term strategic changes.  Could you imagine Mark Zuckerberg putting Facebook timeline changes to a vote of its users?  In fact, every time Facebook made a big change, there were popular opinion against it, and yet the changes stick and everyone move on eventually becoming happy with it (or stop using Facebook, but who am I kidding?).

So what's MEC's execs to do?

 
1) Restrict who can be on the Board of Directors

First, the MEC Board proposes to screen who can be one of them:
In February 2012, the MEC Board proposed a rule change to let its appointees screen all director nominations.

Vote NO on Mountain Equipment Co-op Resolution #1
Next, the Board stacks the deck in the Board of Director elections by telling the co-op members who they think should be one of them:
The board proposes that the ballot identify candidates whom the directors wish to recommend for election and single them out from other candidates who still nonetheless meet minimum qualifications.

Yes, the electorate still gets to choose "freely", but it's still a user interface dark pattern.

Then the Board requires future candidates to be exactly like themselves, i.e. corporate suits:
in 2013, the board required that director candidates have board or senior management experience “in a complex organization.” For the 2016 election, the board requires directors to have that experience “in an organization of comparable complexity to MEC.”

I'm not saying these changes are bad, but that they made those changes to tighten executive control.

2) Restrict what motions members can bring to a vote

First, make it harder for individual members to put a motion to a vote:
As it stands, a member must have five additional members sign on to support a resolution. Drawing from the Cooperative Association Act, the board recommends that threshold jump to 500.

Making it harder to bring a motion to a vote was just a public image strategy, because it turns out the board could veto any member motion, regardless:
In 2013, the board increased the number of signatures required to get a motion placed before the membership to 500 from five. That happened three years after a volatile annual meeting, at which police were put on alert when protesters confronted the retailer over its sourcing of goods from an Israeli company that also supplied that country’s military. Now, even if a special resolution has the required number of signatures, the board can still refuse to put it on the ballot if two-thirds of directors are opposed.


3) Shift responsibility for these undemocratic changes

Those last two changes are clearly undemocratic (i.e. removes an amount of control of the co-op away from its members), and "undemocratic" doesn't sell well in their target demo., so it's no wonder that the responsibility for these changes had to be shifted elsewhere.

First, blame it on government regulation:
The board proposes to modernize MEC rules by aligning them, in part, with the B.C. Cooperative Association Act

Second, blame opponents to the changes as just a few bad apples:
MEC chief executive officer David Labistour characterizes the opponents as “a few disgruntled members,” but their ranks include founding members, former directors and governance experts.

Third, lightly sneer at the rest of the farm, because in a co-op, "All animals are equal but some animals are more equal than others":
Bill Gibson, MEC’s former chair and CEO, who helped to enact many of the changes: “You can’t have nine people who have just come out of the woods from a hike trying to run a $350-million business. ... I guess you can ask, ‘Does a democratic organization entitle ... every member to run for the board?’ I don’t think it does.”


The net result
The net result, governance critic Mr. Latham says, is a board that can make itself less assailable from the outside. With the board able to disqualify candidates and disregard resolutions it doesn’t like, “those are our two main governance mechanisms, gone,” he says.

MEC governance changes spark dissent among long-time loyalists
Now I'm not saying Gibson, Labistour, and MEC are wrong for making those changes, or for saying what they said.  I already noted above that democracy is the antithesis of fast moving business pivots and execution of hard long-term strategic changes.  If Facebook was a co-op, MySpace probably would've made a comeback (sorry Google+).

But MEC is a co-op, so if the exec team wanted to make a pivot that could alienate its traditional customer base (who are also its owners!), what alternative do they have but to stage the next best thing to a Management Buyout (MBO).

Oh sure, it's technically nothing like a MBO, especially since the management team doesn't become exclusive owners (MEC's owners / members / customers continue to be owners) who can reap the benefits of ownership and entrepreneurship, but they also did the next best thing:
Along the way, directors got a raise: The basic retainer for the board chair is now more than $58,000. Four years ago, it was $30,500, though MEC executives say this is below that of comparable organizations.

What "they" wanted #2: Rebrand for a new target demo

All those co-op governance changes don't, on its own, help MEC get out of its crisis.  Sales are still down; customers still lost.  If their existing owners / customers won't buy more stuff from MEC, then MEC has to either become the kind of place those existing customers would go buy more stuff from, or become the kind of place new customers would go shop at.

MEC has to become a different kind of place --- they have to change their brand to appeal to a different kind of target demo.  So around 2011, MEC began to plan its rebrand:
“The MEC rebranding culminates more than three years of work to provide members with a broader range of high-quality responsibly sourced products, new services and community events,” says MEC CEO David Labistour in a press release


On June 18, MEC’s CEO David Labistour wrote a blog post on the company’s website to unveil the organization’s new brand identity and strategy to its more than four million members. Entitled “Looking Toward MEC’s Future,” he outlined how the co-op was evolving to include more urban activities and, more visibly, changing its iconic logo.

The new brand has to be less mountain climbing, and more ice cream eating (as shown in the screen shots of MEC's web site above).  In the first change to MEC's logo since 1971:
new branding shifts away from using its entire name and embraces the acronym MEC ...
Removing the mountain graphic from the redesigned logo is intended to reflect the company’s broader geographical reach across the country and its wider range of both wilderness and urban activities—more yoga, less mountain climbing.


“The rebrand reflects the reality of the new MEC,” she said from Vancouver. “We’ve grown from six members to 3.5 million members over the last 40 years, many of whom live in urban centres.” [says MEC Chief Marketing Officer Anne Donohoe]

Here's the logos, old and new:


The new big box format is specifically designed to sell product lines for runners, cyclists, yoga practitioners, etc.  The new logo communicates that they no longer have anything specifically to do with mountains.  And consisting of a generic geometric shape and three otherwise meaningless letters, the new logo is open to being branded with whatever meaning they want in the future.

 "Don't be elitist, MEC is democratizing the outdoors"
"We have members who are runners or cyclists who have no interest whatsoever in ever going to Everest, and that’s OK,” chief product officer Jeff Crook told his team during an early meeting about MEC’s new direction. That didn’t go over too well. “Bullshit!” came the response from one employee. “If they don’t want to climb Everest one day, we don’t want them as a customer,” said another. MEC’s strength since its beginning was attracting employees who were enthusiastic for extreme outdoor activities; as Crook quickly found out, not all of them liked the idea of making the tent bigger. “That kind of elitist attitude definitely existed here,” says Crook, who joined MEC in 1993.

Notice I'm not taking an elitist view of what MEC "should" be --- I don't think MEC should only sell to those who want to climb Everest one day --- although MEC's marketing would (and have publicly) called this kind of talk elitist (in order to further their brand).  

But let's be honest and recognize what MEC did for what it is.  A brilliantly executed pivot and rebranding of a multi-million dollar business.

See, if MEC democratized multi-pitch ice climbing, then lots and lots more folks would be doing that, but that's not what MEC did.  What MEC actually democratized is its product line, so that more people could (would, and eventually did) buy what they're selling.
While 2012 marked the initial product expansion into more urban activities like yoga, running and road cycling, MEC also had record sales in whitewater paddling, backcountry ski and climbing equipment. Between 2011 and 2012, overall revenues grew by 11.8%.

I know this quote says they had record sales in backcountry ski and climbing equipment, but don't forget history: the crisis in 2008 I mentioned above just happened to coincide with the financial crisis and great recession, then the record sales just happened to coincide with the first time the global Brent oil benchmark averaged more than $100 per barrel for a year (and don't forget MEC is a company in Canada, a country that I hear only has polar bears and oil).

All that doesn't matter though, because it just appears MEC's crisis was averted.

But next time you look at MEC and wonder how they "lost their way", how they changed from being there for backcountry mountaineering climbers, into a place for yoga practising runners cycling to work, just remember that it was exactly what the MEC execs had planed for from the start.

Mountain Equipment Co-op was for members who enthusiastically wanted authentic mountain equipment.  MEC is for vibrant customers who are aspiring (not necessarily perspiring).  You think I made this up?

Here's apparently some posters from the design process that MEC engaged Toronto’s Concrete Design Communications in for creating its new brand identity and marketing campaign:


Notice the poster in the bottom right is clipped, but its title is "Environics identified 6 groups that represent the great opportunity for growth".  It's no accident: if you're shopping there, you were targeted; it was meant for you.

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