Board found Goodwill’s Toronto operations were ‘not sustainable’

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The former members of the board of directors of Goodwill's Toronto stores said they shut down the operation on the weekend after concluding its operating model "was not sustainable" in its current state.

The 12-member volunteer board resigned Friday evening, but issued a statement late Monday night saying they continue to support Keiko Nakamura, who is chief executive officer for Goodwill Industries of Toronto, Eastern, Central and Northern Ontario.

"There are significant business challenges, including shifts in the value of the salvage marketplace, declining retail sales and the need to restructure retail store costs," the board said in the statement, which was signed by chairman Michael Eubanks, who works as an executive at the LCBO. "These are the business realities that led the board to resign."

The board said it decided at a meeting on Friday evening to cease operations "because Goodwill's cash flow position and forecast had become unsustainable." Goodwill closed all 16 of its stores in Toronto, Mississauga, Brampton, Newmarket, Barrie, Orillia and Brockville.

Profits from Goodwill stores are used to fund job training, employment placement services and other community-based programs for people with disabilities.

"Goodwill is a unique social enterprise, where a majority of funding and services are self-driven through consumer and donated goods," the board said. "In its current state, Goodwill's operations model was not sustainable. That was the imperative that led to our decision."

The board said it gave Ms. Nakamura a mandate to continue as CEO and hold talks with the union representing 430 Goodwill workers "to help address the financial realities facing the organization."

"We would like to reinforce that this was a difficult decision," the board said. "We support Ms. Nakamura's continued leadership in finding and implementing long-term solutions needed. She is a capable and strong leader who is determined to see through the next chapter for Goodwill. We stand behind her and the decision currently made in this situation."

At a press conference Monday, Ms. Nakamura attributed Toronto's problems in part to pricey rent and union staffing rules. Ms. Nakamura said Goodwill rents all its locations and has high rental costs in Toronto, making it a low-margin operation.

Goodwill's union said it was blindsided by the closures. Canadian Airport Workers Union vice-president Artan Milaj said he hopes government or community stakeholders will step forward to provide funding to reopen the stores. The Toronto operation received $4.5-million in funding from governments in 2014, with $4-million of the total from the government of Ontario.

"I'm calling on everybody to help to put these people back to work," Mr. Milaj said.

However, there are no immediate signs a government bailout will emerge.

Zak Paget, a spokesman for Ontario Training, Colleges and Universities Minister Reza Moridi, said Monday the government's contribution to Goodwill comes from money provided to the organization's job skills training program for people who are facing barriers to employment, including people with disabilities.

In the 2015 fiscal year, for example, Ontario provided $2-million to Goodwill Toronto to deliver employment and training programs and $1.7-million to help adults with developmental disabilities, but did not provide direct operating funds to keep the stores open. Mr. Paget said the government is still trying to gather information about the effect of the closings on both Goodwill workers and clients using its employment services.

"Our government has been in contact with the CEO of Goodwill and our immediate focus is to ensure a continuity of services for all clients that are being served by Employment Ontario, in addition to providing adequate employment and training supports to all impacted Goodwill employees," Mr. Paget said.

Goodwill has seen sales drop steadily at its stores, and it reported a net deficit of $1.1-million in 2014 on top of a small deficit in 2013. The organization sold a building on Richmond Street in downtown Toronto in 2011 for $4.1-million, briefly boosting revenue, but the net proceeds of $3.7-million were not enough to withstand continuing losses as store sales fell steadily.

The organization has not reported its 2015 financial information, but earned total revenue of $28.1-million in 2014 – including government funding – which was a 17-per-cent drop from a recent high of $34-million in 2011.

A second hurdle unique to Toronto-area Goodwill, one of the only unionized branches across the country, was labour unrest and little staffing flexibility, especially after a battle with its union in 2014.

In 2012, Goodwill introduced a "winter strategy" to cut costs by reducing all employees' working hours in the slow season between January and March each year. "Unionized, management, all of us have taken reductions in terms of our work weeks," Ms. Nakamura said.

The Canadian Airport Workers Union complained that the company should keep full-time employees at full hours and instead lay off part-time workers to cut staff costs. Although management warned the result would cause disruption by forcing the employer to initially lay off 72 employees – including 53 to be laid off completely until the end of March – an arbitrator upheld the grievance, forcing Goodwill to change how it managed the winter strategy.

The decision appeared to create divisions in Goodwill's work force. Earlier this month, the International Association of Machinists and Aerospace Workers tried to convince employees to leave the airport workers union and join the machinists, but the vote – held on Jan. 11 and 12 – failed and staff stayed with the airport workers.

Last winter was the first in four years with the new staffing system. Recently, it became clear that revenues would no longer cover rent and labour costs, Ms. Nakamura told media. "In order to ensure that we were not asking staff to work at a time when we didn't feel that we would be able to cover their costs, we had to close down the stores," she said.

In a statement to The Globe and Mail, Ms. Nakamura wrote that the "winter strategy" dispute was "a key factor that played a role in determining cash flow and the organization's expenditures."