High rent, union rules blamed for closing of Toronto-area Goodwill stores

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Pricey rent and union staffing rules dealt double blows to Toronto-area Goodwill stores before their sudden shuttering on Sunday, according to their CEO.

"We have to rent all our locations," said Keiko Nakamura, chief executive officer for Goodwill Industries of Toronto, Eastern, Central and Northern Ontario, said Monday. "As a result, we have high rental costs in terms of the overall percentage of what is spent for the organization. It is a very low-margin operation."

With no warning, the organization closed all 16 of its stores in Toronto, Mississauga, Brampton, Newmarket, Barrie, Orillia and Brockville, putting more than 430 people out of work with no promise of severance pay.

Stores elsewhere in Ontario are run by different Goodwill organizations and are not affected – in fact, they are thriving, their CEOs said this week.

But Toronto is different in some ways, Ms. Nakamura said. The 80-year-old non-profit couldn't afford the space it used, first selling off its property and then struggling to keep up with rent, she said.

The organization sold a valuable 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 ongoing losses as store sales fell steadily. Goodwill's Toronto operation reported a net deficit of $1.1-million in 2014 on top of a small deficit in 2013.

The organization has not reported its 2015 financial information, but earned total revenue of $28.1-million in 2014, 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, which represents 450 Goodwill workers in the Toronto operation, 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, Ms. Nakamura wrote that the "winter strategy" dispute was "a key factor that played a role in determining cash flow and the organizations's expenditures."

The union said it was blindsided by the closures. Union vice-president Artan Milaj told The Globe he spoke with Ms. Nakamura on Sunday evening, and she did not provide detailed financial information. Mr. 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.

The Goodwill network was founded in 1902 in Boston by Methodist minister Edgar J. Helms, who collected used household goods and clothing and trained poor people to mend and repair the goods, which were then resold. Mr. Helms referred to his system as "a hand up not a hand out" model, and the system has expanded to 3,000 stores across North America, with total retail sales of $3.9-billion (U.S.) in 2014.

While geared to earning a profit, Goodwill stores put an emphasis on hiring workers facing barriers to employment, including people with disabilities and criminal records. Store employees reportedly earned $14 an hour on average.

The stores also funded employment counselling for people who have had trouble finding a job – services that attracted government financial support, said government spokesman Zak Paget. Ontario authorities have been in contact with Ms. Nakamura, he said.

The CEO said her office has been flooded with calls – from Toronto Mayor John Tory and the public – and the organization is putting together a "plan of action." Some employment services staff are volunteering their time to help with the transition for their clients, she said.

While Goodwill's board stepped down just before the stores closed, Ms. Nakamura said she had "clear instructions" to continue as CEO.

"I have 430 employees who are relying on me to do this," she said. "I have more than a thousand individuals who have been using our services each year. They are relying on me to ensure that I have done everything that I can before we close."

Ontario "sunshine list" salary-disclosure information shows Ms. Nakamura was paid $206,763 in 2013 and earned taxable benefits of $8,793, while vice-president David Chu earned $129,252.

Ms. Nakamura came to Goodwill from the Toronto Community Housing Corporation, where she served as chief operating officer and then CEO before being asked to step down in 2011 after damning reports by the city's Auditor-General on staff spending.

Former Goodwill Toronto board member Penny Milton, who stepped down last June, said Ms. Nakamura wasn't to blame for the store closings, but that she simply couldn't reverse the financial decline in time. "She was innovative, she made unbelievable strides on worker health and safety, on managing inventory, on pricing policies, on store renovation," Ms. Milton said.

Michelle Quintyn, CEO of Goodwill Industries Ontario Great Lakes region, based in London, Ont., also said she has been impressed by Ms. Nakamura's leadership, but that Toronto sales were hurt by last winter's harsh weather, and that Ms. Nakamura could not overcome bigger challenges in the retail landscape.

Aside from higher real-estate costs, large urban markets like Toronto and Chicago bring other trials, said Ms. Quintyn, who also sits on the board of Goodwill Industries International.

"Toronto Goodwill has locations in Orillia and Barrie which I understand do very well," she said. "But at one point I understand they had a store at Bloor and Jarvis. It's more difficult to drive up, pop the trunk and unload your donations at a location like Bloor and Jarvis."

However, a similar thrift chain in Toronto said it hasn't had the same financial problems, even though it also leases a majority of its locations. Michele Walker, national retail operations manager for Salvation Army Thrift stores in Canada, said its stores in Central Ontario have seen "moderate revenue growth" in the past few years, even in the Toronto area.

Ms. Walker said real-estate costs have been a challenge in markets like Toronto, but the stores have long-term relationships with landlords. Goodwill employees are welcome to apply for available positions at Thrift stores, and people can also bring donations to Thrift store locations if their Goodwill store is closed, she said.

"We do hope they can break through and come out of it, because they do good work in our communities."

With a report from Jane Taber