Mountain Equipment Co-op: A co-operative business modelMountain Equipment Co-op: A co-operative business model
Chris Strashok, Research Associate, Canada Research Chair in Sustainable Community Development
Published May 13, 2011
Mountain Equipment Co-op (MEC) is a Canadian-owned and co-operatively run provider of equipment for self-propelled, wilderness-oriented recreation. MEC consists of 14 stores across Canada with 1,500 employees and 3.3 million members (MEC Accountability Report, 2009). The co-operative business model is based on representative democracy and a model of co-operation, rather than competition. This ‘alternative’ model has allowed MEC to be competitive in the Canadian marketplace for 40 years, while integrating sustainable development into its business and addressing the environmental, social and economic imperatives simultaneously.
Sustainable Development Characteristics
This case study demonstrates two key features of sustainable development—an alternative governance model, that is, a co-operative business model, and its attention to protecting the environment while at the same time providing safe, clean and plentiful spaces for outdoor recreation. MEC and its members lead by example. Sustainable development and long-term planning is ingrained within MEC’s operations. The founders started the company with sustainable development in mind, fostering a visceral connection between the products they sell and the environment they enjoy. This connection has given MEC a strong understanding of why it is here, where it came from, where it is and where it wants to go in the future. Its strong identity allows MEC to be a confident organization, focusing on engagement with its members and their communities while at the same time moving to a lower-impact business model in a business environment where this is not the norm.
To realize its vision MEC identified the following six priorities where it believes it is best positioned to make a difference.
- Reducing material waste and harmful substances in our products.
- Improving our energy, carbon, and water footprint.
- Improving the human condition in our factory communities.
- Enhancing the recreation and activity culture in Canada, especially in relation to youth.
- Supporting conservation of ecologically and recreationally important places.
- Inspiring others and accelerating systemic change towards sustainability in the marketplace, through engagement and advocacy (MEC Accountability Report, 2009).
The co-operative governance structure in and of itself has also been a key factor for embedding sustainable development principles into the organization’s operations. As a co-operative, the organization is guided by seven co-operative principles:
- voluntary and open membership;
- democratic member control;
- member economic participation;
- autonomy and independence;
- education, training, and information;
- co-operation among co-operatives; and,
- concern for community.
MEC's commitment to these principles ensures the company integrates both the social and economic imperatives of sustainable development with their environmental concerns. As a group, MEC and its member owners have created a network of support where knowledge and experiences around adventuring outdoors in a sustainable way can be shared, and innovation in protecting outdoor spaces can flourish.
Critical Success Factors
The success of the MEC model can be attributed to several factors, which have led to the generation of trust capital: its deep commitment to the co-operative’s purpose; commitment to the seven co-operative principles, and connection with their members. MEC has grown and sustained itself as a successful business by having a strong sense of where they came from and why they are in business. MEC’s purpose for being is “to help people enjoy the benefits of self-propelled, wilderness-oriented recreation. We do that by selling outdoor gear, clothing, and services (MEC Accountability Report, 2009)”. This clarity of purpose combined with their commitment to the co-operative principles ensured that it integrates environmental, social and economic concerns into its business operations. This integrated way of thinking is displayed in MEC’s hiring patterns. Employees who work for MEC tend to be individuals who participate in outdoor recreational activities, bring a passion for the outdoors to their jobs, and symbolize the culture that MEC wants to reflect. These individuals are not necessarily experts in sales, business development, purchasing or other typical business skills. MEC feels, however, that these skills can be learned, unlike the passion that they bring for the outdoors. This authenticity is transferred to the sales style that is used on the floor of every MEC store. Front line staff is able to focus on sharing information and knowledge about MEC’s products helping members purchase the gear that best fits their needs, instead of focusing only on profit maximization. By hiring people who use the gear, MEC stays close to its grassroots, allowing it to meet the needs of its members consistently year over year while staying away from fads or trends in the marketplace. This consistent delivery of high value products and services, guaranteed advice, passion for the outdoors, and commitment to the purpose of the co-operative has produced high levels of trust and brand loyalty amongst its members, which has translated into 3.3 million members since its inception.
Community Contact Information
Director, Sustainability and Community
Mountain Equipment Co-op
Vancouver, British Columbia, Canada
MEC has remained relevant, even as more competition has entered the marketplace, year over year by consistently meeting the needs of its members, and by producing and offering high quality gear at affordable prices. All of MEC’s decisions and operations are geared toward this member-centric mentality and they do this by:
• Knowing their members - Because each customer is also a member MEC has access to the retail data associated with each member. This allows MEC to better understand their customers purchasing needs, focusing the business towards what their members want.
• Providing a ‘rock solid guarantee’ - MEC has one of the best warranty and return policies in the outdoor clothing and equipment industry. Its policy is unique in some parts of Canada such as Halifax where one interviewee noted that retailers are not willing to give refunds on returned purchases.
• Slow conservative growth – As a co-operative there is no pressure from shareholders to maximize the company’s profits, which gives MEC the ability to be financially conservative growing the company slowly and as needed.
• Passion for the outdoors – MEC is a values-based organization, which hires people that share the same culture of sustainable outdoor recreation. The staff's knowledge and experience about the MEC gear and the activities in which MEC members engage, ensures that MEC offers high quality gear while matching members with gear that suits their needs.
• Consistency and trust – MEC has converted its focus on its members' needs into offering consistent products over the life of the co-operative. The reliability of MECs products generates a large amount of trust and brand loyalty, making MEC one of the top Canadian retailers of outdoor recreation gear.
What Didn’t work?
To purchase goods from a co-operative generally you must join the co-operative, and this is the case with MEC: purchasers must buy a life-time membership at a onetime cost of five dollars. For some consumers, the fee is a barrier to purchasing MEC's products. In extreme cases, individuals refuse to become a member, while most see it as merely an obstacle to overcome in order to fulfill their purchase. The relevance of being a member of a co-operative is often lost on the average person and they do not know how to engage with MEC. The consumers' mentality is geared towards the more common private business model. To these individuals, MEC is simply a store. This is common within the general public and there are many misconceptions regarding the significance co-operatives play and could play within Canada. The general picture of a co-operative is that of small, inefficient and often marginal business. When compared to corporations, many view the co-operative model as inferior and not as competitive in the marketplace. By their nature, co-operative models are not self-promotional; they are created in order to serve their member needs and are not an entity like a corporation. Also MEC does not use traditional advertising or marketing techniques, relying heavily on word of mouth. Because of this, MEC has a strong presence in western Canada where MEC was started, but is weaker in eastern provinces like Quebec and Nova Scotia where MEC is new. With 3.3 million members, MEC also struggles with engaging all of its members. As with many democratic organizations, it is sometimes the group that makes the most noise that gains the most attention. There are historical and cultural tensions also at play within the co-operative that can make change challenging. One interviewee highlighted the resistance from a small group of long-time members when MEC tried to give its gear a more aesthetic quality. This group argued aesthetics would take away from the quality of the products and delayed this change.
Financial Costs and Funding Sources
Co-operatives are privately funded, relying on a group of individuals (members) to pool their resources together to raise sufficient operating capital. These individuals also need to be willing to receive a return-on-investment in a form that is not purely financial, realizing they are investing in both themselves and their communities.
At its inception in 1971, initial funding for MEC came from the six founding members and was run voluntarily for the first three years. By 2010, MEC has grown to 3.3 million members with total sales reaching $261 million (Mountain Equipment Co-op, 2011b), making MEC Canada’s largest supplier of gear for self-propelled outdoor recreation. The only external source of funding comes from the five dollar lifetime share in the co-operative, which must be purchased in order to buy gear.
As with all co-operatives, no surplus profits are retained at the end of the fiscal year since any remaining surplus is paid back to members in the form of patronage return. This is one of the challenges of the co-operative business model. Profits are either shared among member owners based on how much the member uses the co-operative or invested back into the co-operative to improve the services provided to the members, and to sustain the business. Because of this, MEC is financially conservative, growing slowly and taking few risks. This can be challenging when the business is moving through different stages of growth. It does, however, create space for creative solutions and capital remains local benefiting the communities in which MEC operates.
This research involved a literature review of journal articles relating to the co-operative model, documents from the company, and interviews with eleven individuals associated with MEC, using a semi-structured questionnaire. Interviewees included a representative sample of front line employees, middle and senior managers, and board members. The interviews were open-ended conversations about MEC itself, co-operative models in general, and the role they play in the Canadian economy and in the implementation of sustainable development.
Detailed Background Case Description
MEC is a Canadian-owned and operated provider of equipment, service and expertise for self-propelled, wilderness-oriented recreation. The co-operative was founded in 1971 with six members and $65 of operating capital with the goal of provided climbing gear for climbers in the Vancouver, Canada area who were looking for reliable gear at a reasonable cost (Mountain Equipment Co-op, 2011b). To this day, MEC’s mission is still to provide reliable gear at a reasonable cost. By staying true to its mission, MEC has grown to be Canada’s largest supplier of gear for self-propelled outdoor recreation, which in 2009 saw sales reach $262 million across their 14 stores across Canada, while employing 1,500 staff and serving 3.3 million members (MEC Accountability report, 2009).
The Cooperative model
A co-operative is an organization that is owned by the members who use its services. All co-operatives must adhere to the seven co-operative principles:
- voluntary and open membership;
- democratic member control;
- member economic participation;
- autonomy and independence;
- education, training, and information;
- co-operation among co-operatives; and,
- concern for community.
MEC’s commitment to these seven principles has meant that the organization integrates environmental, social and economic concerns into the bottom line of their business, focusing on a long-term business view and the value it provides to its members beyond return-on-investment. Novkovic (2006) argues, however, that this integration of environmental social responsibility into business practices is not unique to co-operatives, and any investor-owned business can and does incorporate environmental and social responsibility and business ethics into its operations, calling into question the role these co-operative principles play in defining the unique co-operative advantage. Others argue that the degree of integration of environmental and social responsibility into traditional business entities is more shallow than deep (Dale, 2001; Dale, submitted; Roseland, 1999). This case study demonstrates that adherence to, and the open and transparent commitment to the principles of the co-operative model at its very inception make this unique to the co-operative model. Moreover, it also led to an early alignment to and business leadership for more sustainable community development, defined as a process of reconciliation between the environmental, social and economic imperatives (Dale 2001; Robinson & Tinker 1997).
It is also clear that being a co-operative does not necessarily guarantee the application of the co-operative principles to business practices, without strong commitment and leadership around their implementation throughout a business. However, it does make it more likely given the public declaration and commitment to these principles and their transparency, coupled with its governance structure. This is because co-operative principles are present right from the inception of the organization and form the foundation of the co-operative business model, placing the pursuit of economic goals secondary, to ensure that the aims of the co-operative are accomplished. This is in contrast to most investor-owned businesses where the focus is on maximizing profits first while other goals and aspirations are secondary and often flexible, allowing them to be reoriented to suit the needs of the investors and markets (Gertler, 2004).
All of the individuals interviewed recognized the importance of the co-operative values and principles to MEC. These values are the foundation for the business and are imperative to helping the business focus on why it is here now and in the long-term, while honouring the social contract the organization has with its membership. Embracing the co-operative values and principles has also ensured that MEC operates transparently, building trust with its members.
MEC is classified as a first tier co-operative, meaning that the co-operative provides services directly to the members. Because of this, 100% of MEC’s business is with its member owners. Currently there are 3.3 million member owners making MEC the fourth largest democratic entity in Canada, after the governments of Canada, Ontario and Québec (Canadian Co-operatives Association, 2008). Each member is entitled to one vote to annually elect members to a lay board consisting of 9 directors who serve on the board for a three year period.
Due to the size of its membership, one of the challenges for MEC has been engaging this diverse community in the election process. In 2009, 32,056 votes were casts or 1.07% of the membership. Membership engagement is a predominant problem with large consumer co-operatives like MEC (Cole, Herbert, McDowall & McDougall, 2010). One reason is that many MEC members only buy memberships as a prerequisite for purchasing goods. Many of its members do not understand, therefore, what it means to be part of a co-operative, engaging with the organization only when the product they want is available at the lowest price. Because of this lack of awareness, MEC is often mistaken for buyers’ clubs like Costco, where a membership is also required to purchase goods. The difference being that Costco members have no direct say in how the company is operated.
There are also unique challenges associated with having a representative democracy governance structure. Since MEC’s management does not hand pick their own directors, the board may lack business skills and experience needed to govern the organization (Bond, Carter, & Sexton, 2009). MEC’s diverse member base creates challenges to getting the skills needed to run the organization. MEC recognizes, however, that an active democratic process requires time and energy, and an ongoing educational process. Therefore, MEC strives to clearly communicate to its members which skills sets are currently required at the board level while investing in board training when necessary as well as engaging external expertise when needed.
Because of the diversity of perspectives, decision-making through consensus also means that the cooperative model, in general, sometimes responds more slowly to business innovation. Co-operatives also run the risk of being politicized by groups within the membership taking the organization in a direction that is not necessarily best for the business. There are historical and cultural tensions at play within MEC that can make change challenging. One interviewee highlighted the resistance from a small group of long-time members when MEC was trying to give their gear a more aesthetic quality. This group argued aesthetics would take away from the quality of the products and delayed the change. Once these challenges have been navigated, decisions are produced that members, who are both investors and consumers, can relate to and fully support allowing MEC to produce goods and services that are better received by the market and to move ahead quickly on initiatives (Lotti, Mensing, & Valenti, 2006). The results of this democratic decision-making process often yield trust, greater commitment and the facilitation of shared knowledge (Birchall & Ketilson, 2009).
Finally, the directors are a key link between the members and the rest of the organization, therefore the trust generated between managers and members is essential to accommodate the flattened hierarchies in which MEC and other co-operative models operate (Jones & Kalmi, 2008). The board, and therefore the organization, tend to approach decisions with a focus on the co-operative values, putting pressure on managers in different ways than corporations. This dynamic between the board and management can be a challenge if the managers do not understand what it means to be a co-operative. This is particularly a challenge as the co-operative grows and there is the need to hire managers from outside the organization who may not have an awareness of the values that guides the co-operative's operations. Alternatively, board members need to be aware of the nature of the retail industry. As a retail business, MEC needs to provide goods and services to their members otherwise the co-operative will not have any value for its members and become obsolete. This gap between managers and members is common in co-operative organizations, and highlights the challenges of balancing the business and social functions of a cooperative organization in an environment where competitive corporations are the norm (Novkovic, 2006).
MEC understands that everything they make, say, or do has an environmental, social or economic impact on the planet. This understanding has been present since its inception and drives MEC’s commitment to making and selling products with people and the planet in mind. According to one interviewee, this dedication has resulted in 75% of MEC’s operations having been integrated with sustainable development principles. Through the interview process, it was also clear that as an organization MEC is curious about possibilities, creative in its approaches and dedicated to its core value of helping people enjoy self-propelled, wilderness-oriented recreation by providing equipment and advocating for the environment. The following priorities highlight the key areas where MEC feels it is positioned to make a difference in regards to sustainable development.
1. Product Sustainability
Manufacturing products is where the biggest impact on water, materials and energy occurs for MEC. In order to reduce the environmental footprint of their products and, therefore, its impact on the environment, MEC started directly sourcing textiles from mills that are partners. As reported in MEC’s 2009 Accountability Report, 21% of their directly-sourced mills had become Bluesign System Partners producing around 390,000 out of 1,920,000 yards of fabric. MEC's goal is to have 70% of their mills become Bluesign partners, by 2012. In addition to the application of health and safety standards for the textile industry, MEC also offers products that contain at least 50% organically grown cotton or recycled polyester, or are completely PVC-free.
2. Greening Operations
MEC understands that leading by example is a powerful tool for change. To ensure that its day-to-day operations have as small an impact on the environment as possible, MEC strives to reduce the environmental impacts of the transportation of its products and the operation of its buildings. Some of the ways MEC is minimizing its impacts is by searching for sources of alternative and low impact energy to power its stores while moving towards zero waste, by considering how much fabric is left on factory floor, and the garbage that leaves their stores.
Although considered to be at the leading edge of sustainable operations, three of the individuals interviewed expressed MEC’s desire to go even further and to be an innovator in greening its operations. One way MEC is doing this can be seen in their newest building in Burlington, Ontario. Not only is the building designed to meet LEED Gold certification, it has also been designed to be disassembled and repurposed at the end of the building's lifecycle. This is part of MEC’s Green Building Systems development, which is an evolution of the LEED process. MEC believes one of the limitations of LEED is that it only captures a snapshot in time, usually before the building is operating. The intention of MEC's Green Building System is to consider the entire life of the building and its possible uses over time, and to incorporate these considerations into the building design.
3. Improving the human condition in our factory communities
The forces behind current human conditions in factory communities are complex and driven by flaws in our economy and society. MEC recognizes that it has a part to play in this system and are committed to making change through its ethical sourcing policy. As part of this policy, MEC has audited 75% of their active MEC-brand factories to understand how these factories' business and labour practices relate to MEC’s Supplier Code of Conduct. Based on this audit, the majority of infractions were found to be health and safety related. However, 229 black code violations were found in 21% of factories. These violations consist of practices that impede audits, involuntary overtime, or withholding passports for migrant workers (MEC Accountability Report, 2009).
To resolve these violations, MEC believes in building trust, empowering workers and factory managers, and building alliances with industry (Mountain Equipment Co-op, 2011c). According to one interviewee, building alliances within industry is an important part of the MEC process as it is a relatively small organization within the global marketplace and by itself has little influence. "Empowering workers and factory managers is also critical as we need to understand what the local workers needs and priorities are without projecting our own western views." By empowering these individuals, MEC is fostering social capital in the communities giving them tools to take action for themselves.
Advocacy is a critical part of MEC’s success as a business and in furthering sustainable development issues. MEC understands that to be part of the community in which it operates and plays, it has a responsibility to protect that space. MEC’s vision for this is that “Canada will be home to the world’s most comprehensive network of parks and protected areas and sustains the world’s most outstanding outdoor playground. Self-propelled outdoor activity will be a primary feature of Canadian culture and lifestyle (Mountain Equipment Co-op, 2011a).” To do this, MEC has developed a network of partnerships with conservation and outdoor community groups such as 1% for the Planet and The Big Wild while founding Leave No Trace Canada. Advocacy is an essential part of taking a leadership role to inspire others to accelerate change towards a sustainable world.
One of the challenges MEC faces with being so active in its communities is what two interviewees called the halo effect, where members make the assumption that MEC is doing more than it really is. To counter this, MEC ensures that it is open and transparent with its members, communicating and educating them about what MEC is engaging in. This transparency can also mitigate the possible erosion of trust capital that can be caused by the green washing that is occurring in the marketplace.
Role in Canadian Economy
As with any business in Canada, MEC provides goods and services and jobs to the Canadian economy, and like any other business there needs to be a demand for these goods and services. In many instances, this demand is created by producing goods and services that are more convenient or better priced than what is currently available (Novkovic, 2006; Zeuli & Cropp, 2004). For MEC, this means being committed to providing high quality gear for outdoor adventuring for its members. MEC also feels that its role is also to model a different way of doing business. Everything MEC does is put under the context of MEC’s vision and values, which has a strong sustainable development component, instead of the lens of profit maximization. Since MEC is not solely focused on the bottom line, it is able to foster collaborative connections with other organizations and the communities in which it operates. This gives MEC, and other co-operatives, access to social and economic capital that it does not have and creates opportunities to innovate through collaboration.
MEC's different way of doing business has also fostered high employee loyalty in a business that is seasonal in nature and in an environment with a traditionally high employee turnover rate. MEC's employees tend to be individuals who participate in outdoor recreational activities, bring a passion for the outdoors to their jobs and symbolize the MEC culture. These employees are not necessarily experts in sales, business development, purchasing or other typical business skills. MEC feels these skills, however, can be learned unlike the passions that they bring with them for the outdoors. This authenticity is transferred to the sales style on the floor of every MEC store. By hiring people who use the gear, MEC stays close to its grassroots, allowing it to meet the needs of its members consistently year over year while avoiding fads or trends in the marketplace. Keeping members interested in your products in a competitive marketplace is a major challenge for a retail co-operative like MEC and it is this employee engagement that helps foster strong relationships between MEC and its members (Birchall & Ketilson, 2009; Herbert, Cole, Hardy, Lavallee-Picard, Fletcher, 2010; Lotti, Mensing, & Valenti, 2006).
MEC is conscious of its overall growth strategies since no profits are retained at the end of the fiscal year; profits are shared with their members and invested back into the organization. Lack of a financial cushion creates challenges for retail co-operatives such as MEC. Because consumers have choice, MEC cannot simply increase prices to cover its sustainable practices. However, this also creates slower growth cycles, which when combined with the longer-term view of business that co-operatives take provides a balance to the drive for continual growth seen in our current economic paradigm. Slower growth cycle combined with a consensual decision-making process has also allowed MEC to sustain itself since its inception.
Challenges of the Model
One challenge to the co-operative sector, and to MEC in particular, is the lack of co-operative brand. Since MEC was created as a tool to serve its member needs and is not an entity like a corporation, MEC is not focused on marketing campaigns promoting its brand or recruiting customers. MEC relies solely on word of mouth. Unfortunately, when compared to countries like Italy and Spain, Canada (with the exception of the province of Quebec) also lacks a strong co-operative network to promote the co-operative brand and its advantages. As a result, there are many misconceptions about the co-operative model in Canada (Lotti, Mensing, & Valenti, 2006) and co-operatives are often assumed to be small- to medium-sized, local affiliations not able to compete in the wider marketplace. This is ironic given that MEC is the largest supplier of gear for self-propelled outdoor recreation in Canada and the fourth largest democratic entity in Canada with 3.3 million members.
Two of the individuals interviewed suggested, and Christianson (2007) argues as well, that a lack of awareness is also prevalent in all levels of Canadian government and because of this, government does not actively promote co-operatives as a viable business model to the Canadian public, which limits the potential impact co-operatives on the Canadian economy. Many of the policies and legislation pertaining to business in Canada, such as how capital is classified, the classification of dividends versus patronage payments, and tax incentives for investing in co-operatives do not recognize the unique nature of co-operatives and limit MEC’s ability to be innovative with regards to financial arraignments with its members (Brown, 1997). In addition, the co-operative business model is also not taught in Canadian business schools further compounding a lack of awareness. By not fully including co-operatives in the economic equation, we limit our options for creating a diverse and healthy economy.
Many of MEC’s customers are interested only in the retail experience and are not concerned about MEC’s co-operative structure or values. One of the individuals interviewed pointed out that if you examine MEC’s membership and where they shop after MEC, their next biggest stop is Canadian Tire. So, like any other business MEC needs to provide a level of engagement with its members/consumers, which others are not able to provide. However, as indicated by another interviewee it is this ability to combine business with environmental and social concerns that does capture some consumers and draws them back to MEC. This individual stated that consumers come for the MEC brand and products, but many keep coming back because of MEC’s values and commitments.
Another challenge faced by MEC is that of scale: what is an optimal scale? MEC is a large company with 14 stores across Canada and 3.3 million members. With such a large member base, which spans multiple generations and backgrounds, MEC needs to engage its members and anticipate changes in their needs. Unfortunately, as a retailer MEC has limited opportunities and reasons for engagement with its members because its products and services are not as essential to the daily lives of the members as say a worker or a financial co-operative. A lack of engagement may potentially move MEC away from the co-operative's original purpose, and create a threat to organizational integrity. This question, however, is not unique to the co-operative business model, especially those companies concerned with sustainable development.
Overall, MEC is an alternative business model to the current competition-driven model, while interacting with space, place and time in ways that complement and bring balance to the corporate business model (Gertler, 2004). Connected and committed to the prosperity of the communities in which it operates, MEC accounts for the environmental, social and economic costs of their activities, breaking down the silos between profit and non-profit sectors (Dale, 2001; Levi & Davis, 2008), allowing their business to drive sustainable development initiatives, while producing quality goods and service.
- In what ways can MEC help promote the co-operative business model within Canada?
- What government policies would be helpful for strengthening the co-operative sector in Canada?
- What makes the co-operative principles so important to the success of MEC?
- Given that sustainable development recognizes ecological limits what is the role of an organization like MEC in no-growth economy?
- In what ways can MEC increase its role in the global community to help create sustainable factory communities?
- What are the challenges for MEC in balancing the need to use our natural environment for recreation and the need to keep it wild and undisturbed?
- In what ways can MEC help society create innovative solutions addressing the ecological, social and economic imperatives?
- How does this governance structure deter members from demutualising MEC, turning it into a private business?
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