Mastermind Toys Turns to Franchising to Rebuild After Creditor Protection

Mastermind Toys will expand through franchising, CEO John Bayliss confirmed Monday, marking the most structural change yet in the chain's recovery under owner Unity Brands.

The Canadian toy retailer filed for creditor protection on Black Friday 2023. It cited rising competition, COVID-19 disruptions and a deteriorating macroeconomic environment. Unity Brands, which also runs Casca Footwear and Kit and Ace, then bought the chain and began rebuilding it.

Why is the chain choosing franchisees?

"It's an awesome opportunity to sort of bring the Mastermind experience to more communities," Bayliss said in an interview when asked why the company was exploring franchising.

He pointed to the company's own store data as the logic behind the move. "Our strongest stores are ones that really thrive because they have deep roots in their communities and store managers ... that really have an ownership of the community that they operate in, and I think that's something we're looking to replicate."

The mechanism is straightforward. A franchisee pays the upfront costs of opening and running a store. The brand keeps control over products and pricing through strict franchise rules. The company grows without carrying the capital cost of each new location.

Which markets are on the list?

Bayliss did not name specific target markets. But he said he hopes franchising will help Mastermind re-enter regions it previously left and grow its footprint in dense areas like Toronto, Vancouver and Alberta. The company will keep some stores corporately owned.

His focus for now is Canada, he said. Franchising is rare among Canadian toy stores; internationally, Build-A-Bear is one of the few brands that has used the model to expand at scale.

The franchising push follows a consulting hire. Bazely Consulting said it was retained by Mastermind to "prepare the business for franchising" and an entrance to "new markets," according to a weekend LinkedIn post. The Kitchener, Ont.-based firm did not respond to requests for comment Monday.

What has Unity Brands changed so far?

Since the acquisition closed, Unity has run a series of experiments to rebuild the business:

• Brought back products from manufacturers like Melissa & Doug last year
• Tested a pop-up holiday store at Toronto's Union Station
• Expanded the pop-up model to Holt Renfrew department stores this year
• Struck a partnership with 7-Eleven, placing Mastermind plushies, games and puzzles in convenience stores while 7-Eleven candy and snacks sit in the toy shop's checkout aisle
• Opened Lajoué, a new Quebec-based store banner
• Returned Mastermind to communities like Woodbridge, Ont., just north of Toronto

Unity Brands is owned by Canadian retail veterans Joe Mimran, Frank Rocchetti and David Lui.

Who pays for the growth?

Lisa Hutcheson, a retail strategist with J.C. Williams Group, said the string of moves shows Mastermind is "regrouping." She expects franchising to accelerate that revitalization because it will help the business reach customers who now shop for toys online or at Walmart and Canadian Tire, since chains like Mastermind and Toys "R" Us have left their neighbourhoods.

The financial logic matters as much as the retail one. Franchisees, not the company, will be on the hook for the costs growth brings, Hutcheson said. Franchisees often pay large upfront expenses to run stores under brand names and must follow strict rules on what products they carry and what prices they charge.

Could the model go international?

Hutcheson sees room beyond Canada. "I think it will get more expansion in Canada, but the U.S. is also a good player and I don't see why there wouldn't be an opportunity for them to expand internationally," she said.

Bayliss has not committed to anything outside Canada. But if franchising restores stores in regions the chain abandoned after 2023, Mastermind would gain back market share at a cost borne largely by its future franchisees rather than its balance sheet.