Cash crisis that lead to closure of Goodwill stores years in the making.
The sudden closure of 16 Goodwill stores and 10 donation centres in the Toronto area comes as no surprise to those who have followed its precarious financial position in recent years.
The auditors of Goodwill Industries of Toronto warned the charity’s directors in May 2013 after reviewing financial statements for the 2012 and 2011 fiscal years of “material uncertainty that may cast significant doubt about the organization’s ability to continue as a going concern.”
McGovern, Hurley, Cunningham LLP chartered accountants said in a report the charity’s ability to continue operations depended upon whether the chapter could successfully generate positive cash flow from operations, which it had been unable to do in many prior years.
Goodwill, a registered charity, receives goods, such as household i tems and clothes, and sells them in its stores. It uses proceeds to fund programs that help people facing employment barriers.
It also receives cash donations and government funding, but the lion’s share of revenue — more than 80 per cent, though the percentage has slid over the years — comes from selling used goods at its stores.
In a brief news conference Monday, Goodwill Toronto chief executive Keiko Nakamura said the organization’s margins have always been low. But in recent years, labour costs, increased competition and high rents have made things even worse.
“I recognize this has all happened very suddenly,” Nakamura said. “It has been a very challenging time for Goodwill as it faces a cash crisis.”
The sudden closures came as no surprise to Kate Bahen, managing director at Charity Intelligence Canada, a nonprofit industry watchdog that does research and analysis on Canadian charities.
“The cost of paying the store staff and running the charity shops cost more than Goodwill makes from sales,” she said.
Charity Intelligence, which rates charities for interested donors and offers free downloads of its reports, had a onestar ( out of four) rating on Goodwill after its 2012 audit.
Bahen said Goodwill had cut its full-time staff by 10 per cent since 2012 to 284 employees.
In 2014, Goodwill had $ 23.1 million in sales while the cost of running its stores and charity programs was $ 27.1 million, leading to a $4-million operating loss. The loss had been made up by a $4-million grant from the Ontario government.
“This charity was on life support,” Bahen said.
In Toronto Monday, donated clothes and furniture piled up, unsorted, on sidewalks in front of Goodwill stores and depots. The organization shut its doors Sunday with little public notice.
Nakamura said Goodwill’s finances have been troubled for years. “It became clear that we were not able to cover (our) costs very quickly,” she said Monday. “In order to ensure that we were not asking staff to work at a time when we didn’t feel we would be able to cover costs, we had to close down the stores.”
There are 11 other Goodwill organizations in Canada that operate independently. Only the largest Toronto division — with operations in Toronto, Mississauga, Brampton, Newmarket, Barrie, Orillia and Brockville — is affected.
According to documents filed with the federal government, Goodwill had one employee, presumably Nakamura, earning between $ 200,000 and $ 250,000 in 2014.
As charities go, Bahen said, that salary is in the normal range for a CEO of an organization of that size. Goodwill’s employees made wages “on the low side” compared with hospitals and universities, though in line with the social services sector.
She said the charity’s lack of success is not atypical, as not all charities are able to operate as a going concern, and retail is a particularly competitive business.
“It’s just like the business sector, you have some (charities) that decline and close, or merge, or change their businesses, and you have new entrants who come up.”
Nakamura is the former CEO of the troubled Toronto Community Housing Corp. She was fired from that post in 2011 amid an organizational spending scandal.
Asked if she planned to resign from her current job, Nakamura replied that she had “clear instructions from the board of directors to move forward.”
She said she intends examine all possible solutions for Goodwill’s woes but could not say when or if the Toronto and southern Ontario locations would reopen.