Buying a toy store in Canada

If a listing for a toy store shows only sales, a margin and a stock figure, a buyer can ask how much of that performance belongs to the location, the owner and the supplier relationships rather than to the business the buyer will actually receive. The useful question is which sales a new owner could repeat. That turns on whether suppliers will agree to deal with the buyer, whether the landlord must consent, what conditions a lender sets, and what product-safety history comes with the shelves. The sections below set out questions that help separate a store that holds up under that test from one that does not, and say what the buyer has to qualify for personally.

What to ask to tell a durable store from a fragile one

A buyer can ask whether sales stay meaningful outside the holiday period, why customers choose this store over a mass-market retailer (for example a specialty or educational focus, events that bring families back or staff who know the range), and whether the supplier terms can be confirmed independently. On the stock side, the questions are how much is current and whether the holiday peak is the only month that matters. Warning signs to look for include a year that hangs on a few licensed or tie-in lines with a short life, best lines held on allocations tied to the seller’s history, and a range that overlaps heavily with what big-box retailers sell for less. A useful test is how many of the best-selling lines the store could still buy on the same terms if the owner left tomorrow; the answer shows how much of the store depends on the owner.

What the seller may not volunteer

Some questions are worth putting in writing because the answers may not appear in a listing. Four are worth asking. First, how much stock is left over from the previous holiday period and how the books carry it. Second, whether the store has ever received a recall notice or an injury complaint about something it sold. The Canada Consumer Product Safety Act counts, among other things, a recall initiated for health or safety reasons by a foreign entity or a provincial government as an incident, and a person who sells the product for commercial purposes must give all the information in its control about the incident to the Minister of Health, and to the person it received the product from if applicable, within two days after becoming aware of it (section 14). Third, which lines are held on exclusive or allocated terms. Fourth, which of last year’s best sellers were one-time hits.

What you have to qualify for yourself

Several approvals sit with third parties, and a seller’s assurance does not replace their answers. Ask each supplier directly whether it would open an account for the new owner. The landlord is a second party to deal with: in Ontario, a covenant against assigning without consent is deemed subject to a proviso that consent is not to be unreasonably withheld, unless the lease contains an express provision to the contrary (Commercial Tenancies Act, section 23), and the rule in another province depends on that province’s law. The lender is a third. BDC’s purchase-loan guidance lists a letter of intent and expected closing date, a clear transaction structure, an agreed price with an account of how it was determined, knowing the required down payment, and the business’s financial statements or income tax returns among the things to have ready before applying. A buyer who plans to import directly also takes on the duty of a person importing a consumer product for commercial purposes to give the Minister the documents specified in the regulations no later than at the time of importation (section 13).

How your own position changes the questions

Your own position shapes what to ask. An existing toy retailer adding a store can check whether it already holds accounts with the same suppliers and how the store’s range overlaps with its own. A buyer who wants a specialty or educational store can check whether the range fits that focus. A family successor should note that where a lender under the Canada Small Business Financing Program finances a purchase from a person who is not at arm’s length from the borrower, the program’s guidelines require the lender to obtain an appraisal of the asset’s market value, subject to an exception they set out for an asset that person bought from a vendor at arm’s length, and they describe related persons by reference to section 251 of the Income Tax Act. For the program itself, see the CSBFP explained for buyers.

Questions to put to the seller before an offer

Once a letter of intent is signed, toy store due diligence takes these questions into the documents. Before that point, a buyer can ask for:

• Monthly sales and margin by category for several years, with the holiday quarter shown separately.
• Each exclusive, licensed or allocated line, and the supplier’s written position on a change of owner.
• Any recall notice, safety complaint or incident report received, and what was done about it.
• The lease, including the assignment clause and the time left to run.
• The amount and age of seasonal and licensed stock currently on hand.