On Nov. 8, 2011, Canada’s literati gathered in Toronto for their Oscars, the Scotiabank Giller Prize, an event designed to bolster book box office and buzz. Yet the hot topic as guests tucked into their tuna tartare was not literary but corporate—a new plot twist at Indigo Books & Music Inc. Hours earlier, the country’s dominant book retailer announced that Kobo Inc., the e-reader in which it held a 51 per cent stake, had been sold to Rakuten Inc., a Japanese company, for US$315 million. When regulatory hurdles are cleared, Indigo would net an estimated US$150 million.
That Indigo was jettisoning its much-publicized e-asset, one publishers had scrambled to accommodate, was puzzling—at least to those seeking a consistent narrative. Founded in 2009 to compete with Amazon’s Kindle, Kobo was Indigo’s fastest growing division, though only a small fraction of revenues. Minutes after announcing the divestiture, Indigo reported second quarter 2011 results, a loss of $40 million. Sales at Kobo were up 219 per cent over a year earlier, whereas those at indigo.ca rose 1.1 per cent and store sales were down—4.3 per cent at Indigo and Chapters superstores.
Months earlier, in June 2011, Indigo CEO Heather Reisman had talked up the digital/dead-tree book synergies to the Toronto Star: “Indigo is in the business of encouraging people to read,” she said. “We don’t care if people want to read digitally or physically.” A month before that, she predicted e-books would grow to 40 per cent of Indigo’s total book sales. Yet by November, the digital arm was history, shed in part because it would take an infusion of over $100 million to make it globally competitive, and the company was refocusing on a more high-risk area: non-book, or “lifestyle products.” In spring 2011, Reisman told the Globe and Mail that books would decline to 50 per cent of Indigo’s sales in a few years from 75 per cent. “Our stores are about the life of a book lover,” she stressed.
In a November interview with Canadian Business, Reisman reiterated her goal to “fundamentally transform” Indigo, a $1-billion enterprise with 6,700 employees facing the pressures—digitalization and online competition—that decimated bricks-and-mortar video and music retailers. Indigo has a lot of bricks and mortar: 261 outlets leased under various banners, 97 of them superstores averaging 20,000 to 30,000 sq. feet. It’s going head-to-head against Amazon.ca as well as giant U.S. book discounters Costco and Wal-Mart. In 2013, Target Corp., which also sells books, arrives.
Shoppers who walk in to an Indigo or Chapters superstore for the latest Haruki Murakami and walk out with a $30 faux fur throw and a $12.50 moose candle can be forgiven for being perplexed. The book industry is in existential crisis. “Nobody knows what’s going to happen,” says David Kent, the president of HarperCollins Canada. Kent praises Reisman for trying to make Indigo relevant in a shifting market: “She’s terrifically bright and I think she’s very realistic looking at how the marketplace has changed and continues to evolve.” There’s even some speculation Reisman may be looking for a way to boost the chain’s value, possibly with an eye to luring new investors.
Big booksellers able to evolve are the fortunate few. In February 2011, Borders Group Inc., the second-largest book chain in the U.S., filed for bankruptcy protection, and Australia’s major bookselling network, REDgroup Retail Inc., collapsed; Barnes & Noble Inc, the world’s biggest book retailer, has been searching for a buyer since last summer.
Indigo has been insulated from the carnage in part by prudent management, analysts say, but more by its dominant-player status conferred by the Chrétien government in 2001 after the Competition Bureau approved Indigo’s hostile takeover of the larger Chapters Inc. Both companies were in financial trouble; the merger was permitted on grounds it would strengthen the book industry and protect it from foreign incursion. By 2010, hundreds of independent booksellers had shuttered and Indigo accounted for 48 per cent of Canadian retail book sales, according to one report.
Indigo’s current transformation and its consequences for the Canadian book industry are a subject of speculation and gossip. “If Heather can get [her product mix] into 60 per cent stuff and 40 per cent books, Indigo’s no longer covered by the cultural laws [regarding foreign ownership] and she could sell it to anybody,” one publisher says. Analysts predict store closures could occur as leases come due, first at smaller stores. Speculation swirls around what Reisman and her husband Gerry Schwartz, the billionaire chief executive of Onex Corp., could be planning. (Reisman and Schwartz control 62.4 per cent of the publicly traded Indigo through the privately held Trilogy Retail.) In Canadian Business, Reisman called Indigo an “innovative platform,” and promised another Kobo-style coup. Canadian publishers—who depend on and wish for Indigo’s well-being yet resent its power—are wary of the chain’s shift away from books. There is little insight forthcoming from Indigo. Reisman and Indigo executives turned down Maclean’s interview requests: “We are declining our participation,” an Indigo spokeswoman wrote in an email.
The silence is unfortunate—and gives rise to more questions. For one, it would be fascinating to hear Reisman’s response to the December New Yorker cover showing a bewildered shopper guided through a bookstore filled with literary bric-a-brac—Hemingway posters, “Bronte” baseball hats, busts of Shakespeare, e-readers—to a small shelf with printed books on it. A decade ago, Reisman, a former management consultant, anticipated the trend. She coined the opaque term “cultural department store” to describe Indigo Books & Music, the company founded in 1996 after her bid to bring Borders to Canada failed. Reisman became the face of the Indigo-Chapters monopoly, its “chief booklover” and arbiter of “Heather’s Picks,” selections given prime display space that reveal a taste for historical fiction with strong female protagonists and business bestsellers like Onward: How Starbucks Fought for Its Life Without Losing Its Soul by its CEO, Howard Schultz.
In 1997, Reisman named her first superstore Indigo Books Music & More and has sought the “more” for her stores ever since. In 2000, Indigo purchased Toronto gardening store Cruickshank’s to anchor expansion into gardening supplies, an initiative that fizzled. In 2008, the high-end “eco” stationery and gift-shop chain Pistachio was launched with two stores and plans for eight locations. But Pistachio’s mandate—“Buy less. Buy better. Buy forever”—proved unsustainable in a rocky retail climate. Last year, one of the two locations closed, and the company ended a deal to sell wholesale to Barnes & Noble. Yet Reisman’s retailing bona fides remain stellar: she sits on the boards of U.S retailers Williams Sonoma and J. Crew. The Indigo model was cited in a May 2011 report about the book industry commissioned by the Australian government; it praised Indigo as a company that “actively recognizes the need to promote books as a lifestyle, and not a product,” and noted its success “has been attributed to its expansion into other products and services that appeal to book buyers.”
Appealing to “book buyers” with non-book items presupposes readers are a homogenous group—that the shopper who buys Snooki’s memoir shares tastes with one who buys Joan Didion’s. In this, Reisman has looked south of the border for assistance. In April, she appointed veteran American clothing retailer Tedford Marlow, formerly of Urban Outfitters, as president and hired a creative director for Indigo’s house brand of products out of New York. Expanded toys and games sections are being rolled out at superstores. A home decor line—attractive bowls, clocks, reading lamps and such—was unveiled in the fall. All offer higher margins than the latest Ondaatje, but also contain higher risk: books are sold on consignment and returned to publishers if unsold; non-book merchandise is not. Bay Street analysts say the non-book strategy is a necessary gamble: “They have to do it carefully—and do it smartly by offering products shoppers can’t get anywhere else,” says one, who asked not to named.
Reisman, who talks in the value-added argot of business bestsellers, doesn’t see herself as a product retailer, per se. “I’m not interested in selling a bowl. That’s not the business I’m going to be in,” she told the Globe and Mail in November. “I am interested in creating an experience around the table for the customer.” That “experience” paradoxically relies on the cultural patina of books—and their ability to provide product adjacencies, especially around cookbooks and children’s books, two categories predicted to defy digitization. The new product mix is wisely skewed to women, the primary book buyers, and exudes comfort, warmth and well-being: teapots, wine decanters, yoga socks, lavender-camomile bubble bath, pretty notepaper and $28 olive oil.
It’s not a landscape suited to challenging, discomfiting or controversial titles, as hinted at in a May 2010 in-store interview Reisman conducted with Annie Leonard, author of the popular The Story of Stuff: How Our Problem of Overconsumption is Trashing the Planet, Our Communities & Our Health—And What To Do About It. Their animated conversation hit a stall when Leonard began railing against consumerism: “We’re burdened by our stuff. After a point, more stuff is toxic literally as well as metaphorically,” she said, as Reisman’s smile faded and she fell silent.
Publishers voice concern about how Indigo’s active list of 500,000 titles will be affected, though they see the new strategy as the only way Indigo can justify its high-rent, large-format stores. “She can’t have a category—books—where you’re seeing declining sales year over year without trying to replace that with something equally compelling in other categories,” says Brad Martin, president of Random House Canada, who adds: “What I don’t need is her filling up her stores with books she’s going to return—and incur the cost to her and us.”
Carolyn Wood, the executive director of the Association of Canadian Publishers, says Indigo’s move into non-book products has created three major grievances. First is the reduction in floor space devoted to books. Second is the reduction in the return period for books to 45 days from 90 days, which is suited to blockbusters and big-name authors but will reduce the potential of a book from a small press by an unknown author. Some publishers say that if a book doesn’t sell in 45 days, it won’t. Others disagree. “It can take three weeks to get a book into the stores,” one gripes. Woods says research shows that book sales are driven by word of mouth followed by in-store presence, which is why publishers are angry over Indigo’s new total control of display. In the past, publishers paid for prime display space, a practice Indigo stopped a year ago. To compensate for its lost revenues, Indigo has imposed a flat four per cent surcharge, or “co-op,” on every book sold. “Co-op” fees are helping to bankroll Indigo’s non-book product foray, one independent bookseller says: “It’s brilliant. Publishers are underwriting their own demise.”
Publishers resent Indigo’s clout almost as much as their inability to stand up to it. “If [legendary publisher] Jack McClelland was operating today you know he’d speak up,” says one. “But those were different times.” A low-grade paranoia prevails. Many publishers would not speak on the record. “If I said something contrary to Indigo, there’s a good chance they would try to punish us,” says one. Even one who gushes over Reisman’s business moxy (“she’s brilliant”) requests anonymity. “Nobody wants to look like they’re sucking up,” a publisher says.
Publishers also bristle at the notion of books as “lifestyle objects,” fungible commodities like Starbucks lattes. “Books are the lifeblood of any healthy democracy—together with magazines and other media,” says Patrick Crean, publisher at Thomas Allen & Son Ltd. “But books remain the place where new ideas, stories and long narratives are put out into the world, and if you begin to erode the ability to publish and market long-form reading there will surely be a long-tail effect on the quality of the creative imagination of our polity.” Corporatization, which demands quarterly accountability, is an anathema to publishing and bookselling, Crean says: “Books resist Harvard Business School models. They’re a delicate balance between art and commerce that hang by their fingernails on the edge of the market economy.”
Now much hangs on the 63-year-old Reisman—and Indigo’s February quarterly results that include the key Christmas season. “Heather says that if Indigo doesn’t survive, no bookstore will,” says one publisher. “It’s ego, but she believes it. And she wants to make it survive.” As to what that means or who is going to be writing the narrative, we can only wait to see.