What About Culture? What About Books? An Overview of Canadian Book Selling and Impact of Indigo/Chapters Big Box Stores

There were many competitors harmed or outright squashed at the cusp between centuries in the advent of big box stores Indigo and Chapters. Richard Bachmann, who ran the independent bookstore A Different Drummer in Burlington, Ontario, said “This is not about culture or literature, it’s about money” (O’Hara, 2000). The story of how both these companies came to be is told in highlights in an elegant timeline on Indigo’s website… but further research shows a very different image. The mechanics of how books are selected, showcased and sold has changed dramatically in their emergence and the future of Canadian book-selling seems to be in jeopardy in this new “home away from home” model of the brick and mortar establishment.

Commercial publishers, for many decades, had a balance of power with booksellers to achieve high sales levels. Book selling involves an orchestra of intermediaries, such as distributors, sales representatives, stores, amongst many others. However, in the mid-1990s, the balance was threatened and the industry suffered massively. According to an article entitled “Book Selling and Book Publishing in Canada, an Emergency Report” written by Gordon Lockheed, Toronto writer and editor of Dooney’s café .com, “Heather Reisman and Larry Stevenson” – CEOs of Indigo and Chapters, respectively – “more or less simultaneously came up with the same brilliant idea for the future of the book retailing in Canada.” In fact, “like most brilliant ideas in business, it wasn’t a new idea at all.” The article they both read in the same issue of the Wall Street Journal talked about the American behemoth Barnes & Noble, which discussed its steamrolling of the US independent sector.

Each business mastermind conceived their own plan of attack, and one’s success over the other inevitably established a bitter rivalry of titans. Lockheed explains that Reisman’s approach involved an equal US partner, Borders Inc., which would have necessitated the government to look the other way in terms of its foreign investment laws. Stevenson’s plan meant the government also had to look away, but only in terms of its competition laws. He devised a strategy in which he would purchase Coles from Southam Inc. and merge it with Smithbooks/Classics. Stevenson won regulatory approval for his plan in the end, while Reisman did not. This enabled him to beat Reisman to the punch.

Before the merger, Coles and Smithbooks had many small stores. Stevenson, a Toronto venture capitalist with a Master’s in Business Administration from Harvard, used more than $70 million in private investors’ money for the merger, as well as the design. Chapters, borrowing from Barnes & Nobles’ concepts again, built large box stores with a large variety of books and large seating areas, encouraging – rather than frowning upon – customers’ staying in to read materials. Chapters grew quickly, as did their stock share. Their success was met with both positive and negative criticism, however.

On the one hand, the VP of Sales and Marketing of McLelland & Stewart (now under Penguin Random House due to its own financial turmoil) of the time, Ken Thomson, said “[Stevenson] has increased the profile of books and brought more people into the bookstores” (Lockheed, 2001). He added that sales had increased annually but when asked whether selling more books meant more profits too, his answer was “No, it hadn’t.” The availability of books to Canadian readers seemed like a splendid idea, if they were also selling and helping publishers. The large inventory returns discussed later, as well as Chapters’ poor respect of financial terms, in retrospect, seem to have been cunning tricks to enrich stakeholders while impoverishing publishers.

On the other hand, Lockheed points out that each of the “more charming” Chapters was “actually responsible for closing three to six independent bookstores.” Moreover, analysts started to notice issues with Stevenson’s business practices. “There are red flags everywhere,” Benj Gallander, editor of Contra the Heard, is quoted as saying in an article in MacLean’s fittingly entitled “Chapters Struggles to Survive.” Gallander, who had written two financial books by this point in time, heard about Chapters’ tardy payment practises from his own publisher, Mike O’Connor of Insomniac Press. In analysing Chapters’ dominance, he believed that “Chapters expanded too quickly” and in many cases in the financial world, this can prove to be fatal to a business. In addition, Gerry Ruby, a publishing veteran and owner of Lichtman, one of the independent stores which became bankrupt soon after Chapters opened, told MacLean’s, “[Stevenson] is a bright boy… he knew that with a monopoly, there’s not nearly enough business in Canada to support these superstores. Not enough people read. But he knew that he and his executives could make some money. No matter what happened to the company” (O’Hara, 2000). Stevenson vehemently disagreed with this point of view at the time, but the next few years revealed the true cost of his capitalist business practices.

Despite selling more books, “one big reason publishers [weren’t] making money… is simple: Pegasus, which [was] controlled by Chapters,” a wholesaler program that demanded “deep discounts of 50 per cent.” In establishing its dominance, Chapters took advantage of pushing the line as much as it could; these were unheard of rates before Stevenson’s rise to power (a businessman through and through). Jim Munro, owner of Munro’s Books in Victoria, B.C., with 38 years of bookselling under his belt, said that “the publishers have no one to blame but themselves… [they] created this monster” because “they repeatedly caved in to Chapters’ demands on everything from discounts to terms of payment… they even agreed to pay Chapters to have certain titles displayed in the stores” (O’Hara, 2000).

While the publishers agreed to all the terms, Chapters did not uphold its end of the deal. Over the next five years, bookselling became even more tense. The books themselves no longer even seemed to matter in the grand scheme. In lieu of cash, Chapters began returning “mountains of books to publishers’ warehouses” and for months, “most publishers suffered silently” (Lockheed, 2001). The first to react, mostly because of the massive ace up their sleeve, was Raincoast Books’ then-CEO Allan MacDougall. With the leverage of publishing rights to the Harry Potter franchise, he refused to ship the books unless Stevenson sent payment up front. At first, Stevenson was unwilling, brash and brazen, but he did have to cave within a few days. HarperCollins followed down the same path, putting Chapters on a “credit hold.” According to O’Hara’s details in her article “Chapters Struggles to Survive,” “[HarperCollins] refused to ship any new books to Chapters until the bookseller coughed up part of the more than $10 million” that Chapters owed them since 1999. This was the beginning of the end for Chapters, as stock fell from $35 to an all-time low of $7.95 twelve months later.

While Larry Stevenson beat Heather Reisman to the punch five years earlier, his business practices alienated many industry peers and made it possible for Reisman and her venture capitalist husband to take over. Even though her plan did not receive regulatory approval, Reisman, with what many claim to be her multimillionaire’s husband support, founded the chain Indigo. Indigo began to compete with Chapters and opened 14 stores, fashioned in a very similar big box bookstore style. In the fall of 2000, Reisman and her partner began work on the hostile takeover of Chapters. The morning after the federal election of Jean Chrétien’s Liberal Party, which the couple prominently supported, Reisman made the pitch public. Through the business couple’s partnership Trilogy Retail Enterprises LP, they raised their 9.5 per cent stake in Chapters to 50.1 per cent. In her article “Chapters Bid” in MacLean’s, Kimberly Noble described Stevenson as “a reluctant potential groom” but financial analysts argued he would not have a choice in the matter. For her part, Reisman commenced “a subtle public relations campaign” by reaching out to Random House, Doubleday, McLelland & Stewart, and telling them that “she loved books… she was in it for the long haul… and she would close excess stores and she would get rid of Pegasus Wholesale Inc.” Having irritated both book publishers and distributors by demanding deep discounts, this last promise was irresistible. By early 2001, Indigo succeeded in taking over but kept both the brands, most probably to maintain the connection and familiarity established in their relationships with Chapters’ customers.

Over the last decade, however, “the flagship downtown Chapters in each of Canada’s three largest cities have closed its doors” (Freure, 2015). In his article “Decline of Downtown Chapters” published with The Town Crier (a division of The Puritan), Freure explains that Reisman argued that “Indigo’s aggressive and unprofitable model of expansion made it necessary to merge with the profitable Chapters.” The Canadian Competition Bureau accepted the argument but required the new Chapters-Indigo to sell off the small-format SmithBooks and Classic Books, brands Chapters had left over from earlier mergers.

Ironically, when the Bloor West Village Chapters closed down (in downtown Toronto), independent bookstore Book City, which had previously had no choice but to close a location, re-opened down the street. Freure surmises that “the offline demand for books in that neighbourhood may not have been enough to keep open a large format, high margin, corporate enterprise, but it was enough for a smaller independent to reopen its doors.”  In another article published by The Town Crier, Domenica Martinello dedicates her piece to criticizing “the high margin, corporate enterprise,” as Freure put it. She writes about the apparent appeal in just the sheer scale of the big box bookstore, “with [its] multiple floors, built-in café, and thousands of titles on seemingly any topic or genre.” However, she goes on to reveal that over her five years’ experience in working for Indigo Books and Music, books are merely “conversation pieces or status objects that pair nicely with a fancy lamp.” She quotes fantasy writer Guy Gavriel Kay, who in lamenting on the closing down of the aforementioned independent bookseller Book City said, “A lot of our culture today narrows us to our own online community of shared tastes and views. A bookstore is wide open and that helps make us wider and more open.” In stark contrast, she reveals that “one cannot simply walk into an Indigo and expect to browse with idle pleasure. There is nothing haphazard about the rigorously planogrammed store. Every gift card and mass-market must be in exactly the place the visual marketing team has preordained, with directives that change monthly.” Not to mention “the visual prominence of new hardcover releases that publishers have paid hefty sums to have displayed at high traffic locations.”

So, the financial trends established by Stevenson in Chapters have been adopted by Reisman and publishers are still on the hook for these sorts of expenses. And books are part of “the arbitrary decorative framing” where the big box stores “masquerade as the gatekeepers of enlightenment, champions of the written word, and defenders against a digital takeover,” where in fact, there is “not much difference between a computer algorithm spitting out a ‘personalized’ suggestion based on previous views and purchases” and Indigo’s underlying shopping stereotypes (Martinello, 2015). These “aggressive promotional tactics at work” serve the financial gains of Indigo as a corporation that heeds its stakeholders, not Indigo as part of a network that works together with publishers for the sake of perpetuating and encouraging the publishing of well-written, successful books. A knowledgeable Canadian publishing industry player close to the Indigo story notes, in Indigo’s defense, that “Indigo figured out that personal book buying has gone online and to ebooks, but gift buying is still an experience” (Anderson, 2017). That is all fine and dandy for Indigo as a retailer, but the issue remains that Canadian publishers and books are still in jeopardy in the years to come, unless they pay heed to business minds like Jim Munro and Gerry Ruby, as well as a small minority within the ACP who foresaw “that trying to appease Chapters was a mistake… that it was Chapters (and now, Indigo) that needed – and needs – the publishers, not the other way around“ (Lockheed, 2001). More than anything, publishers must remember who their customers and true supporters are, in the end: not the big box bookstores, but the few million Canadians that enjoy walking into stores of various kinds to buy books there.

 

 

 

Works Cited

Anderson, Porter. “US Industry Eyes Canadian Retailer Indigo’s Plan to Open American Bookstores.” News, Publishing Perspectives. Web. 9 November 2017, https://publishingperspectives.com/2017/11/canada-indigo-plans-for-us-stores/

Freure, Jason. “The Long Decline of the Downtown Chapters.” The Town Crier, The Puritan. Web. 20 April 2015, http://towncrier.puritan-magazine.com/ephemera/the-decline-of-chapters/

Lockheed, Gordon. “Bookselling and Book Publishing in Canada, an Emergency Report.” Dooney’s Café. Web. 26 October 2001, retrieved from https://web.archive.org/web/20050221092306/http://www.dooneyscafe.com/print.php?sid=71

Noble, Kimberley, John Nicol and Katherine Macklem. “Chapters Bid”. The Canadian Encyclopedia. Toronto: Historica Canada, 2003. Web. 18 Mar 2003. http://www.thecanadianencyclopedia.ca/en/article/chapters-bid/

Martinello, Domenica. “Indigo and Gendered Book Marketing.” The Town Crier, The Puritan. Web. 8 April 2015, http://towncrier.puritan-magazine.com/debate/indigo-and-gendered-marketing/

O’Hara, Jane. “Chapters Struggles To Survive”. The Canadian Encyclopedia. Toronto: Historica Canada, 2003. Web. 18 Mar 2003. http://www.thecanadianencyclopedia.ca/en/article/chapters-struggles-to-survive/

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