Indigo Books and Music to be Sold to Holding Company, Intends to Go Private
The headline in the Globe and Mail Report on Business, on page B3 (April 4, 2024) states “Indigo to go private after sale to holding company”.They are referring to Indigo Books & Music, Inc., Canada’s largest purveyor of print books, among other items. This has been a long time coming, as the following graphs will illustrate.
The deal is somewhat similar to what happened earlier (2019) to the U.S. bookstore chain, Barnes and Noble. At that time the hedge fund Eliot Management Corporation took it over, as Barnes and Noble had suffered an extended period of losses or only small profits. I should note that they are still a going concern, though as a private entity there is no publicly available data on sales or profits (the website says “At present, Barnes & Noble serves over 600 communities in all 50 states and remains the #1 book retailer in the United States”).
In the case of Indigo, the holding companies (Trilogy Retail Holdings Inc. And Trilogy Investments I.P.) that bought Indigo are owned by the husband of Indigo’s CEO, Heather Reisman. He was also a major shareholder in Indigo. So, in a sense, the company is under new management, which isn’t much different from old management. But, it will no longer be required to divulge financial information to the public and won’t be beholden to a corporate Board of Directors.
In the past few years, Indigo was hit by a ransomware attack and had a lot of dissension on the Board. And, of course, there was that whole Covid matter, which wasn’t great for business either. But, as the attached graphs show, things hadn’t been easy for Indigo for quite a while.
The first graph shows that Indigo’s sales and costs had increased in tandem, from 1999, so profits were not increasing. In fact, since 2010, there were many years of losses, interspersed with smallish profits, as the graph below shows. The Covid years definitely hurt, but there were problems evident before that (e.g. 2019 showed a substantial loss, which was before Covid hit Canada).
As the graph below shows, sales plateaued at about 2008-10, when adjusted for inflation.
After that, there was a falloff, then a recovery, then another falloff. By now, sales are about the same as they were in 2000, on a CPI adjusted basis. There has been a fairly considerable jump in population during that 24 year period, however, so it might be expected that sales would reflect that.
But that doesn’t seem to be the case – people are either reading less or reading differently i.e. reading is mostly done on e-readers, which has cut into bookstore sales. Given these facts, it looks like Indigo did pretty well, to hang on as long as it did. We will have to wait and see how this works out in the future.
I have written a number of blogs on the Chapters/Indigo saga over this period. I have summarized them below, for the interested reader.
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Blog 15 – Empty Chapters (2013-09-04)
http://dodecahedronbooks.blogspot.ca/2013/09/empty-chapters.html
Chapters is the big bookstore chain in Canada – equivalent to Barnes and Noble in the U.S. or Waterstones in the U.K.. Until the on-line book revolution it was the place to go for books in Canada (unless you lived near a really good independent store or a campus bookstore).
So, our visit was on Saturday, at about noon. This was in the trendy Whyte Avenue area of Edmonton, near the University of Alberta, and the Strathcona Farmer’s Market. On a nice warm late summer Saturday, the area generally attracts tens of thousands of strollers and shoppers to the shops, restaurants and pubs. The day went according to form – plenty of people on the sidewalks and the Farmer’s Market was crowded.
But Chapters was dead. As I recall it from a few years back, it would have been packed with people at that time of the day on a Saturday. Not so anymore – I was the only person at the cash register lineup. And my purpose was to buy a mini-Kobo and gift card for a friend’s upcoming birthday, so that doesn’t bode well for Chapters’ future either. He may become a convert to the Amazon or Kobo online stores, once he has an e-reader.
...
So, it looks as if we might soon be closing the book on Chapters. It’s kind of sad, but I guess we can take heart, that it won’t be the end of books.
Blog 20 – Another Visit to Chapters and a historical look at the price of Alice Munro’s books (2013-10-11)
http://dodecahedronbooks.blogspot.ca/2013/10/another-visit-to-chapters-and.html
I wrote the draft of this blog a couple of weeks ago, but since it focuses comparing the prices of books I thought this might be an interesting and topical little addendum. Alice Munro’s winning of the Nobel Prize for literature (yay Canada) motivated me to look around the house for some of her books that we own. I found a paperback book that she wrote, that was printed in 1979 (Who do you Think you Are?). It’s cover price is $C2.25. A more recent trade book of by Alice Munro that we own (The View from Castle Rock) cost $C20.00, bought around the year 2010.
I checked the Consumer Price Index on the Statistics Canada website. For 1979 was 40 (with 2002=100), while for 2010 it was 116.5. So, that’s an escalator of about 2.9 times. Given that, the price of a paperback should have only risen to about $6.55 between 1979 and 2010 (2.25 times 2.9). Instead, it hit $20. Granted, there is some difference in quality between the 4 inch by 7 inch paperback of 1979 and the 5 inch by 8 inch 2010 trade back book, but it’s not enough to account for such a big difference between the increase in book prices and the increase in overall consumer prices during this time interval.
Interestingly, recent e-books seem to be settling in at about the $4 to $10 range, so the e-book revolution may just be returning matters to their historic norm. A quick check of Amazon.ca’s website, however, shows that the kindle version of “Who do you Think you Are?” is going for $C13.99, the paperback for $C13.72.
Blog 26 - Whither Chapters (or Wither Indigo?) (2013-11-18)
https://dodecahedronbooks.blogspot.com/2013/11/whither-chapters-or-wither-chapters.html
Indigo Books and Music Inc is the major corporation behind Canada’s big book chains - Chapters, Coles, Indigo and the World’s Biggest Bookstore. And according to the November 7, 2013 copy of the Globe and Mail (“Indigo falls as dividend disappears”) it is in significant trouble. Please note for American, British or other readers, that you can be pretty sure that whatever is happening to Canada’s Indigo/Chapters is also happening to Barnes and Noble, Waterstones, or whatever your national big book retailer happens to be called.
Here’s a selection of quotes from the Globe and Mail article about Indigo/Chapters:
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"dying bricks and mortar bookstore model"
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"falling margins in its core book business"
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“remodelling… stores to step up its move away from books and into other products”
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“investors are considering whether to wait for the results"
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“The book part of the store will continue to decline in sales”
...
There was a net loss of $10.1 million dollars in quarter 2 (April to June) of 2013, based on lower sales and higher costs. In fact, revenues fell 3.3%, to $179.4 million, while costs of operations went up slightly. It should be noted that Q2, 2012 also saw a net loss, but a lower amount, about $4 million.
...
Because of this, the company decided to suspend its usual dividend payout for Q2 2013, and the stock price plunged 18% in one day. The company has been paying dividends since 2009, when Indigo finished paying off debt incurred from its acquisition of Chapters. So, it seems that investors are used to a dividend, and they don’t like to see it yanked.
The money that would have been paid out ($11 million) is to be redirected to its conversion into a “lifestyle company”, focused less on books and more on toys, gifts, house wares and electronics. This is due to falling margins in its core book business, related to pressure from online paper book and digital book sales.
...
I did an informal content analysis of the last 5 (Chapters/Indigo) flyers that came to our house, roughly corresponding to October and first half of November 2013...we find that:
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62% of ads were for non-book items.
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13% were for picture books.
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2% were cookbooks.
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2% were kobo ads.
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21% were narrative books.
...
So, what’s this mean for book publishing? Basically, the big bookstore chains are either failing or converting to other products and business models. That means the major “value proposition” for big publishers is withering away. What is that value proposition? Just this - they can put writer’s books into the bookstores. Self/Independent/Small publishers really can’t do this, for the most part.
...
The power law phenomenon in book sales will continue. A relatively small number of books will dominate sales. But that power law will probably flatten somewhat as the vectors of distribution open up (that just means that sales will spread out more evenly and the “long tail” will become more prominent). So, writing and publishing books will still be a tough way to make a living. As the value proposition of the middlemen withers away, it may become more and more a labour of love and art for the producers than a hard headed business. But that’s another blog.
Blog 41 - Whither Chapters 2 (and whither Barnes and Noble too) (2014-03-11)
https://dodecahedronbooks.blogspot.com/2014/03/whither-chapters-2-and-whither-barnes.html
...I have written a couple of blogs about the fate of Chapters (or at least their recent results). In this blog, I will update some data on them, and also add some data on the U.S. giant, Barnes and Noble.
The first graph below shows the sales trajectory for Chapters from 1999 onward <y-axis in $millions>... in both current dollars, and in inflation-adjusted dollars (in this case using 1999 as the base year). As we can see, sales grew fairly nicely until about 2008 in inflation-adjusted dollars, then plateaued for a few years, before turning downwards in 2011. With nominal dollars (not inflation-adjusted) the growth continued until 2011, then also turned downwards. In that case, the growth from 2008 to 2011 was just books keeping up with general inflation.
The fact that sales in inflation-adjusted dollars hit their peak in 2008, then stayed there for a few years is probably a reflection of the worldwide financial crisis that happened about that time. But the downturn from 2011 onward is more likely due to the disruption of the book market by the widespread adoption of ebooks, which would have cut sharply into print-book sales.
...
We next look at operating expenses versus sales, and consequent operating income (operating profit or loss), in the graph below. I have just included the inflation-adjusted graph lines, so as to simplify the picture. As you can see, Chapters operating income dropped during the 2010 to 2012 period, eventually dipping below 0 in 2012, for an operating loss. In 2013 they ground out a small profit, as their cost-cutting measures managed to overtake their revenue declines.
The third graph shows operating income (profit or loss) at a more useful scale. It is pretty clear that things took a nosedive after 2010, with a bounce back up in 2013. Is this the infamous dead cat bounce? (That’s a financial term that implies that one shouldn’t get too excited about a turnaround, because even a dead cat will bounce a bit after a big fall, but it doesn’t mean it’s getting back on its feet).
It’s hard to know that for sure. Perhaps Chapters will be able to turn things around, though given the technological disruption that they are facing, it might not be a smart bet, if you are thinking of investing for the long term. Companies can cut costs faster than they lose sales at the beginning by closing marginal stores, laying off inessential staff, selling unnecessary equipment (not sure if they have a corporate jet), and similar measures. But most of those things can only be done once, so if sales don’t turn around, it just delays the inevitable. As they say, you can’t shrink your way to greatness.
<Some other text and graphs went on to demonstrate that the big U.S. bookstore chain Barnes and Noble was going through similar challenges at this time, as were the French and German equivalents in the book selling business.>
Blog 60 – Whither Chapters 3 or Chapters Fiscal 2014 Results – Smooth Flow into Tragedy (June 4, 2014)
https://dodecahedronbooks.blogspot.com/2014/10/whither-chapters-3-and-whither-barnes.html
...In this blog, I will update some of this financial data, in particular the results for fiscal year 2014 (in Canada the fiscal year usually runs from April 1 to March 31, so this time period is April 1, 2013 to March 31, 2014).
...
The first graph below shows the sales trajectory for Chapters from 2009 onwards (this data is widely available from online stock market information sources such as the Globe and Mail or from the Chapters/Indigo website). I show sales in both current dollars, and in inflation-adjusted dollars (in this case using 1999 as the base year, since this is an update of some earlier graphs that went back further in time). As we can see, the earlier trend of declining sales revenue continues during fiscal 2013-14. This is especially clear in the CPI adjusted line (the lower line).
We next look at operating expenses versus sales, and consequent operating income (operating profit or loss), in the graph below...graph certainly looks harmless enough - that’s why I called it smooth flow into tragedy. It appears that they couldn’t cut costs as quickly as revenue fell in 2014, not a good sign, even though they seem to be undergoing a gentle descent in revenues. But, under normal circumstances, their loss doesn’t seem impossible to recover from.
The third graph (below) shows operating income (profit or loss) at a more useful scale. This graph paints a much more alarming picture than the first two. We no longer have a smooth flow into tragedy but rather what appears to be a plummet into disaster. It is pretty clear that things took a nosedive after 2010, with a bounce back up in 2013. That appears now to be the infamous dead cat bounce, given the continuing and increased losses in 2014.
Blog 75 - Whither Chapters 4 (and whither Barnes and Noble III) (October 3, 2014)
<The first part of the blog gives first quarter results, and has some statistical analysis on how well first quarter results correlate with whole year results. It showed that continuing losses were expected for the upcoming year.>
Here’s the trend, which looks more like wheel spinning than forward traction, to this observer (note that these are not inflation adjusted):
2009: -1.2 million loss
2010: -2.3 million loss
2011: -5.3 million loss
2012: -18.1 million loss
2013: -5.5 million loss
2014: -15.0 million loss
2015: - 14.0 million loss
...
Looking at the composition of sales, the big revenue gainers were in the non-book areas. Revenues from books were up about $0.5 million, which is a gain of less than half a percent. If we factor in inflation, that’s actually represents a reduction in real dollars.
General Merchandise (toys and stuff) were up, though. An example of this that they emphasize is the “American Girls” line of dolls that they are now marketing. The General Merchandise category now accounts for 27.4% of the business, compared to 21.9% last year.
Correspondingly, Books are now 68.1% of sales, compared to 72.6% last year. Note that “Books” also includes magazines, newspapers calendars and shipping revenue. The inclusion of shipping revenue with the “Print” category seems like a peculiar decision – perhaps it is money earned for shipping physical books.
The latest Chapters catalogue came out with the Globe and Mail, in September. It is entitled “The Joy of Fall, 2014 Guide”. An informal content analysis that I did showed that:
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90 of 176 identifiable items were books, for 51% of the total.
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14 of 32 pages were primarily dominated by books, for 44% of the total.
So, depending on how you operationalize this variable, just over or just under half the content being pushed were books, with the remainder being non-books. The non-book items consisted primarily of household items for the kitchen, a lot of soft snugly stuff like pillows, throw rugs, scarves, and a selection of electronic items, including some ebook related items.
...
So, Chapters is well on its way to being a general merchandise store that features a substantial book presence, rather than a bookstore per se. For writers and publishers, this means that Chapters is effectively shrinking in importance, even if their changing business strategy helps them to remain profitable. No doubt this is especially the case for mid-listers, who will be the first to be displaced by the transformation to general merchandise.
Blog 265 - Requiem for a Heavyweight – Barnes and Noble Booksellers Sold to a Hedge Fund
https://dodecahedronbooks.blogspot.com/2019/06/requiem-for-heavyweight-barnes-and.html
On June 8 of this year (2019) The Globe and Mail reported that a U.S. Hedge Fund is to buy the American bookseller Barnes and Noble, the largest bookstore chain in America. That means that it will cease being a publicly traded stock, and will be owned by a private capital concern, Elliot Management Corporation. That may be a lifeline for the troubled book giant, or it may be a signal that the company will be out of business soon, at least as far as selling books is concerned.
....
The hedge fund is taking over and says it is bringing in new talent from the U.K., to effect a turnaround, but the chances of that working don’t seem very good to me. Amazon isn’t going away anytime soon, and neither are e-readers. The trend looks inevitable and hedge funds aren’t generally noted for having long time-lines.
Blog 307 - Chapters/Indigo vs Barnes and Noble – Sales, Expenses and Income (July 18, 2020)
https://dodecahedronbooks.blogspot.com/2020/07/is-end-approaching-for-chapters-and.html
A few weeks ago (late June 2020), The Globe and Mail reported that Chapters/Indigo, Canada’s largest bookseller was facing financial hardship. This was credited, in part, to the lockdown of bookstores and other retailers during the Covid-19 pandemic, during the spring. That being said, the financial period in question didn’t actually include the lockdown; trouble was already there, which the lockdown was likely to exacerbate.
The lockdown is interesting, however. Physical bookstores often use the face-to-face contact and the touch, look and feel of print books as selling points. Now those factors are precisely the things people want to avoid during a pandemic.
The graph above shows the company’s sales over the past two decades or so, adjusted for inflation (CPI). Sales were on an upward curve until about 2008, when they flattened then fell. Two things happened at that time, the financial crisis (and ensuing recession) and the launch of the Kindle eBook (and related products, including Chapters own Kobo, which they later sold). Sales then picked up quite nicely until about 2018, when they once more fell off a cliff. It’s not clear what the causative factor might have been – perhaps it was related to a generalized drop in book prices, associated with the continuing penetration of e-books into the print business along with the closing of bookstores that didn’t drive much business.
Interestingly almost a year earlier (June 8 2019) The Globe and Mail also reported that a U.S. hedge fund was to buy the American bookseller Barnes and Noble, the largest bookstore chain in America. That meant that it ceased being a publicly traded stock, and is owned by a private capital concern, Elliot Management Corporation. That may be a lifeline for the troubled book giant, or it may be a signal that the company will be out of business soon, at least as far as selling books is concerned. At least so far, Barnes and Noble is still in business, though now that it is private, its sales and expenses are no longer publicly available.
The graph below shows sales for both companies over past 20 years or so, adjusted to 2019 constant dollars in the appropriate currencies (the figures come from the annual reports, available on their websites). Since the two countries differ by about a factor of ten, each company has a different y-axis. I should note that stitching together time series like these is a bit tricky – there are frequent restatements of numbers, and entities such as big corporations tend to morph a bit over two decades, buying and selling new assets to add to and subtract from the business.
The next graph shows... sales for each company relative to sales in 1999, the beginning of the time series. The interesting feature here is the comparison of B&N in 2015-2018 to Chapters in 2018-2020. During those intervals, each company lost about 20% of sales as stated with this index number measure (B&N from 0.93 to 0.74, Chapters from 1.37 to 1.18).
So, the question is, will Chapters end up like Barnes and Noble, either bought by a hedge fund or simply go out of business. It has managed to get through some fairly wild swings of fortune over the past decade or so. However, using this measure, its sales are about back to where they were in 2000. Furthermore, the graphical comparison with Barnes and Noble cannot be reassuring.
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And after all that, here is a book plug about something real, working on the railroad.
A Summer Working on the Railroad
What follows is an account of a few weeks one long-ago summer, when I was 19 and was working for the Canadian National Railway (CNR) on a railroad construction gang, in the wilds of north-central British Columbia, Canada.
The journal is in the form of a letter, that was never sent. Decades later, I think it has an interesting historical resonance. At times I come off like a callow youth – I plead guilty as charged. I swore a lot more in those days than I do now, but in places the writing is surprisingly good, at least in my humble opinion. And the story has a compelling narrative arc.
There were a lot of interesting and dramatic events that occurred – a number of industrial accidents being the most serious. There were also some colorful characters on the crew, which resulted in some dramatic and at times amusing conflicts and altercations. I perhaps flatter myself by including myself in that number. Or perhaps I condemn myself – I’m not sure.
So, if you want to be reminded of one of those summer jobs that was kind of life-changing, read on. My story may just kick-start some memories of your own.
The memoir/journal is about 9,000 words, a length that can usually be read in an hour or so. It is priced at 99 cents U.S. (equivalent in other currencies) and is free on Kindle Unlimited. Periodically, it will be offered as a free promotion.
U.S.: https://www.amazon.com/dp/B0CN661P8Z
UK: https://www.amazon.co.uk/dp/B0CN661P8Z
Canada: https://www.amazon.ca/dp/B0CN661P8Z
Australia: https://www.amazon.com.au/dp/B0CN661P8Z
India: https://www.amazon.in/dp/B0CN661P8Z
Germany: https://www.amazon.de/dp/B0CN661P8Z
France: https://www.amazon.fr/dp/B0CN661P8Z
Spain: https://www.amazon.es/dp/B0CN661P8Z
Italy: https://www.amazon.it/dp/B0CN661P8Z
Netherlands: https://www.amazon.nl/dp/B0CN661P8Z
Japan: https://www.amazon.co.jp/dp/B0CN661P8Z
Brazil: https://www.amazon.com.br/dp/B0CN661P8Z
Mexico: https://www.amazon.com.mx/dp/B0CN661P8Z
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