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)
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)
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)
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:
-
"dying
bricks and mortar bookstore model"
-
"falling
margins in its core book business"
-
“remodelling…
stores to step up its move away from books and into other products”
-
“investors
are considering whether to wait for the results"
-
“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:
-
62%
of ads were for non-book items.
-
13%
were for picture books.
-
2%
were cookbooks.
-
2%
were kobo ads.
-
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)
...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)
...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.
I
note in passing that their major good news announcement in their
annual report was “Indigo launched the first two American Girl
Specialty Boutiques outside the United States”. Somehow I don’t
think going into the business of selling dolls will save this
bookstore chain, though it seems oddly appropriate that they are
pinning their hopes on a children’s fantasy world.
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:
-
90
of 176 identifiable items were books, for 51% of the total.
-
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
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)
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.
==================================================
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
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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
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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
