Indigo's new pulse

How Canada's largest bookseller discovered the internet

“The COVID-19 pandemic,” says Indigo, Canada’s largest bookseller, “has negatively impacted the economy and consumer spending, disrupted supply chains, and created significant volatility in financial markets on a global scale, the extent of which will depend on future developments that are highly uncertain and cannot be reliably forecasted.”

Yes, the world remains a troubled and unpredictable place, but we can still begin to see how the pandemic has affected Indigo, and speculate about the company’s future.

Indigo just released its first-quarter financial results, covering the period April-June 2021, which can be compared to its pre-pandemic results from the same quarter in 2019.

Back then, Indigo had revenues of $193 million and no profit. Seventy percent of its revenue, or $136 million, came from the firm’s eighty-nine Chapters and Indigo superstores. Only $25 million came from its 115 smaller stores (Coles and Indigo Spirit), and another $29 million from online sales at chapters.indigo.ca. Not only did the company book no profit, but all three of those revenue channels were down from the previous year, with online sales falling the most (15%).

This is to say that Indigo, in financial terms, was immunocompromised before COVID-19 hit.


Welcome to the 111th edition of SHuSH, the weekly newsletter of Sutherland House Books. If you’re new here, hit the button—it’s free:


The decline in digital sales was especially alarming. It seemed that CEO Heather Reisman was giving up on the web, an impression reinforced by her frequent renovations of in-store environments and her not terribly successful launch of a so-called cultural department store (top of page) in New Jersey, Indigo’s first international gambit. She was all about bricks and mortar.

One also got the sense that Heather was giving up on books. She was building up the candles and blankets side of the business—it represented almost 40% of 2019’s total revenue. She also launched Thoughtfull.co, an effort to graze on Hallmark grass, and another step away from the book business.

Two years and several pandemic waves later, Indigo is down to 88 superstores and 88 small-format stores, a net reduction of twenty-eight. I don’t know the significance of 88. Maybe the company’s new retail guru—Indigo always has a new retail guru—is a pianist, or Chinese, or a white supremacist.

The remaining stores are now open to foot traffic, and the company is wrangling with its various landlords over how much rent it should pay for the pandemic months when most of its outlets were closed. Indigo received almost $3 million in federal emergency rent subsidies, and almost $4 million in payroll subsidies, which seems like a lot but isn’t for a company as big as Indigo. As we noted in an earlier post, Heather also received a $25 million “liquidity enhancement,” or bailout, from billionaire husband Gerry Schwartz.

Which brings us to the present. Revenues for Indigo’s most recent quarter are $172 million (down $21 million from two years ago), and it lost $15 million (before depreciation, amortization, etc.).

Indigo doesn’t release enough detail on its operations to give us a clear idea of how the company lost only $15 million when its revenue fell $21 million, but costs were down across the board, probably reflecting the closed stores, reduced staffing levels, and fewer books on the shelves, among other savings.

The big news is the movement in Indigo’s sales channels. Superstore revenue fell from $136 million in the first quarter of 2019 to $80 million in the first quarter of 2021. Smaller store revenue dropped from $25 million to $10 million over the same period. Online revenue more than doubled from $29 million to $74.5 million. So Indigo’s digital sales, an afterthought in 2019, are now within spitting distance of its superstore revenue. That’s an enormous improvement. (Meanwhile, the candles-and-blankets share of Indigo’s business has dropped from 40% to 35%. Yay books.)

Before we declare Indigo Canada’s hottest tech stock, three cautions.

First, a big reason that online sales remain strong and in-stores sales are relatively soft and the candles-and-blankets results are down is that we’re not yet done with the coronavirus. We can expect stores to do better and the online number to deteriorate as time goes on. The real question is how much of the online growth can Indigo expect to retain?

The company’s bet is that the post-pandemic world will be different. Its commentary on the quarterly results notes that online revenue is already down 18% from peak pandemic but still sky-high compared to pre-pandemic times. That suggests the Indigo can hold most of its digital growth. Maybe the pandemic forced a lot of people to discover the Indigo website, or maybe Indigo is benefitting from Amazon fatigue (and/or hatred), or maybe it got a lot better at selling online. Regardless of the reason, Indigo is pivoting to digital. “We really think it’s going to be our path to growth in the future,” company executive Craig Loudon told investors after the results were announced.

Heather (interviewing a manspreading James Frey above) takes the view that COVID “has changed the consumer,” including his/her comfort with buying online, whether for home delivery or curbside pickup. Asked if she’d be opening more stores in the future, she said her focus is on expanding digital capability: “For now, we’re just focusing all of our effort on digital investment.”

(At the same time, Heather wouldn’t rule out future bricks-and-mortar expansion in the US. She bristled when the one analyst who bothered to put questions to her on Indigo’s earnings call referred to her New Jersey results as “mediocre.” There have been “wonderful improvement in the performance in that store,” she insisted. Even unprofitable dreams die hard.)

Second caution: website sales tend not to be as profitable as in-store sales, mainly because of high mailing or delivery costs. Indigo claims that it has found efficiencies in fulfilling its orders, managing its inventories, and marketing to virtual customers. It also hasn’t been discounting bestsellers to the extent it once did (in futile competition with discount-happy Amazon). While the company asserts that it is realizing its best online margins ever, it adds nothing about the size of those margins, or even an assertion that they are positive. Executives think they can continue to find improvements in its digital margins in the years ahead. Not impossible, but not easy.

Last and largest caution: let’s not kid ourselves about Indigo. It’s a crucial part of the Canadian book publishing ecosystem, and we need it to succeed, but right now it belongs in ICU. It’s bleeding money: a $50 million loss in 2019 (pre-pandemic), $100 million in 2020, $57 million in 2021, and $15 million so far in this new fiscal year. That’s a lot of millions, even if your husband is a billionaire.

As a publicly traded company, Indigo is listed on the Toronto Stock exchange. Five years ago, its share price was $20. Gerry, who along with Heather owns 58% of Indigo’s shares, thought $20 was cheap and picked up another 100,000 shares for just under $2 million. By the summer of 2019, those shares were trading at $8. Stories appeared in the Globe worrying about the company’s future, and Motley Fool types put it on a death watch. Today those shares trade at $3.80, up from the floor of $2.10 hit during the pandemic winter, but still butt ugly. The street values the company at a mere $100 million.

What does all this mean for the future of Indigo? An improved digital profile certainly helps. Online sales may never be as profitable as in-store sales, but they’re the company’s best hope of retaining its market share. Beyond that, there is still a lot of hard work to be done before Indigo returns to profitability. So, yes, the future is “highly uncertain and cannot be reliably forecasted.”

I still think Gerry and Heather eventually buy the 12 million Indigo shares they don’t already own and take the company private. There aren’t a lot of other options. They could sell, but Gerry Schwartz didn’t get to be Gerry Schwartz by selling at the bottom. And it’s not like there are a lot of buyers for big-box book retailers, especially when the single investor who owns both the Waterstones and Barnes & Noble chains has his hands full with those companies.

Why take it private? A return to profitability at Indigo requires a lot of painful decisions and grinding work. If you’re going to put yourself through that, it’s best to be 100% owner and the full beneficiary of the turnaround effort.

Regardless, we wish Indigo well. Again, it’s a crucial part of the Canadian book publishing ecosystem, and we’d all be worse off without it.


Remember that merger thing?

An update on the proposed Penguin Random House takeover of Simon & Schuster. You may have noticed that the Brits have pronounced themselves fine with the deal but the US is balking. Perhaps.

The Joe Biden administration has been busily hiring trustbusters to fill important positions at key agencies and promises aggressive challenges to concentration of ownership in all sectors of the economy. The S&S deal, according to Bloomberg, is now being scrutinized by the Justice Department.

Meanwhile, Canada failed to announce a decision before the government shut down for the election. That does not mean there has been no action, however. We’re told that federal officials have expressed concern to Penguin Random House Canada, as they should, considering that the proposed takeover would leave Canada with one of the most concentrated book publishing sectors in the entire world (two companies HarperCollins and PRH/S&S) would control roughly 70% of the sector). The feds have not said they won’t approve the deal, and have not told PRH Canada what it needs to do to get the deal approved—divest these other assets, for instance, or ensure that S&S can operate independently. They’ve simply said we have problems with this deal and asked PRH to propose solutions.

It’s not much, but it’s more than I expected from Ottawa. We’re coming up on a year since the deal was struck.


Our Newsletter Roll (suggestions welcome)

Lydia Perovic’s Long Play: literature and music.

Tim Carmody’s Amazon Chronicles: an eye on the monster.

Jason Logan’s Urban Color Report: adventures in ink (sign-up at bottom of page)

Anne Trubek’s Notes from a Small Press: like SHuSH, but different

Art Canada Institute: reliable source of Canadian arts info/opinion

Kate McKean’s Agents & Books: an interesting angle on the literary world

Rebecca Eckler’s Re:Book: unpretentious recommendations

Anna Sproul Latimer’s How to Glow in the Dark: interesting advice

John Biggs Great Reads: strong recommendations


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