When Heather Reisman made her 2001 industry-transforming acquisition of Canada's largest bookseller, her challenge was to stem losses at Chapters and Indigo stores by paring costs and getting the right books onto shelves.
Now, Indigo Books & Music Inc. IDG-T is in the black, although suffering along with other retailers. But Ms. Reisman faces what could be a bigger threat in the form of Kindle and other electronic reading devices – e-readers – that are quickly catching on among book buyers, especially in the United States.
Earlier this year, Indigo's chief executive officer responded with the retailer's own digital reading service called Shortcovers, which can be used on smart phones and other devices.
But that won't be enough for Indigo to head off what Ms. Reisman figures will be a 15-per-cent erosion in its book sales in the next five years, lost to the digital world.
“All content wants to be digital, whether it's music or newspapers or books or blogs,” Ms. Reisman says. “Our business will be affected, as well as all other content businesses.”
To respond, Indigo is becoming a bigger destination for children, teenagers and their parents, stocking more toys, teen-oriented books and products, and more customized merchandise to appeal to various markets.
Ms. Reisman is also adding armchairs and bean bags to keep customers lingering in the stores longer, and purchasing more. (Several years ago, she replaced comfortable sofas with hard chairs, because the couches were messy.) It's essential that Ms. Reisman move quickly in the rapidly changing sector. In the United States, where the market is more competitive, booksellers are suffering sharp declines in store traffic and sales, squeezed by recession-weary consumers who are turning more to e-readers.
E-readers make up just 2 per cent of U.S. book sales, but that's up so far this year from less than 1 per cent of the $24.3-billion (U.S.) of sales in 2008, according to the Association of American Publishers.
Borders Group Inc.BGP-N , the second-largest U.S. bookseller, is under pressure from its investors to reverse its flagging fortunes; Barnes & Noble Inc. BKS-N , the top chain which is faring a bit better, is preparing for the digital age with the recent acquisition of a leading e-books retailer and plans to launch a new e-bookstore this year.
The chains are keeping an eye on Amazon.com Inc. AMZN-Q and its increasingly popular Kindle e-reader – which is not yet sold in Canada – and Google Inc. GOOG-Q and its aggressive foray into the electronic book world.
“For the legacy booksellers that own lots of real estate, this is the beginning of a very difficult decline for their industry,” says Sarah Rotman Epps, an analyst at Forrester Research in Cambridge, Mass. “We've seen how in other industries owning bricks-and-mortar stores becomes a liability rather than an asset.”
Indigo is in a much stronger position in Canada, where it is by far the largest traditional book player. Still, Ms. Reisman knows she can't stand still.
She started by wooing children and their parents with toys about four years ago, after her research showed that 40 per cent of Indigo customers were adults with kids. Parents wanted educational and stimulating toys, not video games or battery-powered cars. (The chain promptly dropped in-store DVD monitors playing Dora the Explore r, after parents gave them a thumbs-down in a test run.) Ms. Reisman worried initially that the toys might cannibalize Indigo's book sales, but in fact the stores with toys enjoy stronger book sales than those without, says chief merchant Joel Silver. Customers tend to stay longer in outlets with toys, and wander over to the books.
