Indigo’s next chapter could be global

Heather Reisman has global ambitions for Indigo Books & Music Inc.

The founder of Indigo plans to do that partly online but also through stores outside Canada, although she has not mapped out the details of the physical expansion, which she says is probably a couple of years away.

Booksellers such as Indigo are being forced to reinvent their businesses as digital trends squeeze their traditional sales and profit margins, prompting them to turn to new, higher-margin areas of growth.

"Our intention is that the new Indigo will be a global company," Ms. Reisman, Indigo's chief executive officer, told the annual meeting, characterizing the move as a part of a "fundamental transformation."

Ms. Reisman has been on a multiyear journey to reimagine Indigo as the world's first "creatives" department store – a multichannel, multicategory retailer that is branching out into home goods, toys, children's clothing and now, Apple tech shops, while keeping books as a key offering. The first Apple boutique opened recently in Toronto and 40 more are planned in the coming year, within the retailer's superstores, carrying items such as iPads and Apple TV and broadening Indigo's scope to take on deep-pocketed global rivals.

To continue to navigate the changing book retailing landscape, Ms. Reisman is betting on an international push, although she said the acquisition of a chain such as struggling U.S. bookseller Barnes & Noble is not currently being considered.

While Ms. Reisman hasn't rested on her laurels, she still has a way to go to improve the retailer's financial performance. Last year, same-store sales at outlets open a year or more – a key retail measure – dropped 4.6 per cent at the flagship superstores and 2.4 per cent at smaller stores.

Still, there are signs that the harsh effects of the digital revolution are beginning to abate. Digital reading now makes up about 20 per cent of total book market sales but the rate of growth is slowing "quite meaningfully," she said.

The e-book market last year peaked at 17.6 per cent of sales in the first quarter and declined steadily over the rest of the year to hit 12.9 per cent in the fourth quarter, says a recent report by industry group BookNet Canada.

The 5-per-cent drop in e-reading sales follows heightened first-quarter sales after consumers received new devices during the holidays, followed by waning interest or "having enough titles banked," last month's report by the non-profit group suggested. It also pointed to "a preference for giving physical books as gifts."

She said Indigo's other "headwind" is rising competition from large generalist retailers, including U.S.-based discount giants Wal-Mart Canada Corp., Costco Canada and now the recently launched Target Corp. All of them are expanding in this country, continuing to steal sales from incumbents.

It will be another 18 to 24 months before Indigo can reap the full benefits of its transformational efforts and investments, she said. "Early indications are trending very much in the right direction." In fiscal 2013, profit margins improved 2.2 per cent, she said.

Non-book sales of items such as pillows and picture frames now represent about 22 per cent of overall sales at Indigo, compared with roughly 12 per cent five years earlier, she told reporters. Those general merchandise sales are "gaining momentum literally every month." The company has its own design team producing private-label items just for its stores.

Ms. Reisman is rolling out new store formats with separate shops for items such as baby goods, children's goods, paper items and technology items, including new Apple sections. The first Apple shop opened at the Queensway superstore in Toronto, and 39 more will roll out in fiscal 2014, she said. Indigo also plans a push on home office supplies under the Poppin brand.

She did not elaborate on her plans to take Indigo outside Canada. Asked later about a possible takeover of a book-selling rival such as U.S. giant Barnes & Noble, she said: "We have no plans for acquisition right now."

Barnes & Noble reported on Tuesday that its fourth-quarter loss more than doubled to $118.6-million (U.S.) as sales of its Nook e-books and devices continue to drop.

Indigo in its latest quarter ended March 30 reported an $8.2-million loss compared with a profit of $125-million a year earlier when the retailer sold its interest in e-reader Kobo Inc.

In 2012, e-book sales represented 15 per cent of the overall Canadian book market, according to industry group BookNet Canada.

Tal Woolley, a retail analyst at RBC Dominion Securities, said Indigo "remains a company still very much in transition, and the story is not without risk." But with the financial means to address the challenges, it is shaving costs and "has done well initially."