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Storied Canadian bookseller declares bankruptcy

Construction site of the first McNally Robinson Books to be opened in Ontario, at Don Mills and Lawrence Ave. in Toronto.

Fernando Morales/Fernando Morales/The Globe and Mail

A Cinderella story from the embattled book industry has turned sour with Winnipeg-based McNally-Robinson Booksellers Ltd. declaring bankruptcy, unable to pay millions of dollars to Canadian publishers, distributors and other suppliers.

"It is heartbreaking to see so many hard-working booksellers … lose their jobs," co-owner Paul McNally said in a news release, acknowledging that his company's much-lauded opening of two new stores this year, including a major outlet in suburban Toronto, led to its downfall.

McNally-Robinson was celebrated as a rare success story in the independent book world, expanding when other stores were closing, and even being named 2009 Bookseller of the Year by the Canadian Bookseller Association. But the company's two newest stores, one at Polo Park in Winnipeg and the other in Don Mills in Toronto, closed for good Tuesday. The bookseller submitted a proposal on Monday under the Bankruptcy and Insolvency Act to keep open its other two stores - the Winnipeg flagship, which opened in 1981, and a branch in Saskatoon, as well as maintain an online presence.

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The bankruptcy comes at a time when bookstores throughout the English-speaking world are struggling to survive in the face of what Mr. McNally has called the "reckless discounting" of online retailers. Last week, bankrupt Borders UK closed the last of 45 stores it once operated in Britain. In the United States, the Borders Group is currently closing 200 Waldenbooks outlets, leaving some major urban centres without a single general-interest bookstore. Although Canadian chain Indigo Books and Music remains strong, independent retailers are suffering from the same dwindling traffic.

"The independents are dropping like flies, and it's heartbreaking for all of us," said Kim McArthur of McArthur & Co. Publishing, noting that even a reduced two-store operation will still qualify as Canada's largest "independent" book store. "I just hope Paul and [his wife and co-founder]Holly are going to be able to pull these two very successful stores out of all this."

Unavailable for comment Tuesday, Mr. McNally had earlier complained to the Winnipeg Free Press that the new stores "absolutely did not perform."

Both stores he would like to keep remain profitable, according to Mr. McNally, and would save 250 of the 425 jobs the company supported prior to Monday's filing.

The news produced only sadness in the tight-knit publishing industry, even among creditors. "They're unusually smart retailers but they made a misstep in Toronto in a recession year," said Lionel Koffler of Firefly Books, to which McNally owes $42,496. "I feel very badly for them."

Toronto publishers greeted the company with glee when it opened its first local branch in the posh new mall Shops at Don Mills, presenting an independent alternative in a suburban market virtually monopolized by the Indigo-Chapters chain. But, they say, it became clear quickly that the formula pioneered in Winnipeg, with nightly author visits and events, was not working in Toronto.

"We sent a lot of authors there, and none of them got more than six to 10 people," Ms. McArthur said, adding that even such famous authors as Lawrence Hill, author of the perpetually best-selling Book of Negroes , winner of the 2008 Commonwealth Writers' Prize, couldn't draw a double-digit crowd to Don Mills.

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Documents filed in connection with the bankruptcy show Cadillac Fairview Corp among the leading unsecured creditors of both the bookseller and McNally Robinson 2007 Ltd., a related company, although the amounts are not given. Among the publishers owed major amounts are Random House Canada ($449,381), HarperCollins ($472,793), Penguin ($298,365) and Raincoast ($272,068).

The lists of secured creditors in both bankruptcies are dominated by McNally family members, the family trust and a third related company, McNally Enterprises Limited, which is owed $4.4-million and remains solvent.

"Toronto is a very tough market for independents," added Sarah MacLachlan, president of House of Anansi Press. Although niche operators can thrive, according to Ms. MacLachlan, McNally Robinson likely erred in targeting the suburban mainstream. "Indigo has an extremely strong hold on that market."

The bankruptcy "is going to give us a nice kick in the teeth but it's not going to bring us down," she added.

Other publishers remained upbeat in the wake of the news.

"I'm pretty confident I will eventually get some of the money that's owed to me," Firefly's Mr. Koffler said. "And also I have my best confidence the McNallys will reopen those two stores that are doing well and will continue to be very good customers of mine."

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