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Kobo Inc. CEO Mike Serbinis (left) and Indigo Books & Music Inc. CEO Heather Reisman (Raina+Wilson/Raina+Wilson)
Kobo Inc. CEO Mike Serbinis (left) and Indigo Books & Music Inc. CEO Heather Reisman (Raina+Wilson/Raina+Wilson)

ROB Magazine

Inside the Kobo deal that netted Indigo $165-million Add to ...

Knocked down for the second time, Reisman found redemption in comfort food. In 1995 she emerged as the boss of her own private company, Now! Foods, which sold gourmet soups to grocery stores.

This turned out to be the first course of a much larger retail menu. The big-box bookstore revolution had come to Canada, in the form of Chapters, which added giant outlets to the already considerable market clout of the SmithBooks and Coles chains. To Reisman’s eye, the Chapters stores were dreary. Undaunted by Chapters’ head start, she saw an opportunity to combine the lucrative economies-of-scale of giant bookstores with the more personal touch of independent bookstores. Design guru Bruce Mau helped her put a distinctive stamp on the Indigo concept, which included cafés, reading nooks and the trumpeting of the proprietor’s favourite reads as “Heather’s Picks.”

As he’d done with the soup venture, Schwartz rolled up his sleeves to help his wife launch her new business. The night before Indigo opened its first store in Burlington, Ontario, in 1997, Schwartz and Reisman stacked bookshelves until 4 in the morning. “Here was this woman who had never been a retailer and she was doing it....She has enormous courage and foresight,” says Schwartz. In takeover circles, he is infamously averse to risk, but domestically Schwartz is partnered with a woman he cheers for making “big bets.” He says it was her idea to challenge Chapters by starting Indigo; her idea, too, to launch a takeover bid for Chapters in 2001 when the larger chain was struggling with financial and operational troubles.

After a bruising takeover battle, the couple spent $121.5 million through a private holding company to merge Chapters’ 77 superstores and 204 smaller locations with Indigo’s 16 superstores. The union gave the new chain control over more than 50% of the Canadian bookselling business. Over the long term, that market hold, likely unmatched in any other Western country, would give Indigo enormous clout to tighten trade terms with publishers. In the short term, however, it handed Indigo a distressed book chain, which Schwartz says was much more of a “total mess” than he and Reisman anticipated. Chapters was losing tens of millions of dollars and had fallen behind in payments to publishers. Its Toronto distribution centre was in such disarray that the new owners discovered more than a dozen semi-trailer trucks parked in a lot—all of them filled with books, “and nobody knew where they had come from,” Schwartz says.

It took two years of losses, cuts and restructuring for Indigo to recover. Just as it started to generate the slimmest of profits and reduce its debts, the bookseller faced another seismic disturbance: The federal government allowed U.S. online bookseller Amazon to begin selling in Canada. Indigo’s battle to fix broken bookstores shifted to the Internet. The aggressive U.S. discounter delighted consumers by slashing book prices and offering such incentives as free shipping; those same measures also drove down Indigo’s profit margins.

The tough times sparked questions about Reisman’s leadership that have dogged her ever since she launched Indigo. Did the wife of one of Canada’s richest financiers have the management chops to run the country’s largest book chain?

Reisman has always deflected questions about her marriage. But in the wake of Indigo’s recent successes with the Kobo deal, she is uncharacteristically open about her husband’s role at the company. On paper, Schwartz is the principal owner of Trilogy Retail Enterprises, the private company that controls 52% of Indigo’s shares, and is a director on the book chain’s board. In person, he is much more, Reisman says.

“My best business advice ever comes from Gerry. When it comes to negotiating transactions, there is nobody on the planet like him,” she says. She credits Schwartz with “enabling” her bookstore business, but not for the reasons that some observers assume. “Some people might say because he is rich I can do things,” she laughs. “That has had almost no impact on my career because I built each business with money that I earned or raised. It is his judgment, support and perspective as an entrepreneur that I am the beneficiary of.”

On her next big bet, however, Reisman only partially listened to her husband’s advice. When she was introduced in 2005 to the single most disruptive technology to hit the centuries-old business of making and selling books, she was not initially impressed. The new, new thing was a book-size tablet with a screen that displayed Japanese characters. The device was the first electronic reader to use a new technology known as e-ink. It was manufactured by Sony, cost $600 (U.S.) and had been purchased for her by a close adviser who had been her technology coach for years.

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