Canada’s biggest bookstore chain has managed to stay viable in the world of digital reading by adding everything from iPads to olive-wood cutting boards to its shelves. Now Indigo Books and Music Inc. is setting its sights on the U.S.
Chief Executive Officer Heather Reisman, 66, has spent the last several years developing the company’s “cultural department store” model, expanding into home decorating, dining ware and personal technology. Indigo is set to unveil a new store model next year that will showcase the concept, and Reisman aims to take it beyond Canada.
“I want the stock back up at 20 and beyond, that’s my ambition: make this thrive and then take it outside the country,” Reisman said in an interview at Bloomberg’s Toronto office. She declined to say when Indigo could expand internationally though she said growth would more likely be organic than through acquisitions.
Indigo shares have traded below C$20 since the early 2000s after an initial public offering at C$15 in 1996. The stock rose
1.8 percent to C$11.85 in Toronto Monday and has dropped 1 percent this year, compared with a 5 percent gain for the Standard & Poor’s/TSX Composite index.
Under Reisman, who founded the company in 1996 and swallowed her biggest competitor, Chapters, in 2001, Indigo has survived the double assault that put booksellers like Borders Group Inc. out of business: the rise of e-reading and online behemoth Amazon.com Inc.
With 221 stores under brands including Indigo, Chapters and Coles at the end of December, Indigo is a fixture across Canada. At its Eaton Centre store in downtown Toronto teenagers sit cross-legged in the aisles reading comic books and shoppers line up 10-deep at the in-store Starbucks.
Reisman has held board seats at Rogers Communications Inc. and Suncor Energy Inc. and was president at Canadian soft-drink maker Cott Corp. before founding Indigo. She began her career as managing director and co-founder of Paradigm Consulting, a strategy and change-management firm.
Her love of books is evident when she strolls into Bloomberg’s Toronto offices, a stack of her latest “Heather’s Picks” under her arm. Reisman spends the first 15 minutes of the interview explaining why Bill Browder’s “Red Notice,” a thriller about one man’s fight for justice in Vladimir Putin’s Russia, is the best non-fiction book she’s read in a decade.
“We started in this business as passionate booksellers,” said Reisman, sporting an Apple Watch. “We are still, as you can see, passionate booksellers.”
Even so, lifestyle products now make up 30 percent of sales, and with physical book sales stable that could grow to about half, she said. More than 50 percent of these products are designed in-house, including at Indigo’s New York design studio.
“Everything is going to start to bloom in the next year,” she said. One initiative is an online tool that lets customers try out different wall art combinations and then customize prints from Indigo’s bank of Getty Images photographs.
Investors are starting to see the transformation take root. Revenue grew year over year in each of the last three quarters, after shrinking for 10 in a row, according to data compiled by Bloomberg.
“We’re seeing evidence of results turning around,” with positive same-store sales growth in the past three quarters, said Richard Fortin, who manages C$1 billion ($827 billion) at Franklin Bissett Investment Management, including Indigo shares. Franklin Bissett is a unit of Franklin Templeton.
“We’ve still yet to see a meaningful bottom line impact but I think that is coming,” Fortin said in a phone interview. Franklin Bissett Investment holds more than 10 percent. That makes it Indigo’s second-largest shareholder after Reisman and her husband Gerry Schwartz, CEO of private equity firm Onex Corp. The pair own about 60 percent of the company through Trilogy Investments and Trilogy Retail Enterprises, according to data compiled by Bloomberg.
Indigo’s revenue has slipped for the last three years, but Reisman said revenue grew during fiscal 2015. The company reports fourth quarter earnings on May 26.
Reisman said she still sees the book business growing.
“Whether it comes from online or stores I can’t say,” she said. “We grew both channels this year.”
E-book sales have held steady at about 23 percent of U.S. publishers’ book sales for three years through 2014, according to the Association of American Publishers. Overall book sales of U.S. publishers rose 3.4 percent in 2014 from a year earlier.
After several years of paring square footage, Indigo is planning new stores in Vancouver and Toronto and will double warehouse capacity to make room to sell more books and goods online.
“We see people changing their behavior,” Reisman said. “People who were reading 80 percent digitally are coming back and reading half and half.”
Indigo jumped on the digital reading trend in 2009 by developing its own e-reader, the Kobo. It sold it to Japanese e-commerce giant Rakuten in 2011 for $315 million.
“We took it on this rocket ship but we could project forward and see that in the end, we still are up against Apple and Amazon, who had way deeper pockets for the long game,” Reisman said.
“Books are not growing, but they are not shrinking all that fast,” said David Schick, a retail analyst and managing director of equity research at Stifel Financial Corp. “E-books had a huge surge that has ended.”
Reisman has also cut deals with Apple Inc. and Mattel Inc. to sell some of the U.S. companies’ products. Mattel chose Indigo as its first international distributor of its American Girl line of customizable dolls, a partnership that’s gone well for the toymaker, Mattel Chief Financial Officer Kevin Farr said in an April 16 conference call.
Still, the Canadian dollar’s 9.4 percent drop in the past year against the U.S. dollar, which increases the cost of imports, has made business challenging, Reisman said.
“Our ambition is bold, but I think everyone needs to be conscious this year that the Canadian dollar is under pressure,” Reisman said.
With Reisman and Schwartz as majority owners, Indigo can take a longer-term view and not worry about quarter to quarter results, Maureen Atkinson, senior partner at retail consulting firm J.C. Williams Group said by phone.
Expanding to the U.S. could add an “element of risk” to the stock, Fortin said.
“The business is finally gaining traction operationally in Canada so we’d certainly favor that route over any aggressive expansion plans today,” he said.
The lifestyle, toy and additional home-sales categories seem to be paying off, Fortin said. “Whether these have long-term staying power remains to be seen.”