June 1, 2014
Indigo Books and Music reported its 4th quarter and annual sales last week. A few of the news stories reached for an alarmist tone. Canada’s Financial Post headlined its account with “Indigo annual revenue falls for third consecutive year.” Publishers Weekly went for the more startling “Indigo Has Big Fiscal 2014 Loss.” The “big loss” was $31 million (all figures Canadian dollars) on sales of $868 million, i.e. a loss of 3.6% measured against total revenue. Indigo clearly explained that it incurred costs in “reinventing its business.” The loss was in part “the result of significant operating investments in the Company to accelerate its transformation.” For example, $29.2 million was spent on store renovations and on technology, i.e. investments in the future of the company.
The annual report registers full year revenues of $868 million, against 2013 revenues of $879, a mere 1% drop. This is hardly the kind of financial data that characterizes a corporate crisis.
There’s only one small chart in the entire annual report that interests me. It’s the first chart I’ve seen from either Barnes & Noble or Indigo that puts a number on the decline of print sales within either chain.
The real Indigo story is told in its Annual Information Form (available through the Investor Relations section of Indigo’s web site). The company notes, in part: “To ensure that the offerings in Indigo’s physical stores are rich and compelling, the Company continues to adjust and expand its product mix, underlining Indigo’s commitment to becoming the premier year-round gifting destination in Canada. The Company’s main growth categories are lifestyle, paper and toy sales. This has been achieved through a reduction in the floor space allotted to books, given the erosion of physical book sales…”
Yes, you read that correctly: Indigo plans to become “the premier year-round gifting destination in Canada.” That doesn’t sound like a bookstore to me.
This is in contrast to Barnes and Noble’s far more subdued description of its transformation. In its last annual report the company noted that it “continues to experience positive trends in its Toys & Games business as a result of the successful execution of new merchandising strategies.” Barnes & Noble is still a bookstore.
But look again at the chart above. Indigo offers no comparable figures before fiscal year 2103, but the decrease in sales the last 12 months of all print products was a mere 3.6%, from some 70% of the total down to 67.4%. With an estimated drop in revenue of $28.57 million, the decrease in print sales is 4.6%. It’s well documented that newsstand sales of magazines are plummeting. While magazines can’t be a significant portion of Indigo’s print sales, that trend suggests that book sales may have decreased by even less than 4.6%.
“General merchandise” — all of the non-book items — was rewarded with a 17% increase. This must be encouraging to Indigo management, but most of the uptake wasn’t at the expense of book sales.
Having sold off Kobo in 2012, the only growth area of its business (albeit, an expensive one to operate), “eReading” dropped by 41%, representing perhaps $25 million in total sales.
For all the talk of the reinvention of merchandising at both Indigo and Barnes & Noble, the first data suggests that, as is so often the case, change will be gradual.