This past week a complex and long auction process was completed and a winning bid has been chosen to purchase the bankrupt Family Christian Stores (FCS). If this final bid is approved by the court the FCS will emerge from bankruptcy and resume business as usual.
If you have been following this ordeal (our blog #1 and blog #2) you know how complicated it had become. The end game is no less complicated. What follows is an attempt to review the salient points to further your understanding and the implications for the Christian bookstore industry. To do this I read all 216 pages of the court documents related to final auction bids. My ophthalmologist thanked me for the effort.
The Winning Bid
The 266 store chain (operating in 36 states) declared bankruptcy in February and the company was put up for sale.
As of last Wednesday there is a proposed winning bid for between $42 million and $43.6 million, but it hasn’t been approved by the court. The winning bidder is a company called FC Acquisition (FC stands for Family Christian) and is controlled by Richard Jackson who also controls the non-profit company that owned Family Christian Stores.
Elements of the proposed winning bid include:
- Stores will stay open
- Trade creditors will get 5% of what they are owed plus 100% for all of the sales made within 20 days of the bankruptcy filing.
- Owners of consignment inventory will get paid for a percentage of their inventory, somewhere between 10-35%, depending on circumstances.
- The main secured creditor will get paid 100%.
- Another secured creditor will take a large write-off.
The winning bid is being contested by the second place bidder in court, which could delay final approval. This second place bid would liquidate the inventory and close all the stores.
Who is Getting Paid? (If the proposed winning bid is approved)
As mentioned, a major secured creditor will be made whole.
Also trade creditors (publishers/vendors) will receive 5% of what they are owed for sales made before the 20 day cut off. In other words if a publisher/vendor is owed $50,000 they will receive a check for $2,500 and that is it. The other 95% will be written off. For example, if a $20 retail priced book was sold to FCS at a net (cost) value of $10, the publisher who sold the book to FCS will receive 50 cents. The other $9.50 is lost.
Authors may or may not receive royalties on their sold products. Much will depend on the contract they have with their publisher. Some have a high discount threshold where sales over a certain percentage off retail either receive half royalty or zero royalty. This is complicated by one of the parts of this bid… if the trade creditor (publisher/vendor) receives payment for goods shipped within 20 days of the bankruptcy, the publisher will have to determine if that payment can be identified as originating with a specific product, and if the author’s contract accounts for it, the artist or author will receive royalties. Otherwise, no royalties will be paid.
Implications
With any situation like this there is good and bad. The bad is rather obvious. A lot of publishers and vendors are severely hurt by this bankruptcy.
The good, if you will allow me to characterize it as such, is that if the bid is approved by the courts, the stores will stay open. That means future business will occur. In the long run, this may be a wonderful thing. Whether FCS can survive in that long run amidst the ever changing nature of retail is a different question entirely. This situation has demonstrated the fragile nature of the brick-and-mortar store. Unless some changes are made we may end up in the same boat a few years from now. But, in the meantime, having 266 places where books, bibles, music, and gifts are sold is a positive thing.
Unfortunately that “good” thing had to be rebuilt on the backs of hundreds of publishers, vendors, suppliers, authors, and artists. Many of whom will not have the ability to survive their own bankruptcy.
It is easy to create villains and heroes in any story we tell. Rarely, in a situation like this, do we know the full picture, the motivations, or what has been negotiated behind the scenes. My hope is that somehow something good in the long run will happen to turn this into a long forgotten bad dream.
There must be some value for investors to bid, but that is partly because the price is so low. That said, the optimist in me says there is value in them thar hills. Their website is so one-dimensional that I am convinced they could do better. Linking the online channel to stores might bring a new dimension of buying mixed with experience, in a world where human touch and service may be the keys to future competitiveness. Extending their stores to in-church franchises and coffee shops with browsing, music and video support, might enhance their position. I concede that online is displacing B&M, but that is not the compelling reason for their failure – they need to reimagine their business.
Its a metaphor for our own lives – we too must reinvent ourselves, constantly.
Thanks for your excellent coverage. What happens here will have a huge impact on the CBA market.
I can’t help but think that anyone with common sense has to see what I do and that’s the fact that FCS has poisoned the well (their relationships with publishers and vendors). Seriously, does anyone think getting 5 or 10 cents on the dollar is going to create anything but ill will going forward? So that brings us to the “why” of the deal. I won’t speculate too far but it is a little strange that the person who might have the most to lose is putting forth the winning bid.
Patrick, the settlement is decided by liquidators once the firm is placed under supervision. The law tries all it can to honor every creditor, but it does so by sharing the knock equally. I don’t believe this poisons FCS at all. Indeed, in opting for bankruptcy they ensure transparency of process, whilst the law gives them a chance to get back up again. Who knows what good will might yet come of a revival in FCS. Its really a very fair system and all businesses understand it. I am intrigued by Debra’s quest for a B & M network – seems there is still demand for paper and physical channels.
I am glad to see that a number of folks do not live in a FOOLS PARADISE, I agree with you completely. Steve, I AM very impressed that you read all 216 pages, I am glad to find out that I am not the only “weirdo” that does those things. Your very generous synopsis qualifies you to receive my nomination to statesman and diplomat of the year.
Our company was the victim of a very slick, well planned “legal” bankruptcy. PRIOR to filing the company ran up exorbitant purchases with vendors on credit (one of which was us) while, over time, siphoning off much of the cash and other valuable assets of the company
The employees were paid on the first and fifteenth of every month. The company filed the bankruptcy in court on the DAY BEFORE payday. Every employee was stiffed. I went to the court proceedings, many of the employees wept when telling about the hardship placed on their families by working in good faith and then not receiving their pay for their own expenses like rent and food. Many of these people had small children. Everyone felt this was a well carried out plan. The company’s bankruptcy lawyers had been “advising” them for some time prior to the filing. They claimed a series of “unfortunate circumstances” had caused the bankruptcy. The owners sat in court with an arrogantly confident smirk on their face. I believe the judge could smell the stench of this procedure from the bench but everything had been done “in accordance with the law”.
A new business doing the same thing was immediately reopened under a different name by these same owners. (gee, you think) They now had a huge competitive advantage over those businesses in the same industry who were operating honestly and in good faith. The bad company could actually cause the good companies in the industry to suffer or go out of business.
I haven’t forgotten, among other things, that FCS asked the court to allow them to keep the products placed with them ON CONSIGNMENT in good faith WITHOUT PAYING FOR THEM. Looks like they might pay a nickel on the dollar now. To me, that intent speaks volumes.
Would you, or anyone else, be interested in being ordered by the court to surrender your business assets for a nickel on the dollar (many times at wholesale cost no less). You wouldn’t even have the option to say “just please return MY goods”.
In our case, the loss WAS NOT shared equally, the only “transparency” was what the bankruptcy lawyers presented and the only apparent good that came out of the case was to the perpetrators.
Yes, businesses do understand this process well.
Sure bankruptcy filing scan be misused. Supervision is not intended to facilitate more abuse. The process treads a fine line between conserving jobs, keeping the business running, preserving the brand and settling creditors. The % allocated to creditors is based on assets that are available for liquidation of debts. Lets be fair, this is like a farrier seeing the arrival of the first automobile. Disruptive events kill off the status quo. Its not in everyone’s power to avoid that. Sometimes the old just gets swept away by the new. But Bankruptcy is analogous to redemption. It is a lifeline, a second chance. By the way, taking books on consignment may just as well have been their attempt to indirectly fund the business and stay afloat. I once lost everything and I can tell you its hard, particularly so when there is no shelter or refuge from the storm. We fulfilled all our debts, but let me tell you creditors can be as ruthless and uncaring about your problems as you now perceive of FCS. Without the shelter of bankruptcy creditors would have got 0% and employees would have all been dismissed.
Thanks for this update, Steve. I’m an editor with a small Christian publishing house and we’ve have been working hard to get our books into the book and mortar stores. In this case, we haven’t been impacted, but I’m sure there are other small publishers who have been. With the demise of Borders several years ago and now the struggle of Barnes and Noble, one must wonder just how long brick and mortar stores have left to exist.
Like Peter said, there is a lot of re-imagining that needs to occur in this realm for publishers, retailers, and buyers.
Thanks for the update, Steve.
Your opthalmologist and I are both grateful for the time you’ve spent going through the paperwork.
As much as this can be a frightening thing for pre-pubbed authors competing for a place among the multi-pubbed authors, I have to remember GOD IS THE MOVER OF MOUNTAINS and HAS OPENED A SEA. . .surely HE can move our books where they’ll get the most exposure and benefit both readers and authors alike.
I have to believe that or I’d have quit a long time ago.
Appreciate your posts, keeping us abreast of the ever-changing market and giving us specifics to be praying about.
Amen Joy. Moses fled without paying his debt and yet he made Pharaoh pay every iota of his debt to Israel. God is the just equalizer. Looking to Him makes the most sense.
Thank you so much for the updates on this topic! It is so helpful to get the inside scoop in a concise summary. The publishing industry is constantly shifting and changing and your insights are appreciated.
Thanks for this breakdown of what’s going on. I worked for FCS for almost 11 years, and it’s sad to see this happening. I think of the jobs alone in my market that would be lost as we have 4 stores. The front line of these stores are hardworking mom’s, dad’s, students, singles, etc. just trying to provide for their families by selling product that for the most part they believe in. God used FCS to teach me a lot about serving others and it truly was a personal ministry working there.
I am sad to see the vendors who work hard to give great prices and the artists/authors who provide content that honors God suffer in this process. I now work in Christian radio and often point listeners to the FCS brand for product. I’m hopeful that I will be able to continue that.
Again, thanks for the great coverage.
Brick and Mortar Stores for too long lost their way with their local market. What were once locally owned Mom and Pop stores that met the needs of a community were eventually bought out and placed under the umbrella of a lost chain. Books that were the original draw along with music was replaced by ‘Jesus Junk,’ (A term used at the 2012 ACFW Conference by a well respected CEO/Publisher). And space has continued to shrink even in the chains that are more solvent than others.
Online companies have made their mark and frankly perform a better service than those B&M companies who were lost from the start and never really provided even adequate customer service. Meanwhile, other publishers have found ways to work around what the chains became and with parent companies that are more viable.
Ethically the law may allow this reorganization but frankly its just theft from vendors and product suppliers. Its contrary to the original agreements and leaves a very bad taste in my mouth of companies who peddle Christian content but have no spiritual accountability while getting rich at the expense of consumers, employees and suppliers. Its certainly not a fragrant aroma rising to please God.
If I were owed payment for services (and I’ve been in that situation from mega churches) I’ve watched the attorneys and owners walk away with the wealth and while legal it was unethical in my book. Immoral to state the least. From what I read of SL’s summary, that will surely be the case for another owner and series of attorneys.
Amazon is the #1 retailer. Until someone comes along as a competitor or provides the service in a better way it will continue to be my choice for reading material. What I don’t purchase from them in printed text I purchase in e-books as Kindle files. Kindle won my business being cross platform on all devices I personally own contrasted to iBooks that is or was on one device only. CBD is the other service I will purchase from when it makes sense.
I should also say I worked for Lifeway in a return to college in the 1990s and for FCS and Mardel’s on holidays seasons in the early 2000s. Lifeway was the most grace filled and merciful. The others were eye opening experiences of how differently others operate. Let’s just leave it at that.
We lost FCS years ago in this market and frankly they are not missed. They always looked like they were going out of business, could not keep up the most basic of appearances in the stores, that were dirty and so many rotating temp employees that few had any knowledge or credible information to guide a shopper to the desired product. Dark, lights off, sometimes little or no AC or heat in the winter other than bargain book bins or tubs it was easy to see why shoppers thinned and eventually did not come back.
I will shop Mardel’s and Lifeway from time to time but what makes the most sense (and in price) is an quick order online and UPS at my door anywhere from 2-4 days later. If I were a vendor to FCS best write off 100% of it and try not to make the same mistake again.
At some point publishers I suspect will and should sell direct to consumers. Unless their deals with Amazon and others is more lucrative and beneficial. Sorry, FC leaves a really nasty taste in my mouth and odor to my nose. Why would I give them any more rope to continue listing in the water is my interpretation of this mess. And its an ugly mess.
Steve, I have always found that God is in the balance. All online vs all B & M, are all extremes. Extremes never work. I worked in the banking industry and for a long time we felt that online was the holy grail until we listened to global research that said, “online complements brick and mortar channels”. We saw online-only banks fold, but we also saw B & M-only banks fold. Only the pragmatists who found the right balance between self service and human touch, experiential service, went the distance. Lets face it, online is mechanistic and impersonal, but it is also simple and efficient. So now firms are realizing that personal service is a vital part of competitive advantage. How to balance that is a big challenge.
Theft, no. Business, yes. You make it sound like they planned this – that is theft. But if you simply are taken out by circumstances beyond your control or by things you were not able to foresee, for whatever reason, is that theft? Have you ever lost a job? If so, did you see it coming, could you see it coming? I have often said, “If I knew how long it would have taken to recover, I would have paced myself differently”. I have been battling for 10 years, despite 2 degrees – would you have seen that coming? The human mind is notoriously denialist, so the answer is “no”. How then would you rationalize your crisis if you were on the other side of the fence? That you must now just pay everyone and destroy any chance of recovery? That your family must rather be on the street? That it is immoral to accept a lifeline – its not immoral, its just a matter of stubborn and foolish pride if you don’t. If I ever get published it will be because I have been there, had to be a mother to my kids, a wife to my wife, do work that is not my choosing and walk the hills in search of the answers that became 8 books. I hope not to be an idealist that has no concept of what life is really like. I would rather sow words of hope and comfort to those in trouble than to throw more stones on their heap of sorrows. Life is hard for all of us. As a toastmaster I was always told to never criticize unless I had a meaningful solution – if we, as writers don’t get that, we are not writers at all.
As an author, who has books in the consignments from publishers in the FCS, I feel cheated. I will never shop there again.
I think consignment is a fair marketing risk. What makes more sense is not to give up consigning, but to spread your risks. Consigning gives you exposure and it often is the only way an unknown can get that. The right to fire employees (a form of consignment), does more to create jobs in the US than protectionism does in the rest of the world. The same applies to product consignments. I would still do it, but I would only expose a small % of my books to it. I bet you said so as well when consigning was working for you?
I must add that asking for the inclusion of consignment stock is not as wrong as it sounds. To determine what % to pay creditors, they take into account all cash or near cash assets. Although consignment stock is not an asset of the firm (and they cannot ask it to be so), it is readily realizable as cash – so including it helps to give the creditors a better settlement. That said, lets face it, retailers take risks in buying stock and bigger risks in stocking unknown brands or, in this case, authors, but consignment lowers that risk and insulates scarce resources – indeed a good cash manager must lean towards stock with a higher potential for moving quickly – that is retailing 101. Its a fine balance. Maybe I empathize more because I have been there personally and once had to manage the finances of a great firm that faced similar challenges, but which since recovered, saved jobs and is now expanding globally.
Steve, thanks for reading through the piles if paper. It’s information writers should know.
Thanks, Steve, for taking the time to follow these events, read the documents, and keep us informed.
Pahleeeeese! Consignment goods are placed with a retailer at no cost/investment by the retailer for those goods. The OWNER of the goods still OWNS them. THAT IS CLEARLY UNDERSTOOD AND AGREED UPON BY BOTH PARTIES UP FRONT. They goods are to be sold or returned to the owner by the retailer, period. In my opinion, seeking to have a court allow you to keep goods that you clearly don’t own is an attempt at STEALING THEM LEGALLY.
Don’t cry for me Argentina. Look at the massive carnage left in the wake of these slick legal maneuvers. What about the many struggling small, TRULY CHRISTIAN, companies that will be looted by having their goods stolen and their equity siphoned off and confiscated. Many of these folks may still owe bank loans or credit lines that were used to supply these goods on consignment in good faith, possibly secured by their home. Many of these people are devout and were/are attempting to do something positive for Our Lord. What a betrayal, slap down and strong arm pocket picking on a grand scale. The devil is laughing uproariously at them.
My prayer is for the second place bidder so that other honest merchants like LifeWay or independants will fill any market gap. Given a choice I would prefer, at least, our house to be built upon a rock rather than a garbage dump.
Matthew 7:6 [Full Chapter]
“Don’t give that which is holy to the dogs, neither throw your pearls before the pigs, lest perhaps they trample them under their feet, and turn and tear you to pieces.