Last week the Hastings, a chain of 126 retail stores, declared bankruptcy. Approximately half of their sales are from books (the other half are movies, music, games, etc). They claim “a decline in the market for physical media properties like music, movies, books, games and media rentals.”
They had losses of $16 million on sales of $400 million. Among their largest unsecured creditors include publishers and distributors such as HarperCollins ($1.06 million), Simon & Schuster ($726,000), Macmillan ($453,000), Perseus Distribution, recently purchased by Hachette ($428,000), Ingram Distributors ($372,000), and Scholastic ($321,000).
In other news, sales at Canada’s dominant bookstore chain, Indigo, were up 15% versus the previous year’s same quarter. And Amazon announced the opening of their third brick-and-mortar store in Portland. In addition, Barnes and Noble announced they will close fewer stores than previously announced. Partly because same store sales have stabilized and net income for the last quarter was up 15%.
What is the Real Story?
As with all retail there is a constant ebb and flow, especially in this day of online disruption of traditional shopping patterns. Even the venerable Sears is contemplating selling iconic brands to generate capital.
But when a large chain announces bad news like Family Christian (in 2015) or Hastings (see above) or Borders (liquidated in 2011) you have to look into the store’s financials to find the story. A common theme of the three mentioned here is that they all were carrying too much debt. For Family and Hastings it was due to a recently purchase by another company and sales did not grow as anticipated. For Borders it was a mix of many reasons (see this link for a list) but they too were leveraged due to rapid expansion (and signing high priced leases) right when both Internet sales changed the game and the economic climate soured. Bad debt or too much debt has a price…like having a mortgage you cannot afford. At some point something has to give if sales cannot increase to cover the expenses.
What Does this Mean for the Rest of Us?
Remember the adage “if it bleeds it leads” which means bad news makes headlines. Be careful not to quickly join the Chicken Little Chorus of “The Sky is Falling.” Of course retail is challenging. It always has been.
For example, in 1973 MetroCenter Mall opened in Phoenix and was one of the largest indoor malls in America at the time. It had five anchor department stores (the typical mall had two). Those five stores were: Goldwater’s, Rhodes, The Broadway, Sears, and Diamond’s. Only one of those is still operating today under the same name. The lesson is that retail is constantly changing based on shopping habits.
Therefore, I tend to tilt my head a little when hearing of another bookstore or book chain in trouble. But I refrain from panicking. Books are still selling and people are still reading, a lot. They are simply being purchased in new places or in places that are still solid.