Last Thursday Family Christian Stores (FCS) announced they will be closing all 240 locations in 36 states, liquidating their inventory, and laying off over 3,000 employees.
It is a sad day for Christian retail. In this case, the only surprise is that it came so soon after their previous bankruptcy reorganization.
In February 2015 FCS suddenly declared bankruptcy and it was not until June of that year that the terms of their reorganization were finalized. I wrote about this frequently here, here, and here. The bottom line is that, in the end, FCS was able to wipe away over $120 million in debt and was able to buy $20 million in consignment inventory at 70%-90% off the wholesale costs.
In other words, their reorganization allowed them to start over with “free” inventory in their stores and without debt.
In the last 18 months, since the court approved reorganization, they had two Christmas seasons to replenish their coffers, so to speak. FCS had projected sales of $216 million for fiscal 2015. Until more is revealed I cannot speculate what their sales have been in the last 18 months…other than to state the obvious…it wasn’t enough.
There is a crucial question of whether the business model of the retail Christian store is structurally broken, or whether it was just FCS’s model.
Did the management of post-bankruptcy FCS do the things necessary to try to stay in business that you see from other retailers—closing unprofitable stores, focusing on more profitable merchandise, etc.? In June ’15 they had 266 stores. Now they have 240, according to the press release. Apparently they did close a small number of locations and moved some others. But what about all the other aspects of retail? A proper product mix to meet the needs of their customers? Top level staff training in stores? Reduced overhead at the top levels of corporate management?
FCS was given a great opportunity for a reboot with their bankruptcy. They no longer had any debt. They had a large cash infusion from their suppliers who provided inventory which they never had to pay for.
And yet I quote from excerpts found in the FCS letter to vendors, “Despite improvements in product assortment and the store experience, sales continued to decline. In addition, we were not able to get the pricing and terms we needed from our vendors to successfully compete in the market.” This is, in part, laying the blame on the publishers and vendors for the decision to close. There wasn’t much the suppliers could or were willing to do to further support FCS. The publishers, vendors, and banks walked away from over $120 million during the bankruptcy. They had already “contributed” significantly and gave FCS the opportunity to continue to be an important factor in the Christian community.
Before anyone declares Christian retail is “dead” we must first answer the above “what happened?” question. I know of many Christian retail bookstore operations that are healthy and strong so be careful of blanket claims of Armageddon.
However, as I’ve said elsewhere, there is no question that Family Christian’s closing will have a “deleterious effect on many communities which have relied on their local store for their Christian products, whether it be a greeting card, book, or Bible.” There may be a number of cities where the business will simply go to another Christian store. Unfortunately, in places where they were the sole outlet the impact will be felt.
If there is a permanent structural problem in the Christian retail store model, it is a shame. This has been a long-standing industry serving the Christian market very well. For example, people making a lifetime purchase of an expensive Bible, want to see and feel it before buying one. This can’t be done online. The gift section carries products that are not found in other retail stores. The greeting card line is not replicated on Hallmark or American Greetings racks. But books and music are easily found online or in a church’s bookstore at significant discounts.
Since I began my career in Christian retail I truly believe that the local store can be “the supply sergeant in the Lord’s Army.” It is the place where a bible study leader can compare multiple studies to find the right one for their group. It is a place where a church can get the supplies they need for Sunday’s service and weekday ministries. A place where a pastor or a seeker can review hundreds of books on various topics. I have also said it is a place where there is an ecumenical meeting every day, but no one realizes it. Every flavor of the Christian church passes through the doors of a Christian bookstore – all shopping the same aisles.
Retail is Always in Flux
There is no question that brick and mortar stores are in the midst of disruption. Some would call this disruption “The Amazon Effect.” On Friday J.C. Penney announced the closing of two distribution centers and 140 store locations (approximately 15% of the chain) while also offering early retirement packages to 6,000 employees. They are not alone. The Limited closed all 250 locations in January. Wet Seal announced the closure of all 171 locations. American Apparel all 110 locations. Last year Macy’s announced the closure of 100 underperforming stores. Kmart will be closing 108 locations and Sears 42 locations (and sold their Craftsman brand to Black & Decker).
Retail business is often a fragile venture. Physical stores are not the only ones subject to disruption. Online operations are also at risk. For example, NastyGirl.com, an online apparel company, grew from a home-based eBay business in 2010 to nearly $100 million in sales in six years. And yet in November of last year they declared bankruptcy and the brand was sold for $20 million.
Remember, however, that store closures make the headlines, not store openings. For example, Walmart will open, relocate or expand 59 Walmart and Sam’s Club locations in 2017. These openings will employ about 10,000 people. Nor did I read much about the successful years of T.J. Maxx and Marshalls which have plans to add 1,300 stores in the U.S. and Canada.
An hour before this FCS news broke, I was talking to a friend about the difference in leadership by those who are entrepreneurs and innovators and those who are more “standard” business managers. Sometimes entrepreneurs and innovators are not good managers and good managers are not always innovators. But those who are able to lead and nurture a culture of innovation are the ones we read and write about. In retail, it can no longer be “business as usual” or the consumer will go elsewhere.
Every author is asking “how does this affect me?” Answer? For the majority of authors, probably not much.
Top level, bestselling authors, were in the stores, but the inventory selection did not run deep. FCS also carried a limited fiction section, bestsellers mostly.
In its heyday Family Christian was as much as 10% of a Christian publisher’s business. Now it is a small fraction of that.
Those who publish Bibles (HarperChristian, Tyndale, B&H, Crossway, etc.) will lose a major sales outlet. An irreplaceable one. But that doesn’t really impact authors either. But it does hurt our publishing partners. While hard news for the publishing industry to absorb, I suspect most companies had limited their financial exposure to FCS. Yet, any loss is regrettable.
I hope that there won’t be a chain reaction of subsequent bankruptcies or undue financial stress on publishers or gift suppliers. For example, due to the 2015 bankruptcy of FCS, Gospel Light Publishing lost $143,000 and had to declare their own Chapter 11. They later sold their curriculum assets to David C. Cook Publishing.
It is also a sad day for 3,000 Family Christian employees and their families. Pray for them too.