In case you missed it, last week the Family Christian Stores chain declared Chapter 11 bankruptcy. (See this link for their press release.) This is newsworthy because Family Christian Stores (FCS) is the largest Christian store chain in the country (when counting number of locations, not necessarily sales revenue), 266 stores in 36 states. In 2014 the chain did $230 million dollars in sales…down from $305 million in 2008.
The Details
A common misunderstanding is that this means they are going out of business. That is not the case here. This isn’t a repeat of the demise of the Borders chain in 2011. Instead the corporation is reorganizing using a Section 363 Sale process. What this means is that a new entity has been created by the owners of FCS to buy their assets and restructure their debt. This same Section 363 Sale process was used by Chrysler and GM during the financial crisis of 2009.
A newly formed subsidiary of Family Christian Ministries will be buying the assets of Family Christian Stores for $73,773,000 (which consists of $28M in cash, the assumption of about $43M in property leases and $2M in other accrued operating liabilities). According to their press release they will not be closing stores nor will they be laying off staff. In other words they will try to maintain and do “business as usual.” The sales of these assets is supposed to happen within 60 days. Which is very fast. (There is an excellent interview online with two Chadbourne bankruptcy lawyers about the unique nature of a Section 363 Sale process if you want to more details.)
The entire 150+ page Chapter 11 filing can be found online in a PDF (Family Christian Store Bankruptcy Filing link) from which I have been quoting much of the above details. A list of the top twenty unsecured creditors has also been circulating. It does not have a free online link but can be purchased if you want your own copy (Link to Business-Bankruptcies.com.)
In the list of top creditors there are some big numbers owed to publishers. Seven million owed to Harper Collins Christian Publishing (which includes Zondervan and Thomas Nelson), 1.7 million owed to Tyndale, and around a half a million each to Baker, B&H, Crossway, Barbour, Harvest House, Send the Light Distributors, Waterbrook (Penguin Random House), Ingram/Spring Arbor Distributors, and FaithWords (Hachette). These eleven publishing-related companies are owed a total of $14,000,000. Remember that at least four of these companies publish Bibles as well as books. And most Christian stores do a healthy percentage of their “book” sales in Bibles.
Fourteen million dollars is not “chump change” but compare that to the top creditors during the demise of Borders in 2011. (The list can be found here.) Borders owed Penguin $41 million, Hachette $36 million, Simon & Schuster $33 million, Random House $33 million, and HarperCollins $25 million. Granted, there were around 1,000 Borders locations which primarily carried book inventory.
What I found interesting on the list were the non-book companies who are owed substantial money by FCS. These include gift, greeting card, and music companies. There are nine listed in the top twenty…and are owed a total of $13,000,000. In other words almost the same amount due the top 11 book/bible-related companies.
This reveals that the product mix within FCS has evolved over a number of years. They were shifting their inventory to more of a boutique format and thus book selection suffered in the breadth of titles and the depth of copies carried in-store. This is not a surprise when books, bibles, and music can be purchased online or at competitors who carry larger inventories. But the gift, cards, and jewelry are products that are not as easy to purchase online. And thus the shift.
Before anyone comments on how this is “terrible” and “they shouldn’t be selling that junk” be aware this has been part of the product mix for a long time. I ran Christian bookstores in the 80s and early 90s. Our sales mix back then was 25% books, 15% bibles, 25% music, 20% gift products, 15% other (like church supplies and Sunday school curriculum).
In the case of Family Christian the inventory weight trended toward the non-book items over these past few years.
The Creditors
The biggest unkown in this process is whether or not the money owed to the various creditors will be paid. According to the filing there are over 2,200 total creditors (including the local municipalities in each store’s location, presumably for sales taxes owed).
There is a considerable sum (upwards of $50 million) in secured debt with two banks which will be first in line to get paid. Nearly half is from a revolving credit line which is part of a normal business operation. The balance is a term loan that financed the purchase of FCS in 2012 (read the story of that sale in a Christianity Today article here).
What about all that money owed to publishers and other vendors? Their debt is classified as unsecured which means it could be in jeopardy of being paid. This is an area where I can only speculate, so it is best that I not speculate. Instead we will watch carefully. While you might assume that a larger publishers can absorb a financial hit, what about the little publishers and other vendors? For them losing $50,000 might be the difference in keeping their doors open. It is all a matter of scale. Absorbing a half million dollar loss can be significant for any company.
Implications for Authors
What may be a dark cloud, despite my looking for a silver lining, is if publishers are not paid, authors won’t be paid either. If a debt is unpaid, like the FCS debt, the sale is counted as if it never happened…or as if the book was returned for credit. This means a negative sale on the ledger for that author.
If your contract has not earned out you may not “feel” the impact and will only take a little longer to earn out. If your contract has earned out and you see a regular check, you may see a slight dip in revenue.
BUT
Remember that FCS did not carry either breadth or depth in their book inventory. So it may be that your books were not being carried in their inventory and will not be affected. If however, you are a top level bestselling author you may see some negative activity. But, if you are a top level bestselling author it is unlikely that FCS’s sales were more than small percentage of the total books sold. Or, as is the case with one of our clients, last Fall FCS placed a very large special order print run for one book (100,000 copies) and the publisher sold it to them at a very low price so they could offer it to their customers at a high discount. The concern is that the bill for this sale will not be paid because it is one of those unsecured debts and thus our client will not be paid either.
Final Thoughts
Family Christian Stores may well come out of this difficult time in great shape. It is a tough time to be a retailer (just look at Radio Shack, Sears, and Best Buy!). We should hope and pray for a positive resolution. There are so many people involved in this process. Way beyond the 3,000 employees in this chain who are wondering if they will still have their jobs next year.
It is never good news to hear of a business in trouble. Let us try our best to keep our eyes where they belong in all this. (Colossians 3:1)
UPDATED – 2/17 added further financial details regarding the breakdown of the $73M sales price.
UPDATED – 2/23 a detailed analysis of new information was posted “More About the Family Christian Stores Bankruptcy.”
I am very interested in how this affects the CBA market, and also if this restructuring will include rearranging the store to include its own middle-grade and YA fiction sections.
Kim,
Middle grade fiction has always been a tough “shelving” challenge for bookstores, especially Christian bookstores. Historically there has not been enough titles published to justify its own section of shelving space. Unless it is a “superstore” with a huge book inventory. The FCS stores typically did not have enough space devoted to books to break out sub-categories like you are describing.
I used to go by the closest FCS whenever I was in Lexington, and I’m trying to remember why I quit going. I think it was because they decreased the inventory of books. I bought cards and music, but the books were the main reason I shopped at FCS.
Thanks for explaining how Chapter 11 works.
More and more large ministries and author’s with established platforms will continue shifting towards hybrid model’s and the self publishing route. Essentially revertng back to what used to be done. As publishers tighten their list’s it is all the more important to build B2C sales channels and you still have to write a good book! With BAM accepting offers from the Anderson’s and this going on with FCS you have to be very creative in determining what matter’s to you as an author brand.
I appreciate this update and the time you’ve taken to piece it together. Thanks for sparing us the 150+ page slog through that filing!
The news is unfortunate. But I think your point–that this is a market-wide phenomenon, not something suffered solely by Christian stores–is a really important one.
I have always wondered about the bookstore “ecosystem” and its dynamics…and how critical the non-book/non-Bible merchandise was to an individual store’s survival. Maybe it’s tempting to say the store’s shifted too much of their focus, but that’s a weighty accusation for someone on the sidelines (like me!) who hasn’t personally managed any kind of boutique. I’m sure it’s a delicate art.
Something I recently heard from one publisher is that this is yet another move toward a bigger “online bookshelf” that decreasingly segregates Christian and non, especially when it comes to fiction. No doubt this has ripple effects… not just on stores and creditors and staff, but also on the way publishers contract books and the way authors must slant and title and write for the next generation of readers who are increasingly browsing in these e-superstores.
The most important thing, to me, is the commitment to keeping all of the employees on.
That’s rare, and laudable.
Thanks for the explanation – it’s very helpful to writers. Many of us are NOT business majors.
I believe we have one FCS in our area, and it is about 40 miles from where I live. They do not have author signings, and as you pointed out their supply of books is limited. They’re also located near a mall–and here in Texas malls see fewer and fewer customers.
Retail is a constantly changing market. This is but one more change. It’s still the best career I’ve ever had!
Like Steve, I’m a former Christian retailer, with experience in both independent and chain stores, as well as some in the publishing side of things. Not so many years back I told the then current editor of CBA R&R my prediction that the large Christian chains were not going to survive in the long run. Sometimes it’s not a good thing to be right. In my opinion, much hinges on how Family handles this reorganization at the individual store level. I believed then that the main reason for failure would be the cookie cutter approach to inventory, where stores cannot tailor content for their market. I still believe that issue is key.
Susan,
It is doubtful they would give local store much more autonomy than they already have. That is hard to do with a chain, especially if local store management or personnel experiences turn-over. The problem becomes inventory control and collective buying power. The advantage of a chain is the ability to swing better pricing due to their combined order volume (think Walmart).
While there can be some local store customization the chain must rely on key “boots-on-the-ground” store personnel who are in tune with local needs and monitor it carefully. If that key person leaves the store the next person in charge may not have the same acumen.
I can see this in some of our local grocery stores, all of which are large chains. Under one manager a particular store is clean and well tended and the staff is friendly and positive. A year later the same location is unkempt with a new staff that is grumpy and uncooperative. But at least the product mix is the same because that is purchased elsewhere.
Thanks Susan for the great observation and hope for better bookstores!
Steve
Yes, Steve, you’re right that giving the local store autonomy is difficult, and the buying issues you cite are one of the primary reasons. But when you get down to it, not all buying needs to be decentralized for this to work. When I worked for a different chain, we were constantly frustrated by the ways store policy actually prevented good customer service, specifically in the area of product. We couldn’t special order materials for a church having a Bible study unless those orders would come under an individual’s name or the church name. (Trust me, that brought up another set of difficulties).
But the point is that I often had to tell customers that I was sorry, I could special order a title, but we couldn’t carry extra copies. Some would order. Many would go elsewhere, and we lost many sales. Having this kind of flexibility wouldn’t throw off the overall bulk buying, but would have allowed us to meet customer needs better.
Until the chains find a way to combine the benefits of bulk purchasing with the ability to niche market as needed, they are still in danger of going the way of the dinosaur.
Please note that I’m all for Christian retail: retailers, publishers, authors, and all who make it work, so my comments come from the side of support, not opposition, even if I don’t see a bright future yet.
Steve,
Thank you for this informative article. These are challenging times for many people and many businesses so we must keep our hearts, our minds and our eyes fixed on Jesus, who is the “Author and Finisher of Our Faith.”
Blessings!
I am sorry to hear of this situation but there are many sides to this issue of “failure to thrive” in the business world. Any retail outlet should be gracious to the locale in which they sell their wares. Most successful businesses realize they are a guest in the community. FCS has micromanaged their stores from above and, as Vanetta said in her comment, they do not have book signings—not exactly helpful to authors who need exposure. Hopefully the new management will be more amenable.
Elaine,
According to the press release and the chapter 11 filing the management will be the same.
Family Christian Ministries is forming a new division which will buy the assets of the Family Christian Stores which they technically already own.
Steve,
Thank you for this article and your sincere humble way of handling this news and of encouraging us to not look down on them, but to keep our eyes focused above. When we focus on Christ, we can then share His concern for our fellow men and women involved, as well as for all others affected.
What a tender approach. Thank you.
Kay
I am glad so many of you have read this post and found it informative and helpful.
It was pointed out to me that today’s post was the 1,000th post on our blog since it was started. A milestone of sorts.
Steve
The Christian Book market is a niche market and subject to the same market trends as other book stores.
It doesn’t take a genius to figure out that profit margins on brick and mortar retail shops are razor thin and the volume of online sales and electronic books are squeezing this inefficient dinosaur out.
Institutional churches are facing similar situations and those that fail to recognize that we’re in an information revolution the likes of which hasn’t been seen since the development of the printing press will die out.
Ahhh … setting our hearts on things above, where Christ is seated.
Thanks for the information and redirection.
Steve, great reporting. Unfortunately a much too common story replete with managements excuses blaming everything but themselves as the reason for their failure.
I, personally, have ZERO faith in FCS, their management or future plans as stated. I believe they do not possess, or at least will not heed, the knowledge that comes from God that could make this business a spectacular success. Is their desire for profit superior to God’s commandments for success? They have made a deliberate and conscience decision at the highest corporate level to ignore the Sabbath and replace it with a seven days a week store operations schedule. This makes me recall the distinct odor of money changers in the temple.
Exodus 20:10
but the seventh day is a Sabbath to Yahweh your God. You shall not do any work in it, you, nor your son, nor your daughter, your male servant, nor your female servant, nor your livestock, nor your stranger who is within your gates;
Secondly, this legal financial move (bankruptcy with planned sale back to self) is just another outrage. Being legal does not make it just. To me, it is of the world (or worse) and not of the Kingdom. Many good people could be unjustly hurt by this.
Exodus 23:6
“You shall not deny justice to your poor people in their lawsuits.
James 5:4
Behold, the wages of the laborers who mowed your fields, which you have kept back by fraud, cry out, and the cries of those who reaped have entered into the ears of the Lord of Armies
It is my prayer that Our Lord of Armies will consider bringing forth another bidder with better plans than FCS current plans. A new bidder that will truly run this business in conformance with God’s directives. A new bidder that Christians could rally around and enthusiastically support with their business. A new owner that will make this company a shining example of our beloved Christianity, something on the order of how Chick-fil-a. runs their business.
I will be the first to say that I am not without sin nor do I judge these people, it is not my prerogative. On more than one occasion I have, however, successfully turned around business situations and companies that were considered “impossible” to save by the bankers, attorneys, consultants etc. that were involved. Never once did I consider bankruptcy as an option. Hard work, perseverance, sacrifice and unwavering adherence to God’s biblical principles, sometimes over several years, have always saved the day.
Steve, Tamela, Karen, Dan consider marshaling your extensive contacts. Completely NEW ownership and management is what this company needs. I can do part of a deal, as can many others, but aren’t sure I want to try to swing the entire 80 to 100 million or more bid it may take to outbid FCS. I am confident I (along with my small team) could turn it around to spectacular success if we had the opportunity. We have a successful track record over bigger challenges than this. We shall see what the future holds.
God Bless!
This is sad to hear. It seems like bookstores all over are struggling, and I hate to see it. My question is this: If so many traditional bookstores are closing, is there a huge advantage to getting published by a traditional publisher? I just self-published my fourth book and I’m wondering if I should try to to get published by a traditional publisher. It seems like a lot of work, and I’m wondering if it would be worth it if most book sales are going online anyway. Would love to hear your opinion, Steve.
I work in the church library and have for 36 years. We buy most of our books from Family Christian Stores. I love the program they have called Ministry Builder Stamps. We can get items we need for the library just by using the stamps.
When you purchase items from the store ask for the stamps before you leave.
They work like the old S&H Stamps and Top Value Stamps.
Thank you for your very informative article.
Thank you, Steve, for the detailed explanation. Unfortunately, I am one of the “small” vendors to which Family Christian owes a large amount (or at least a large amount to me). I went in one of their stores yesterday, saw my products for sale, and was very hurt. I accepted their purchase order, filled the request, paid for the manufacturing and paid to ship it to Family Christian. And now their stores are full of inventory that they will never pay for and they are selling to customers. My question is a sensitive but intensely personal one….is it fair to keep all employees, keep all stores open and maintain “business as usual” when there are hundreds of small vendors, like me, paying a huge price? Can’t we share the burden of their bad years of sales (although we have all had the same bad few years and are paying our debts) instead of vendors and authors taking the loss for them?
I am sorry to hear of your difficulties. Our prayers go out to all those hit by these events.
Steve
Steve, thanks for taking the time to break this down in layman’s terms. I work at an Independent Christian Bookstore and we had all ready watched Cokesbury close their doors and go to online only sales, we really didn’t want to see Family do the same thing. We are grateful to the LORD and our fantastic customers for allowing a family owned, family run store stay in business for 38 years. We are working hard to stay open for many, many more, but this was a bit of a worry for us because if Family folded, then a lot of the companies they worked with were going to be pulled down too.
Great article! I have been searching for an awesome local Christian bookstore with episcopal hymnal variety.
Finding a reliable bookstore to regularly supply a book of common prayer is a much more daunting task than I ever expected.
It has been extremely difficult to locate a bookstore that carries an episcopal hymnal that I can use.