By: Pat Daley
A basic rule of small business is to have a diversified market for your product or service. If you have one or even two clients providing the bulk of your work and something happens to them, you lose your meal ticket.
Big business, unfortunately, is making it difficult for the little guys to follow the rule. It's happening in the Canadian book publishing industry.
Chapters is the largest book seller in Canada. It's the third largest in North America. President Larry Stevenson told the House of Commons standing committee on Canadian heritage recently that a Chapters superstore might have 125,000 titles on its shelves. A good quality bookstore used to carry about 20,000, he said.
And that's great. It's hard to argue against a business that's doing so much to promote reading. But - really - do they have to try to own everything?
Besides expecting to have 75 superstores up and running by the end of this year, Chapters, Inc. operates Coles, SmithBooks, LibraireSmith, and the Book Company. It manages the McGill University Bookstore as well as stores at other universities and colleges through Chapters Canadian University Bookstores Ltd. It also sells books through Chapters.ca and last year starting setting up kiosks in its stores so customers could e-order books that are not on the shelves. It publishes Coles Notes.
As if that wasn't enough, Chapters, Inc. now owns Pegasus Wholesale, Inc. - the supplier of books to Chapters stores. Canadian book publishers used to sell directly to the bookstores, giving them a 42 to 45 per cent discount. Now they have to sell to Pegasus, which started out demanding a 50 per cent discount, according to Association of Canadian Publishers Executive Director Monique Smith. Pegasus then resells the books to the stores.
The Chapters formula works well enough that small booksellers complain they are being squeezed out of business by the stores' large selection and low prices.
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Some publishers have been turned down by the banks for financing because more than half their receivables are with one client |
It's the publishers who are having trouble sticking to the small business rule. Chapters controls 55 per cent of bookstore book sales in the country. (Larry Stevenson told the House committee that the market share drops to 20 or 23 per cent when you count retail outlets like department and grocery stores.)
For some publishers, that means anywhere from 50 to 70 per cent of their sales are to Chapters. So, not only do they not hold a lot of cards when it comes to negotiating a lower discount with Pegasus, but - as Monique Smith points out - they'll be the ones to suffer if the company experiences cash flow or inventory problems. She also notes that some publishers have been turned down by the banks for financing because more than half their receivables are with one client. (By the way, the Bank of Nova Scotia paid $25 million for a one-quarter stake in Pegasus.)
You have to wonder in these days of merger mania how many suppliers in how many industries have had all of their eggs forced into one basket. How many more Eaton's collapses are waiting to happen?
The Competition Bureau ruled in November that concentration of ownership in the retail book industry is not a problem. They're continuing to monitor the situation.
Pat Daley is a freelance writer and editor in Athlone in Simcoe County, Ontario.
Get More/Do More
You can find a profile of Chapters, Inc. at publishing.tqn.com/arts/publishing/library/weekly/aa091599.htm
Looking for alternatives to the big book dealers? You can start with: www.abebooks.com - a Victoria, B.C. network of independent booksellers from around the world.
Here at Straight Goods, we want to go beyond monitoring and start finding real alternatives to the superstores for consumers who want a diverse marketplace for books - and especially Canadian books. Those alternatives could easily vary depending on where you live and how you shop.
Send us your ideas on how we can each do our bit for Canadian book publishing and Canadian small business.
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