General Dies in Bed, or, Jack Stoddart’s Legacy

By Gordon Lockheed | September 11, 2002

It is now closing in on six months since the collapse of Stoddart Publishing and General Distribution Services (GDS), and the admission of surrender contained in Jack Stoddart’s court affidavit (widely distributed, and available on the Internet for those curious to read it). Thus it seems an appropriate moment for a post-mortem and prognosis, even though the consequences of the collapse are still rippling through the Canadian book trade. This can be done most efficiently by asking four questions: 1.) Why did Stoddart collapse? 2.) What does it mean? 3.) Who’s the villain? 4.) What is the future of Canadian publishing, or, Can Chapters/Indigo survive?

1.) Why Did Stoddart/GDS Collapse?

The short answer is the best one. Jack Stoddart made two bad decisions, and from there became the victim of circumstances. The initial bad decision was to climb into bed with Larry Stevenson and the dysfunctional Chapters retail experiment that is now the dysfunctional Chapters/Indigo retail monopoly. Stoddart likely believed he was responding positively to an inevitable evolution of the book trade occurring in a globalized corporate marketplace, and he certainly wasn’t alone in this belief. Nearly every major publisher in Canada clambered enthusiastically into the same bed, and in different ways—detailed in earlier articles on this website—are paying a heavy price. Larry Stevenson convinced the publishers that the superstores would grow the book trade, and that they would be getting a streamlined and enlarged slice of a pie that was itself going to be magnificently enlarged. None of this happened, except that in the near term the big publishers increased their market share and their sales—even though much of the latter ended up as returns. What the publishers have today is their books on the superstore shelves as consignment merchandise, and a returns nightmare that isn’t over yet.

The second bad decision Stoddart made, based on the same optimisms, was to expand General Distribution’s warehouse. He moved a formerly-efficient business into a cavernous warehouse to handle the “grown” book trade and paid several zillion dollars for a computer system that was filled with intractable bugs.

From there circumstances put his various companies into a collective death spiral. Chapters stopped paying their bills when the book trade didn’t grow, and began, along with Indigo Books, returning books in both massive volumes and chaotic disorder, which overwhelmed General’s computer system and its warehouse staff. The hostile takeover of Chapters by Indigo took place in the midst of this, the pace of returns accelerated, and things grew more chaotic. The result was the “code of conduct” negotiated by the federal Competition Bureau, ostensibly designed to save Chapters/Indigo from insolvency during what was thought to be a transition period. While all this was raining down, Stoddart/GDS’s U.S. banker went bankrupt and the group of companies lost its line of credit. Other banks, smart enough to sniff out the stinky aromas wafting from the Chapters/Indigo mess and from the GDS warehouse, were reluctant to step in, and when they did, they imposed fiscal restrictions that worsened the problems.

Among the very specific things that sunk GDS was a practice among booksellers designed to get around the new game rules set by the Federal Competition Bureau. Stoddart provided a basic outline of the practice in his affidavit, implying that both Chapters/Indigo and some of the independents were employing it. It involved the bookstores returning books within the 90 day return period, and then reordering those same books again—thus extending Chapters/Indigo credit beyond the 110 day period, and leveling the playing-field slightly for a few independents, in effect enabling a few of them the privilege Chapters/Indigo already had, of paying only for the books they’d sold. But it worsened the warehouse and accounting logjam for GDS, and set an ugly precedent for the future. So long as this condition of sale continues to exist, GDS, along with most of Canadian publishing, is going to be a have a loan risk rating somewhere between that of Argentina and Brazil, and bankers are going to be reluctant to offer financing. Stoddart and GDS may be gone, but the conditions that destroyed them remain, and haven’t yet played out to their worst effect.

2.) What does it mean?

The most urgent question here is really the one about how many of the 60 odd small publishers GDS stiffed are going to go down with it. For a time, there was hope that Heritage Canada would bail them out, but it is now clear that Heritage isn’t going to do much, if anything, to help. Their perception, which they’re willing to mumble off-the-record, is that there are too many small publishers in Canada, and that this will be a test of their survival skills, and a cull of the herd. The approach is Darwinian, but a surprising number of small publishers I’ve contacted tacitly agree with it: if they survive, the field will be less cluttered.

Surprisingly, the Ontario culture ministry has stepped into the breech for the Ontario-based publishers. In part, this was probably instigated by its newly-sensitized persona (Isobel Bassett consorting Ernie Eves), but the man throwing out the life-rafts to the publishers has been Culture Minister David Tsubouchi, who happens to be a published poet and an ex-student of critic and academic entrepreneur Frank Davey. This will save a number of small publishers—but it will make Canadian publishing (and eventually, writing) more Toronto-centric than it was. Most of the casualties are now going to be regional publishers operating outside of Ontario, since no one can sensibly count on B.C. and Alberta’s right-wing governments to help (assuming that they’re aware that book publishers are operating in those provinces to begin with).

This is a step backward for Canadian culture if not for the corporate-owned side of the publishing industry, but it isn’t the key issue here, which is about how the Stoddart/GD collapse will change the Canadian book trade. The answer to that is that it has already changed. A single entity, Chapters/Indigo, is now holding 70 percent of the book trade, and it is doing it on a suicidal retail strategy. Anyone who caught Heather Reisman’s optimistic report to shareholders in late August and believes it is deluding themselves. More on this further along.

3.) Who’s the villain?

Well, not Jack Stoddart. He made a couple of mistakes several years ago, and aside from that, played out the string about as well as can be expected given the complex circumstances of his personal life. There was nothing he could do about hanging up his client publishers to dry, because once the bankers swooped in, his hands were tied. Not to get sentimental about him, but there are rumours I’d like to believe that he has personally packed the backlists of long-time authors into a truck and delivered them to their homes. Whether or not the rumours are true, if you’re looking for someone or something to blame, there are better candidates than Jack Stoddart. Among them are the bankers; the Competition Bureau dipsticks who gifted Chapters/Indigo with a bone-headed competitive advantage and freedom from the few rules the marketplace has left; ex-Chapters head Larry Stevenson, who sucked the publishers into the mess, and Chapters/Indigo chair Heather Reisman, who would have done the same if Stevenson hadn’t beat her to it.

4.) What is the future of Canadian publishing and bookselling, or, Can Chapters/Indigo survive?

There are two obvious ways of projecting a future for Canadian publishing and bookselling. One, the cultural nationalist approach, would be to rescue Stoddart/General’s mess by emergency-granting out some of the debts, including, perhaps most crucially, those owed to the small publishers who were distributed by General Distributing. But to make this work beyond the immediate crisis, Jack Stoddart would have to want to stay in business, which he doesn’t. Even if he did, substantive revisions in the deal struck between the Competition Bureau and Chapters/Indigo—and in the general practice of book distribution—will have to occur for any sane prospective buyer to want to dig Stoddart’s companies out of the hole they were in. From a bookselling perspective, changes are also needed. The very least of these is to level the playing field so that the huge competitive advantage incurred by Chapters/Indigo’s 110 day payment schedule (lately reduced to 100 days) disappears. Arguably important is a general revision of book return practices, and in particularly, taking away the unilaterally-imposed return procedure that Chapters/Indigo has been practicing, which permits it to deduct the returns before the distributors process—or even receive—the books. Don’t hold your breath for any of these changes to occur, because the future of Canadian publishing is, for the moment, subsumed in the question of whether or not Chapters/Indigo can survive, and in what form.

The most likely future is this one: Governments, out of respect for (or fear of) the new globalized model of capitalist splendour, will do nothing, and the book trade in Canada will experience a transformation. Chapters/Indigo (assuming that it survives its inevitable contraction to about 60 stores) or its successor, will sell books produced by the three main publishing consortiums operating in Canada: Bertelsmann (M&S, Random House, Knopf), Murdoch (HarperCollins) and Pearson (Penguin). Books published by independent publishers will be sold primarily in independent bookstores, either on a specialized basis, or in nominal competition with Chapters/Indigo (Toronto’s Book City and a few others). Books from small publishers will also be sold, increasingly, through and others on the Internet who are, even though they’re fleecing the small publishers with their trade practices, doing a better job selling the books than the remaining independent booksellers. It’s worth noting that, whatever we may think of, it is the only independent-friendly book retailer to enter the Canadian market in a decade. That said, the market share ceiling for any mail order operation is about 20%, and there is no evidence to suggest that Internet booksellers will exceed that.

I happen to think Chapters/Indigo will survive, but in a form that won’t even remotely resemble the original Chapters superstores, with their 150,000 titles and their reader-friendly rotundas. The evolved Chapters/Indigo stores will sell videos and DVDs, greeting cards and high-turnover bric-a-brac, and eventually you’ll see a merger with Future Shop or a similar chain, and they’ll be selling refrigerators and computers and stereos from their highest-volume floor-space. Books will end up on a second floor mezzanine, sold by semi-literate minimum-wage employees good at raising their eyebrows whenever a customer wants a title outside of the 5,000-30,000 list available from the Bertelsmann/Murdock/Pearson triad. In three to five years, Book City, Pages, Coles giant bookstore on Toronto’s Yonge Street, along with a few vigourous survivors in major cities across the country, will again be the best bookstores in the country.

This evolution of Chapters/Indigo is going to take place not because Heather Reisman is inherently evil or corrupt but because it isn’t possible to turn over books fast enough or in volumes high enough to pay prime location rents. The Borders/Chapers-Indigo retail model was a business mistake, and the business plan that Larry Stevenson employed to kill off the competition—the WalMart category-killer strategy aimed not at becoming the best store in the market, but the only store—is a genuine cultural tragedy that will take a decade or more to recover from, with a powerful possibility that no real recovery will occur.

Stoddart’s collapse will be remembered as an important flashpoint in this evolution, because it was the sole major Canadian-owned publisher, unless you are willing to concede that the 25% foreign-owned M&S (the rest of the company belongs to the University of Toronto, which isn’t competent to run a major publisher, making Bertelsmann the de facto controlling share-holder) which is now distributed by an offshore consortium, can maintain its editorial independence as a real-world subsidiary of Bertelsmann and/or a major creditor of Chapters/Indigo. Personally I think it’s naïve to think that Doug Gibson, for all his strength of character, can much longer fend off the Bertelsmann bean-counters or the semi-literate marketing grads in the ordering department of Chapters/Indigo, who order and sell about 70% of his books. Whether other independent Canadian publishers like Thomas Allen & Sons can become major players in the Canadian scene remains to be seen. It will take nerve and talent to succeed, because the odds are stacked against them.

The situation that has a single corporate buyer ordering 70% of the books in Canada, is the 900-pound gorilla among the various 800-pounders currently stomping the industry. One of these days it is going to start making its presence felt, and that, along with the editorial pressures attendant upon publishers controlled by bottom-lining media agglomerates, will be a moment of truth for Canada’s book publishers far more important than anything in the current dysfunctional scenario. Add that to the world-wide problem for independent book publishers of remaining competitive with the corporate-owned ones (Britain’s dominant chain, for instance, is demanding additional discounts from smaller publishers to cover the warehousing “inconvenience” of having to process small numbers of books) and it’s hard to avoid the recognition that book publishing is about to experience a cataclysmic restructuring. The main feature of the restructuring is likely to be a massive contraction in both the number of book publishers operating in Canada, and the number of books published.

September 11, 2002 2216 w.


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