Spencer Van Dyk
General merchandise revenue is creeping up to book sales, and online sales are increasing, as Chapters-Indigo is finally reaping the rewards of a diversification plan put in place years ago.
Although 65 per cent of the company’s revenue still comes from books, that number is decreasing. It is 2.6 per cent less than the same time last year. Meanwhile, general merchandise, like stationary, lifestyle items and home décor products, increased by 3.4 per cent from this time last year.
The plan to brand Chapters-Indigo as a lifestyle store was necessary for its survival, according to Alan Middleton, a professor of marketing at York University.
“People will probably go online for it and do a search, but there is still the pleasure, especially at certain times a year, of visiting a bricks and mortar store,” he said. “It’s what we call in marketing ‘shift to experience marketing.’ How do we make the experience of visiting a bricks and mortar place pleasurable?”
Middleton said that if the store can entice people to shop there in person by focusing on the shopping experience, the company can sell more products by encouraging impulse purchases.
The company’s chief executive office, Heather Reisman, agreed.
“I just think it’s that physical books are sustaining their position with the market, and we continue to invest in the experience for people,” she said in a call with the company’s investors.
But Chapters-Indigo is not relying solely on experience marketing; it invested in online shopping. What the company sells online now generates 11.7 per cent of its revenue, compared to 8.6 per cent in 2011.
“Online sales continued to experience growth in books and double-digit increases in general merchandise,” reads the company’s financial report.
But maintaining an online store is expensive, Middleton said.
“As soon as you move aggressively into online, you’ve got to have money to keep the technology up to date,” he said. “The need for constant investment and development of both the technology itself, but also the service related to that technology, that probably needs investment.”
What the company calls intangible assets, for example software, cost $2.4-million this quarter alone, up 33 per cent from the same time last year.
The push for online and the emphasis on the shopping experience are in response to struggles Chapters-Indigo faced a few years ago. In 2011, book sales were way down, and e-readers were sustaining the company. Between 2011 and 2012, the operating expenses related to e-readers more than doubled. According to Reisman, the company needed to adapt, so it would not have to rely on that revenue.
“Number one, all of this data shows that e-reading has levelled off and has sustained a level-off position,” Reisman said in the 2015 investor call. “In Canada, it’s actually dropped a couple of percent.”
E-reading is not going away, she continued, and Chapters-Indigo continues to participate in that market, but sales of those products are no longer enough to sustain the company. There are now more hybrid readers, people who read both physical books and electronic ones, and the challenge is to market to everyone.
According to Middleton, if the company can continue to provide services online, while drawing customers into the store for the shopping experience, it may be able to get back the losses they suffered in 2011 and 2012. Bookstores everywhere are struggling, he said, so successful ones need to understand human shopping behaviour. Being available online and marketing itself as a lifestyle company can and has increased revenue in every department, including books.
Indigo Books and Music Inc. by spencervandyk on TradingView.com
Indigo Books and Music Inc. by spencervandyk on TradingView.com