The Decibel - Indigo turns to a familiar face after a turbulent year

Episode Date: October 30, 2023

There have been a lot of challenges for Canada’s biggest book retailer, Indigo. There was a massive cyber attack. The CEO and president left. The board had four directors leave. And now, to turn the page, its founder, Heather Reisman, has returned to be its CEO after her succession plan didn’t work out.Susan Krashinsky Robertson is The Globe’s retailing reporter and she has been closely following all the developments at this company that plays a big part into whether Canadian authors are successful or not.Questions? Comments? Ideas? E-mail us at [e-mail]

Recently, The Globe's retail reporter, Susan Krzyzinski-Robertson, went on a little field trip. I'm in downtown Toronto to see Indigo's newest store. It's noisy here because the store is in a building that is still effectively a construction site. So let's go inside and see how it looks. So the first thing you see in this store is a big display of holiday pajamas, plaid blankets, How the Grinch Stole Christmas, Britney Spears' new book, big displays with lots of books, and of course, Heather Reisman's face. There's a big poster here advertising Heather's pics. The Heather on the poster is Heather Reisman, Indigo's founder.

And now she's the company's CEO again. This is her second time in the top job and she's coming in with a vision to bring Indigo back to its roots. She's even leading this media tour. One thing that I might point out that we have spent a lot of time focusing on here and it will be or is visible throughout our other stores is the giving Canadians, Canadian writers, Canadian authors. Which is great news for Canadian publishers. Heather Reisman has built the country's biggest bookstore chain. And Indigo was really profitable. But recently, it's hit some financial trouble.

And its performance can have ripple effects on the publishing industry. Books are really, really central here. You can see it looks very much like a bookstore. There is still a lot of other types of merchandise. More pajamas, to my right. This tour was part of a larger effort by the company to turn the page from a year of bad press. So today, Susan will catch us up on the retail giant's eventful year and explain how Indigo is trying to relaunch itself with its not-so-new CEO. I'm Maina Karaman-Wilms, and this is The Decibel

from The Globe and Mail. Susan, it's great to have you here. Thanks for having me. I guess, first of all, maybe you could just describe the place that Indigo really holds in Canada's retail market, just broadly speaking. Yeah, Indigo is a huge presence. You know, we have a couple of companies like this in Canada. They're not exactly monopolies, but they hold a massive, massive chunk of the market that they're in. Think about Cineplex and movie theaters, right? There are other movie theater companies, but Cineplex is really dominant. When it comes to bookstores in Canada, Indigo is a similar presence. They've got

170 locations nationwide. And yes, many people also shop for books online. Of course, Amazon is a massive presence in Canada as well. But when it comes to physical brick and mortar book retailing, Indigo is by far the largest presence in the country. Okay. I know you've been following closely what's been happening at Indigo as of late. And so let's start talking about this. It really started to face some challenges last fall when there was a change in leadership. So why don't you start by telling me about that, Susan? Well, you know, Indigo's

challenges actually preceded that change in leadership. It's been struggling for a while. This is a company that has lost money in four of its last five fiscal years. It just came out of a pandemic. It was a very difficult time for the retail industry as everybody sheltered at home, changed their shopping habits so drastically. And so this is a company that's already been facing some challenges. But yes, there was a big change in leadership. So take us back to about 2021, and it became clear that Heather Reisman believed it was time to prepare, to step back a little bit from the company. So she hired this veteran retail executive named Peter Ruiz. He came from companies like Anthropologie and a department store chain called John Lewis in the UK.

Those are the kinds of companies he had led. She hired him in early 2021 as the new president of Indigo under her as CEO and sort of groomed him to essentially be her successor. And so in the fall of 2022, Peter Ruiz takes over as CEO and Heather Reisman does not retire. She steps into a new role as executive chair of the company's board of directors. And at the time, Indigo and Mr. Ruiz also said she was going to remain deeply involved in the business, guiding Indigo's vision, guiding its long-term strategy. And he was really there to run the day-to-day operations of the business. So she never really went anywhere.

So he's coming in as this new CEO last fall. I guess what was his vision for the company when he stepped into that role? Yeah, I sat down with him actually just a couple of weeks after he was named into the top job. And he was telling me that he wanted to continue a lot of the strategy that Ms. Reisman herself had started, expanding into all kinds of complementary to see books, but you're also probably going to see a bunch of candles. You're going to see some mugs. You're going to see pillows, blankets, all kinds of stuff. Exactly. And that is something that indigo had started doing years ago. Mr. Ruiz came in and said he thought that there was an opportunity to do even more of that. You know, he introduced, for example, the uni pizza oven, which is an expensive, bespoke sort of pizza oven. They were expanding into things like skincare, bedding, beauty products. So really sort of widening out the merchandise. And he also, of course, had a goal to grow Indigo and get it back to profitability.

So he was saying that he wanted to make Indigo a truly international presence to eventually open stores outside of Canada. They have one store already in the US, but that's it. So he wanted to make Indigo a truly international presence to eventually open stores outside of Canada. They have one store already in the U.S., but that's it. So he wanted to open more. He wanted to expand its presence and he obviously wanted to grow the business. That was his goal. Then he has a terrible, no good, very bad year. So. So, yeah, this is I guess this is really where people are starting to pay attention. Right. So I guess I mean, where did things start to go wrong here for him? Well, I mean, the first major thing that went wrong was a giant debilitating cyber attack that hit the company in February. Now, this could have happened to anyone.

But, yes, this attack was debilitating for Indigo. It took down its ordering systems. It took down its e-commerce website. It compromised sensitive employee information, which is a very serious problem. And it cost Indigo money. And by the time the summer rolled around, they reported a nearly $50 million loss, which was a much wider loss than they had seen before. And a part of that was obviously the cost of this cyber attack. So he's in crisis mode. It's bad. They'd had a bad holiday season. And all of this accumulated to

just very bad financial results for the company. And so in the aftermath of all that, that Indigo is trying to deal with, I guess, what was what was the next challenge that he faced? So in June, Indigo's president, so the next senior leader under Mr. Ruiz, a woman named Andrea Lombardi, she left the company to become CEO of the Montreal-based retailer Reitmans. So you have a veteran of the company. She's gone. And then also in June, Indigo suddenly announced the departure of four out of its 10 members of its board of directors. So nearly half the board resigns. And Indigo only explained the reasons for one of those directors departures, a director who alleged mistreatment, that she experienced mistreatment and said she'd

lost confidence in the leadership of the board. The company didn't explain why the three other directors left. And on the same day that it announced those departures, it also announced that now Heather Reisman would be retiring effective of August of this year. So a massive shakeup in the board ranks and the executive ranks at Indigo. So what this all adds up to is a year that has just been really tumultuous for Indigo. And they still haven't totally addressed what went on there. I asked Heather Reisman during this tour the other day about what Indigo has done internally, if anything, to address the allegations of mistreatment at the board level, to look at the senior level departures and what it means internally. And I asked her if she could speak to that, and she would not.

You've had some high profile departures, some board departures recently. What has Indigo done to address some of those changes, to address the allegations of mistreatment? I know that were made when one board member departed. Can you speak to that? Mm-mm. Mm-mm. All I would say is this. You're all journalists. You're all journalists.

Do you believe everything you read in Journalistic Endeavors? Hell no. Hell no. That's all I want to say. However, this was part of Indigo's own press release at the time. They acknowledged the board departures, and they acknowledged these allegations of mistreatment and loss of confidence in the board leadership. So that's a question that Heather Reisman and Indigo in general still has not addressed publicly. Interesting.

Okay, so that was kind of just before early summer there. And then come this September, what is the news that we hear then? And then come this September, Peter Ruiz, that we hear then? And then come this September, Peter Ruiz, after just a year in the job, is out and Heather Reisman is back as CEO. And that's what led up to this tour that she gave the other day. This was sort of her comeback.

She's here to tell a different story. She's here to say, I'm back in control. I'm here for the long term. And I'm going to turn a different story. She's here to say, I'm back in control. I'm here for the long term. And I'm going to turn this company around. And so I think part of the comeback that Ms. Reisman has been trying to orchestrate here has also been communicating to that publishing industry. Just last week, she held two sessions, two online sessions with representatives of the Canadian publishing industry, sort of to answer questions and really to reassure them that Indigo is back on solid footing and that she has a plan. We'll be back in a minute.

Now that she is back, I guess I just want to talk about a little bit of the history of Indigo. Because as you said, she is the founder of this company. How did Indigo come to be the biggest book retailer in Canada? Well, actually, if you rewind to the late 90s when Heather Reisman founded this company, Indigo was not the giant that it is now. It was a very small player. It had about 15 stores. And the big player in the book retail space at the time was Chapters, which was a separate company at the time. It's now part of Indigo, but at the time they were two competitors. And Chapters had about 200 locations. It had

bought up, it had consolidated, bought up a bunch of other chains. You think of Kohl's, for example, the book company. So it had bought up smaller competitors. It had gotten big over time. And it had done that saying to the competition bureau, we need a major big Canadian retailer just in case the likes of Barnes & Noble or Borders decide to expand into Canada. We need to be able to be big and we need to compete. Indigo was comparatively a pretty small fish. But come 2001, there was a merger between the two. And following that merger, Heather Reisman became the CEO of the new combined company that was now the biggest book retailer in Canada. And since then, she's been at the helm, basically leading the strategy of this major book retailer. And to her credit, since then, Heather Reisman has really built a brand for this chain, right? You think of the power that her recommendations have. She built

these... Yeah, like the Heather's Picks. That's right. Those have real financial impact for authors. When a Heather's Pick badge is put on the cover of that book. She has really built a brand for book lovers over the years, and it's become really big. And so she really built up this massive book retailer that was very dedicated to the idea of creating what she likes to call the happy place for her customers. That's a favorite phrase of hers. Okay, so she really does create this huge success story with this store. And now after a challenging year, she is back in the role of CEO. So what has Heather Reisman said about why she has come back now? So she says that she's come back to lead a major turnaround at this company. That's a phrase that

she used in one of those sessions with the publishers, that basically she's to get it back on its right footing. So during those sessions last week, she told those publishing contacts that her goal for Indigo is for books to, she said, easily should be 65% to 70% of Indigo's overall sales. That's a very different picture from where it's at right now. Right now, print products make up about 51% of Indigo's overall sales. That's a very different picture from where it's at right now. Right now, print products make up about 51% of Indigo's sales. And the last time they were anywhere near 65% or above 65%, I should say, was in the fiscal year that ended in spring of 2015. So that gives

you a sense of just how long it's been that books have not been that big a part of Indigo's financial picture. She wants to return to a time when books make up much more of their sales. And so there's still going to be some of that non-book merchandise. But she's sort of talking now about a rebalancing, going back to a place where the general merchandise that they sell feels like more of a fit for what Indigo is. Okay, so this idea of rebalancing really what Indigo sells, I mean, is Reisman saying that she thinks it's been out of balance then in a way? Yeah, absolutely. She thinks it's been out of balance. And some of that is down to moves that she made. Some of it is down to strategies that her successor continued on. There was another

new store that opened in the last couple of years in Ottawa's Rideau Center. The photos of that store showed, you know, a bed in the middle of the showroom to show off its bedding. I think those are the kinds of things where probably we're going to pull back on that kind of display. So she has definitely said that she feels like Indigo sort of went kind of in the wrong direction and needs to be sort of corrected back, basically. But so this idea of the merchandise, though, this did start under her reign as CEO, but she's just saying it's continued in a direction maybe too far that way. Yeah, absolutely. It's not as though this came out of nowhere. And I think we have to keep in

mind also her successor CEO was only in place for a year. There's only so much that you can do strategically at a company in one year's time. And so if there is a rebalancing, that's something that's happened over a long period of time, much of it under Ms. Reisman's leadership. Okay. Let's come back to the number you had before this, Susan, of books making up 65 to 70% of Indigo's sales. I mean, how realistic is that goal, though? Like how, I guess, how profitable, unfortunately to say, but how profitable can a bookstore be in 2023? Yeah, you know, look, the bookstore business has been challenged. I don't think that's any secret at all. But there is some precedent for this, for this kind of refocusing.

There's a bookstore executive who took over at Barnes & Noble, the big U.S. chain, back in 2019. He had already led a turnaround at a U.K.-based bookseller called Waterstones. He came to Barnes & Noble, and he did a very similar thing, taking out all the extraneous stuff that Barnes & Noble was selling at the time that had nothing to do with books. And he also emphasized that each local store should have more control over the kinds of books they order, over the ability to respond to local demand, and kind of almost act like a little independent bookstore, even though it's a Barnes & Noble. And this has been effective for them. They're a private company, so we don't have total transparency into their financials. But their CEO has said that this has been helpful, that sales are up. They're now opening more locations. So there is a precedent for basically saying, no, no, no, we are a bookstore and we think people still want that.

Even in this Amazon day and age, we think people still crave, a certain type of person still craves the experience of a bookstore. Okay, so there's that example, which seems like a strong example. Has Heather Reisman given a sense of when she thinks Indigo is going to return to being a profitable business? Yeah, you know, this is going to take time. And Indigo is already a little bit on the back foot. So they have reported their first quarter results for this fiscal year, and they lost $28.5 million just in the first quarter. That's partly some ongoing impact of that cyber attack, that ongoing financial impact, as well as just dampened consumer spending.

The types of optional kind of discretionary stuff that isn't your essential purchases, the stuff that Indigo sells basically has been squeezed lately as people are suffering amid inflation and cutting back on purchases. And so, yeah, Indigo is having some trouble right now. They're hoping for a good holiday season. You know, in those sessions with publishers, Ms. Reisman even went so far as to ask her publishing partners to encourage their friends and family to shop at Indigo this holiday season. She was like, I'm not shy about asking for the sale. We need your support.

That gives you a sense of where they're at. And she said, you know, in the next few quarters, you're just not going to see this turnaround right away. You're not going to see this, nor should anyone expect that. So it's going to take some time. They have a bit of a lifeline at the moment. So Jerry Schwartz, who is the former CEO of Onyx Corp and is also Heather Reisman's husband and the controlling shareholder of Indigo, he has extended through a company he controls a $45 million line of credit to Indigo to help fund its operations should it need. That's a sort of a credit facility that the company can draw on. So they have a little bit of that right now. That's interesting to know, too. Yeah, to sort of basically move through this transition period. But clearly, Indigo has to

get back to profitability. Ms. Reisman acknowledged that herself during the store tour. You know, she said this has to be a profitable business, and she knows that she has work ahead of her. I guess I want to get back to this change that happened here because part of the reason why she picked a successor last year was because she was planning on retiring. She made that announcement a few months beforehand. So I guess, has she given any sense of how long she intends to stay on as CEO now? Yes.

So in, again, one of those sessions with the publishing industry, she committed that she's here as CEO for a minimum of three years. And she is also still on the board of directors. And she says she wants to remain on Indigo's board as long as she is alive and, quote, fully cogent. Just to end here, Susan, I guess I want to look at this from a bigger picture, too, in terms of a business strategy, because Heather Reisman has made herself really a huge part of the Indigo story, the Indigo brand, as we've been talking about, right, with Heather's pics. There's pictures of her in stores.

People recognize her face. So I guess I'm wondering, someone like you who is reporting on retail, speaks to experts about this all the time, I guess, what are benefits but also the risks maybe of a business's brand being so tied up in one person? Yeah, I think it's clear that at some point, if and when she does step back again, that Indigo will have to find a way to continue its brand with a little less Heather. For now, I think Indigo and Heather Reisman really are intricately tied. On the other hand, she has also built a pretty big brand. So, you know, there will be an opportunity, should she decide to step back at some point in the future, to transition away from Indigo as Heather's store specifically. And a lot of that will come down to the strength of Indigo's brand and its ability to continue

to appeal to its customers, which is what she's trying to work on right now. Susan, thank you so much for taking the time to speak with me. Thanks. That's it for today. I'm Maina Karaman-Wellms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer, and Angela Pachenza is our executive editor.

Thanks so much for listening, and I'll talk to you tomorrow.