Robert Fulford's column about the turmoil over Chapters book chain

(The National Post, July 29, 2000)

In the Canadian publishing business there has never been a summer so filled with bitter irony and hollow, rueful laughter. Publishers and authors, who should be preparing for the big autumn season, are instead spending their time sincerely hoping for the survival of the Chapters bookstore chain, a company that in its short history has rarely been an object of their affection. Suddenly, its economic fragility threatens everyone.

Many people in publishing have criticized Chapters on esthetic grounds, for the bland design of its stores. Many have resented the way it has made life impossible for independent bookstores. Others dislike it because it has pushed the publishers around: It has forced them to operate through Chapters' own book-wholesale company, it has compelled them to accept credit terms they don't like, and by the exercise of power it has generally made them feel that they, the publishers, together with their authors, are minor players compared with the biggest retail book chain in the history of Canada.

Yet these sworn enemies of Chapters are praying this summer that the company will somehow recover from its present difficulties and stride profitably into the future. The bankruptcy of Chapters would be a calamity that might set publishing back two decades. One publisher told me this week that about four out of five Canadian publishing houses will go under if Chapters goes bankrupt.

Nothing in the world of Canadian books and authors has been spoken of with such dread since the '70s, when McClelland and Stewart was producing more than half the good books in English-speaking Canada and often seemed to be on the brink of dying.

Chapters began its life with a bold, American-style initiative: to bring the techniques and goals of venture capitalism to Canadian bookselling for the first time.

Perhaps our booksellers needed to be shaken up (though I for one always found them pretty ingenious and aggressive) but the Chapters method has so far not produced the desired results. Chapters is seriously in debt and many publishers feel their own work is being hurt by unpaid bills. They also fear what these unpaid bills portend for Chapters.

It is a question of how and when capitalism of a certain kind works. In the cultural industries, capitalism can claim virtue only when it succeeds.

The theory of capitalism assumes that the world will forgive whatever harm it incidentally inflicts because it creates more efficient and beneficial markets. The power and energy behind Chapters have driven away famous old bookselling names like Duthie's, Lichtman's and Britnell's, but the unspoken (or sometimes spoken) argument is that those stores probably weren't efficient. Chapters will triumph, and should triumph -- this argument goes -- because it will sell more books to more people at better prices, and in a better environment, too. It will produce profits for shareholders, greater revenues for publishers, and of course more sales (and more royalties) for authors.

But what if none of that happens? What if Chapters can't make money and can't increase the revenues of publishers and authors? What if its system doesn't work -- even in a fabulously rich year like 2000, when affluent Canadians have more available money to buy books than they have ever had and perhaps more than they will ever have again?

Incipient failure, or even a hint of it, makes the Chapters experiment in venture capitalism look like a wrong turn in Canadian bookselling. If this enterprise fails, there is no going back. Whatever harm was done, stays done. If Chapters goes under, the stores it destroyed (or helped destroy) will stay dead. Perhaps others will arise in their place, eventually.

More likely, an American firm, Barnes&Noble, will take over Chapters, pay the publishers what's owing them (or part of it), and run the stores.

This would violate federal government policy, but in the case of a Chapters bankruptcy there may be no other solution.

Something similar happened in the 1980s. Chapters is not the first book chain to over-extend itself. Louis Melzack, who started out with a second-hand magazine store in Montreal in 1928, had expanded to 60 stores by the time he retired in 1980 and sold the business to his son Brian.

The younger Melzack increased the chain to 110 stores in five years but found himself in financial trouble. In 1985 he sold out to W.H. Smith, the British booksellers, who had been operating in Canada since 1950. Canadian publishers and their friends in Ottawa were hoping to see expansion, not contraction, of Canadian ownership in the business, but the publishers were nevertheless delighted to have Smith pay the outstanding Classics accounts.

(Later, the enlarged Smiths and the Coles chains together became the basis of Chapters.)

This time, the stakes are much higher. To permit a takeover of Chapters by Barnes&Noble, Ottawa would have to dismantle the foreign investment rules as they apply to the book business.

That would be a bitter defeat for Ottawa and Canadian book lobbyists.

This seems unlikely to happen soon, but meanwhile the publishers are preparing to face some painful decisions. In August, as their autumn books come off the presses, they must determine what to do about Chapters and its debts. "I've been trying to figure out whether to sell them books or not," a publisher told me the other day. If publishers don't ship to Chapters, then they miss out on 55% to 60% of their market. If they do, they may end up with a lot of unpaid invoices.

The argument between Chapters and the publishers has for months hinged on the issue of timely payment. The publishers say their bills are going unpaid for far too long. Larry Stevenson, the CEO of Chapters Inc., says it is paying at normal speed. In a recent statement he claimed "payment terms remain at 90 to 120 days." He can explain that this is appropriate, because these things are different in the book business.

Does he mean that if I buy a book at Chapters today, I can pay for it in November? (If such a policy exists, Chapters should make it public. And if it doesn't exist, why doesn't it?)

It is said that the wholesaler and the online business are the real money-losing units in Chapters, but the stores also seem inefficient and sometimes shabby. When people start talking about Chapters as a retail experience, it emerges that just about everyone has come away with a horror story.

Mine involves the discovery that finding a book in the computer is no guarantee that it's on the shelf. A few months ago the computer at the Chapters on Bloor Street near Avenue Road in Toronto told me that Niall Ferguson's The Pity of War was in stock, and told me where to look. I went there and found a shelving unit crammed with hundreds of First World War titles, not alphabetized or sorted in any other way. But I badly needed the book and I went through all of them, "shelf reading" like a conscientious librarian.

Alas, no Pity of War was to be found. (In the end I borrowed it from the library.) There are many other flaws in the system: Chapters can move mass-interest children's books, but it hasn't performed as well as independent stores with the quality juveniles that have brought international success to Canadian publishers in recent years. These books, as the publishers say, need to be "hand sold," by people who understand them. That's not the Chapters style.

At the moment, that same Bloor Street store looks to a visitor like a business in decline. The magazines and newspapers, which until recently dominated the ground floor, have been moved upstairs, apparently because too many browsers took magazines into the attached Starbucks outlet and returned them to the racks in less than perfect shape. But when I was there on Thursday the store management still seemed to have no idea what to do with the space left free by that change. There was a collection of books on golf, a pile of barbecue books (All Fired Up!), a display of decorative paper bags, and rows of two-dollar beaded bookmarks. Otherwise, this prime space, right at the core of the country's main shopping district, looked like one of the more boring airport bookshops.

I went up an escalator and found the next floor more depressing still. I encountered table after table of low-priced books, which evoked those all-remainder shops that set up under short-term leases on down-market streets. Even for a congenital optimist, the smell of death in the air was hard to miss.

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