New Star Blogs

My Careen as a Bookseller (10) :: Engineering a death spiral

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In 2009, I decid­ed to speak out against the rec­om­men­da­tion of that year’s board of direc­tors of the People’s Co-oper­a­tive Book­store Asso­ci­a­tion to close the store down, at a time when it still had around $150,000 cash in its reserve fund.

Any­body who has ever want­ed to start his or her own small busi­ness — cer­tain­ly any­body who’s ever want­ed to start a book­store — will see what was wrong with the pic­ture that the bookstore’s board was try­ing to present to the co-op mem­bers. A per­son will some­times give up their career as teacher or what­ev­er, and re-mort­gage the house they’ve just spent twen­ty-five years pay­ing off, so that they can ful­fil a life­long dream of run­ning their own busi­ness, with $100,000 or $150,000 in the bank to work with. Here, we had a well-estab­lished book­store, unen­cum­bered by sig­nif­i­cant debt, with that much cool­ing in its reserve fund; and it was clos­ing?

A lit­tle time spent look­ing at the store’s finan­cial state­ments revealed some bad signs. The board’s response to a decline in sales was to attack the largest expen­di­ture item in the bud­get — it direct­ed Ray, the man­ag­er, to order few­er books. But this result­ed in the store’s actu­al­ly buy­ing few­er than the min­i­mum num­ber of books it need­ed to keep its doors open. The store’s board was not mere­ly lack­ing entre­pre­neur­ial spir­it: it didn’t under­stand lit­er­al­ly the first thing about run­ning a book­store, which is that can’t sell what you haven’t bought.

It’s true that the People’s Co-op had been oper­at­ing at a loss for years. Con­sis­tent oper­at­ing loss­es, of $10,000 to $30,000 every year, were draw­ing this down the store’s mas­sive reserve fund at an alarm­ing rate — it was sur­pris­ing how quick­ly a third of a mil could turn into a quar­ter of a mil, and no time at all before it seemed inevitable that the store had just a cou­ple of years left in the fund, and on the clock. It was as if it was a nor­mal thing for a small shop on Com­mer­cial Dri­ve to lose so much mon­ey, and have a reserve fund to make it good year after year.

The nar­ra­tive con­struct­ed around the store’s long, slow decline was the 140-char­ac­ter one that every­body is famil­iar with by now. What with Ama­zon, e-books, and The Chains, books were over, peo­ple were stu­pid­er than ever, fail­ure of whichev­er inde­pen­dent book­store was immi­nent / inevitable, it was all hope­less, blah blah blah. As a mem­ber of the trade, I under­stood that what­ev­er ker­nels of real­i­ty this account con­tained, it left out too much. Here’s what was wrong with the pic­ture that the bookstore’s board was try­ing to pass off to the mem­ber­ship.

Sales had been declin­ing in recent years, that seemed true enough. But sales at the People’s Co-op were mod­est, minus­cule real­ly com­pared to the sales of some oth­er Van­cou­ver retail stores where I knew the fig­ures. They were about a quar­ter of what Duthie Books on West 4th, which closed in 2010 (an order­ly clos­ing; the store had not failed), was post­ing. They were a sim­i­lar frac­tion of what Granville Book Company’s sales had been before it had closed five years pre­vi­ous­ly. Com­mer­cial Dri­ve wasn’t West 4th, and it wasn’t Granville Mall; but it wasn’t Tobac­co Road either, and there was no rea­son from its loca­tion that it could not sell a lot more books. It seemed to many of us that it was lim­it­ing itself by strik­ing a pose as a shop of a par­tic­u­lar, nar­row polit­i­cal stripe. It would have to recon­cep­tu­al­ize itself as a neigh­bour­hood book­store, and offer to serve a broad­er com­mu­ni­ty of left­ists, envi­ron­men­tal­ist, social activists, &c. (There had been, over the decades, much talk about this move, though not much was ever done.) There did not seem to be any rea­son to accept the store’s mod­est sales as an unchange­able giv­en.

Rent — the biggest buga­boo for a book­store, or any retail affair for that mat­ter — took up a lit­tle more than 10 per­cent of the store’s turnover. That was a lit­tle more than what you want to pay; but if the store was doing the busi­ness it could and should be doing, it was a pret­ty rea­son­able amount; rent wasn’t the prob­lem. I was pret­ty cer­tain that the store’s decline was due to the fact that its shelves were being starved of stock; and we had ample means to address that prob­lem.

A book­store like the People’s Co-op takes in almost all its mon­ey from the sale of books. But it spends its mon­ey in two dif­fer­ent areas. Of course, it has to buy books. But it also has to pay cer­tain costs regard­less of whether it sells one book, or a mil­lion books in a year: staff salaries; rent; light; heat; the com­put­er sys­tem it relies on to track inven­to­ry; etc.: all of these togeth­er con­sti­tute oper­at­ing over­head, “the nut”. In 2009, the store’s “nut” was around $12,000 to $15,000 a month.

The ques­tion a busi­ness like the People’s Co-op Book­store has to ask itself is this one. Giv­en that the store’s over­heads costs are $150,000 a year, say, how many books does the store need to sell to cov­er its costs? Well, a typ­i­cal dis­count on books the store pur­chas­es from its sup­pli­ers is 40 per­cent; when the store buys a book, it pays the sup­pli­er 60 cents on the dol­lar, and when the book is sold, the the store gets the oth­er 40 cents to apply to its own expens­es. The for­mu­la would be 10/4 x $150,000 — the store’s sales would need to be about $375,000, at those lev­els of over­head.

Now, it would seem obvi­ous that in order to sell $375,000 worth of books at retail, you’d have to buy them first: about $225,000 worth. And that’s where the store was cut­ting its own throat. By 2009, the store’s pur­chas­es had fall­en to around $180,000 a year,  and were declin­ing steadi­ly, by about $10,000 per year. The store had put itself into a down­ward spi­ral, guar­an­tee­ing oper­at­ing loss­es that could only rise as the extent of under-pur­chas­ing grew. Yet it had the means to rec­ti­fy the sit­u­a­tion sit­ting in its reserve fund.

In prepa­ra­tion for this upcom­ing AGM, which would sure­ly be a fate­ful one for the co-op, I read the Co-oper­a­tive Asso­ci­a­tion Act, the provin­cial statute that gov­erns co-ops in the province, and learned a cou­ple of use­ful things. For one thing, in the event that a co-op had assets at the time it decides to wind itself up, the pro­pos­al to spend the store’s last $90,000 on a buy-out for its employ­ees had to be put to the mem­bers. And there was no such motion going to the AGM — no word at all about the dis­pos­al of the $100,000 or so that would be remain­ing in the store’s reserve fund. Just a sim­ple motion: to close the store for­ev­er on March 31, 2010: the year of the Co-op’s 65th anniver­sary, which it had no plans to cel­e­brate.

I was far from the only per­son won­der­ing about some of these ques­tions, and the 2009 AGM of the People’s Co-op Book­store was the best-attend­ed in many, many years.

Con­tin­ue read­ing My Careen as a Book­seller (11) :: The First Step in a Long, Long March

Start from the begin­ning: My Careen as a Book­sellers (1) :: Before It All Began