Canada’s “cultural department store” struggles above the rules

With the word “culture” in play and a charismatic CEO in the front window, it’s almost impossible to think critically in Canada. In a Globe and Mail feature story on Indigo Books and the fragile health of the book retail industry, Marina Strauss overlooked the big story in her own multi-color graphics.

As footnoted by Strauss, IBIS World, RBC Capital Markets, Turner-Riggs found that Indigo Books captured 48% of the entire Canadian retail book market in 2010. The independents got to fight over just 20%. In other words, in great swaths of Canada’s reading and writing markets, Indigo has decisive control. Yet, Strauss found her drama elsewhere:

“Indigo, by virtue of its dominant market share in Canada – it has about half the book retailing business – remains healthier than its U.S. counterparts. But sales growth is sluggish and its 62-year-old founder is worried. Like Mr. Schultz, she is setting in motion a new plan.

“Her road map for the country’s largest book seller takes a detour from physical books. Indigo, like many book retailers worldwide, has a toehold in the digital books business, with a majority stake in Kobo. But in the stores, Ms. Reisman, who had a head start in envisaging Indigo as a “cultural department store,” is betting more than ever on other categories. Indigo is stepping up its offerings of tableware, toys and tote bags – even putting comfy chairs back in the stores, in the hope of stemming the tide of consumers abandoning the retailer for Web-based alternatives.”

Click on: http://www.theglobeandmail.com/globe-investor/indigos-heather-reisman-faces-digital-reckoning/article1977785/

Locating the digital threat to the book industry in the tics and machinations of one CEO and her firm makes for safe and entertaining reading. But, it misses at least half the story. Indigo not only enjoys a dominant position in the market. By any reasonable definition, it holds more than sufficient market power potentially to cause harm—to the vitality of Canadian book publishing, to reader choice, to new writers and, as well, to the traditional book’s chance to compete with e-books in the future.

Economists and analysts, whether fans of free markets of public ownership, agree that a firm needn’t own 100% of a market to have the potential power to wield abusive market power. The Competition Bureau of Canada and the Government of Ontario, for instance, felt that in order to ensure healthy competition in the electricity sector no one generating firm should hold more than 25% to 35% of the market. Where there are numerous healthy competitors, regulators can stand back without fear that suppliers or customers will be systematically abused.

The nicest people, in the cleanest businesses, can do harm. Indigo’s power is exercised in many ways, whether its heart is in the right place or not. A publisher can’t sell books profitably across the country if Indigo’s sales department decides that their books won’t sell—or thinks the publisher’s representative is a jerk. In dollars and cents, Indigo can cut a publisher’s profit margin to peanuts because there’s nowhere else like it to go. Certainly, anyone intending to make livelihood writing books should calculate first whether their talent and voice will align with Indigo’s.  

Indigo’s power needn’t necessarily be taken away by fiat. But its dominance should no longer be simply noted without comment. It may not be in culture’s best interest.