Blogger: Janet Kobobel Grant
Last week the Family Christian Store (FCS) chain announced it was filing for Chapter 11 bankruptcy protection. In the press release, the chain stated that no stores would close and no employees (they have approximately 4,000) would lose their jobs. (You can read the press release here.)
To put this declaration in perspective, Christianity Today noted that “with 266 stores in 36 states, FCS is the nation’s largest chain of Christian stores as measured by locations, not sales. (For comparison, LifeWay Christian Resources has 185 stores in 29 states.) In 2014, FCS generated $216 million in gross revenues, notes Randall G. Reese at Chapter 11 Cases.”
If that cheery bit of news about no stores being shuttered and all employees remaining in place makes you wonder what’s so awful about bankruptcy, join me on a stroll down a virtual FCS’s aisle for a closer look at what affect such a decision has on the industry. (By the way, I don’t claim to be an attorney nor an accountant, and I’ve never experienced bankruptcy myself so others who have greater expertise should feel free to use the comments section to chime in.)
In a video produced for customers, CEO Chuck Bengochea states, “Our customers will not see any change in operations during this process. After the court approves the sale, we can begin to reinvest in our stores and bring our customers products and services that will help us better fulfill our mission—to glorify God by helping people find, grow, share and celebrate their faith in Christ.”
Filing for Chapter 11 results in FCS wiping out its debt and starting over. According to Publishers Weekly, “Publishers are on the hook for millions of dollars led by HarperCollins Christian Publishing which is owed $7.5 million. Other publishers owed large sums include Tyndale House ($1.7 million), B&H Publishing Group ($516,414), Faithwords ($537,374), and Barbour Publishing ($572,002). Ingram’s Spring Arbor distribution arm is owed $689,533.”
Now, if you were running a publishing house and found FCS not planning to pay you what you’re owed, what would you do? The publishers will, of course, ask the courts for the money, but if FCS had the money, it wouldn’t be declaring Chapter 11. So a likely response from the publishers will be to be even less risk averse in what they publish–and in how much they are willing to pay when negotiating new author contracts. We all would respond the same way if we had performed a service for someone and then discovered the payment would not be coming; we would tighten our purse strings.
Another likely affect is that FCS will return substantial amounts of product to the publishers. That will result in fewer sales for authors and less royalties.
The good news is this isn’t like Borders’ situation in which the stores sold everything at slashed prices, including the shelves, and left many communities with no bookstore.
Here is the two-month plan that FCS has outlined:
“Through a newly formed subsidiary, Family Christian Ministries will serve as the lead bidder for the Section 363 sale process, putting forward a plan that acquires the streamlined organization’s assets and maintains operation of the chain’s 267 stores in 36 states, as well as its e-commerce site www.familychristian.com. Family Christian Stores is asking the court for a schedule to complete the sale process in about 60 days.
“After the judge approves the sale, we’ll be immediately cash-flow positive and profitable. This process is similar to the one taken by the automobile and airline industries in recent years. We see this as the start of a fresh new day for Family Christian Stores and look forward to delighting our customers for many years to come.
“Among our next steps are to make various capital improvements to our stores, as well as invest in an expanded product line and implement a new retail strategy that will enable us to better serve our customers.”
Of course, once you enter into Chapter 11, the court has to approve your plans before you can act on them. And the court has started to ask FCS a lot of questions.
In Publishers Lunch 2/20/15 issue included this report: “There was no hiding the suspicious reorganization strategy being pursued by Family Christian Stores in a bankruptcy court hearing earlier this week. Family Christian Ministries has proposed selling the stores from one FCM subsidiary to another, new subsidiary. No other changes are proposed across the 266 stores and roughly 4,000 employees; the sole point of the reorganization is to clean out their creditors and start all over again….
“The filing included a proposed stalking horse bid of $73.8 million for an auction in April. That bid only comprises $28 million in cash–along with the assumption of almost $44 million in leases, and operating liabilities (gift cards, employee obligations, etc.) of $2 million. That’s not enough money to cover the secured lenders–a $34 million term loan owed to Credit Suisse, and about $23 million in revolving debt. So it would leave the roughly $40 million owed to trade suppliers and vendors as a complete writeoff.”
In the meantime, I’m unclear about what happens with current inventory in the stores. It seems as though FCB plans to take a fresh approach as to what product it will carry (fewer books? more books?). Nor do we know how publishers will respond to FCS’s orders once it revamps its stores’ image. Would you be eager to do business with FCB? How would you decide just how much credit to extend to a chain that survived by not paying what it owed you?
I realize this isn’t the cheeriest of subjects for us to ponder, but as participants in the publishing industry, it’s important for us to consider what happens to the industry when a bookstore declares Chapter 11.
Do you have a Family Christian Store in your community? What affect would its demise have on you? Was your community affected by Borders’ closing?
What affect does a bookstore declaring bankruptcy have on the publishing industry? Click to tweet.
Why writers should care when a bookstore files for bankruptcy. Click to tweet.
Photo by Stuart Miles, from FreeDigitalPhotos.net.