Workers at two more Indigo stores vote to unionize. Is a wave of unionization in retail upon us?

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It was the first bookstore Shruti Shekar, a Toronto-based tech journalist, visited after arriving in Canada from Singapore in 2007.

She found comfort in Indigo’s neatly stacked shelves, poring over the latest thrillers and delighting in scented candles and cosy socks. But since COVID-19 struck, Shekar now does most of her shopping on Indigo’s app.

“It doesn’t feel like you’re missing out on much,” she said, adding that the physical esthetic of Indigo’s stores has “nicely translated” to its app.

She’s not the only Indigo regular who has embraced online shopping even as rules ease.

When the pandemic hit, like many other retailers, the troubled book and lifestyle chain was forced to shutter its bricks-and-mortar stores, lay off hundred of employees and brace for the worst. For the first time in its history, it would have to rely on online sales for 100 per cent of its revenue.

But while other retailers suffered, and some, such as J. Crew and Brooks Brothers filed for bankruptcy, something miraculous happened at Indigo: Its online sales soared — more than doubling during the pandemic, to $370 million.

In fact, during the fiscal year spanning the depths of the pandemic shutdown, from April 2020 to April 2021, total sales only dipped by 7 per cent — even with many of its stores shut down for months.

“(The) acceleration has been extreme, and has been positive for us in terms of our future strategy,” said Indigo’s president, Peter Ruis.

Indigo is still losing money and its future is uncertain. In the decade leading up to the pandemic, the retailer had been struggling to maintain profitability, its stock price on a roller-coaster ride, rising from $14 more than a decade ago to $20 in early 2018, then falling below $4 before the pandemic hit.

Could the surprising surge in its online sales show the way forward? It may turn out that the pandemic shutdowns, which devastated so many businesses around the world, just might hold the key to saving Indigo.

The beast in the room

Indigo has historically been a big fish in a turbulent pond.

After the growth of big book retailers in the ’90s and early 2000s, the market became more volatile, said retail analyst Lisa Hutcheson, a managing partner at consulting firm J.C. Williams Group.

E-readers entered the market, and online shopping grew. Once a behemoth accused of eating up smaller, independent bookstores in decades past, Indigo was now being threatened by an even bigger beast: Amazon.

Indigo started focusing on being a “lifestyle” store, Hutcheson said, recognizing that cross-merchandising would be important to its survival.

Over the years, Indigo expanded its wares into mugs, pillows, candles and other crowd-pleasers, the kinds of gifts you get at the last minute for someone you don’t know very well.

Retail analyst and author Bruce Winder doesn’t think the company’s struggles were self-caused. Looking at the overall market, he said, books were one of the first commodities to move online.

“Amazon had a 25-year head start,” he said.

Indigo seemed a bit lost in a tough industry, but not for lack of trying, said Winder. It was making intelligent moves that just weren’t translating into profitability.

Ruis, who joined Indigo in early 2021 after a stint as managing director at clothing retailer Anthropologie, said the company has historically focused on its physical stores, with digital sales being a sort of “extension” to the business. The pandemic changed all this.

The company had hoped to return to profitability in fiscal year 2021, but the pandemic crushed those plans.

But while Indigo lost money again this past year — it wasn’t as much as one might expect.

In fiscal year 2021, which ended April 3, 2021, Indigo’s in-person retail revenue was down more than $250 million compared to the previous year.

Yet online revenue closed the gaping hole, jumping more than $200 million — 127 per cent — to $370 million. In total, Indigo’s revenue fell only $53 million compared to the previous year, just seven per cent.

Ruis says this shows Indigo’s customers remained loyal during COVID-19.

He’s not wrong. Long-time Indigo shoppers like Shekar say they turned to the retailer’s website or app, not Amazon, for their pandemic reading.

Pre-pandemic, Candice Makhan used to stop by the Eaton Centre location on her way home from work, buying books, housewares and gifts.

But she hasn’t set foot in an Indigo store since the pandemic began, and yet has remained loyal — she shopped online for books, and would send gifts to her mother-in-law.

The shift to online shopping was also an opportunity for Indigo to review its physical footprint.

It permanently closed 20 of its stores during the 2021 fiscal year, bringing its total to 177. Two years prior, it had 204; most closures have impacted its small-format stores, which now represent half its locations. Since the year-end report, another small-format store has closed.

And with stores closed for months on end, the company’s sales and operations expenses went down. Indigo’s loss before income taxes for the year was $56.9 million — far less than the $100.3 million in fiscal year 2020, and just a little more than the $49.6 million loss in 2019.

Not bad for a company that was struggling to reach profitability pre-pandemic.

Now Indigo has an opportunity, said Hutcheson. In the short term, it can take advantage of the pent-up demand for in-person shopping. But in the longer term, it will need to increase cross-selling and offer more things like events and pop-up shops to make the in-person experience complementary to that of online, she said.

Indigo’s digital growth during COVID-19 is not unique, said Doug Stephens, founder of consulting firm Retail Prophet — the digital shift forced companies in many sectors to confront their weaknesses and speed up their transformations.

But that doesn’t mean it will be smooth sailing for Indigo, Stephens said. He believes the company needs to make better use of its physical space to promote its online wares.

“(The store) really ought to be used more as almost a media channel, to connect consumers to their ecosystem, to draw them in, to get them excited about reading and buying books,” said Stephens.

“I think there’s a tremendous amount more that they could be doing in store to create that kind of excitement.”

Winder thinks Indigo will soon face a difficult decision as it realizes many customers who moved online during the pandemic will stay online.

“That leaves them with a number of stores with high overheads,” he said. “I would suggest that there’s going to be a drop in square footage.”

But despite the company’s burgeoning digital business, Ruis sees the physical stores as an integral part of the company’s future. Customers can pick up online orders in-store, he said, and he plans to soon be able to ship directly from stores as well.

Ruis said he does not foresee a dramatic change in Indigo’s brick-and-mortar footprint.

“We believe in the omnichannel opportunity of a significant physical store portfolio,” he said in an email.

However, he doesn’t believe in the concept of stores being “showrooms.” Instead, Ruis sees online shopping as a more targeted experience, he said, while in-person shopping is more about browsing and discovery. Ruis does plan on hosting more events in-store, however, such as readings or master classes: “We think that’s hugely important.”

The company has made other investments in its digital side; just this week, Indigo announced it would start hosting third-party sellers on its site through a platform called Convictional.

“It’s part of our goal to have a much bigger, broader assortment as we move forward,” said Ruis.

Then there’s the question of general merchandise. For a long time, Indigo’s expansive list of merchandise beyond just books has helped it survive, said Stephens.

But now, he thinks the stores should be the way the company sets itself apart from other booksellers: a gateway to “the ultimate book-buying experience,” something Amazon can never be.

“There’s no amount of throw pillows … that are gonna make up for the loss in your core product category,” he said.

However, Ruis said that during the pandemic, the share of general merchandise in Indigo’s total sales only grew, and believes that this merchandise can actually draw in new book-buying customers, and vice versa.

Indigo has “always been more than a bookstore,” he said.

Ruis is hesitant to put a new date on the company’s return to profitability. But he does believe that once the effects of COVID-19 are behind it, Indigo has a fighting chance at meeting that goal.

“There’s real confidence that given a 12-month strong run, this business will return to profitability,” he said, adding, “I don’t want to tempt fate.”

With digital sales now almost half of Indigo’s revenue, if it plays its cards right, analysts say this could kick-start the retailer’s next chapter.

Indigo’s latest first-quarter results show a rebound in in-person retail sales, which more than doubled compared to the same quarter last year, while e-commerce dipped slightly but was still more than double pre-pandemic levels.

And when compared to the first quarter of the pre-pandemic fiscal year 2020, which began in early 2019, it’s clear that Indigo’s revenue streams have changed dramatically.

The company’s revenue this past quarter is just 10 per cent lower than that pre-pandemic first quarter, and almost half of its revenue is in digital sales; in that pre-pandemic first quarter, digital sales were just 15 per cent of total revenue.

The real question is what Indigo’s mix between retail and e-commerce will be post-pandemic, said Winder. He believes that if it focuses too much on e-commerce, it will be in even more direct competition with Amazon.

But paring back the stores, making them more experiential and further integrating them with e-commerce could go a long way.

“If they can do that, I think they have a shot at survival,” he said.

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