In 2014, Indigo was struggling to stay afloat in an industry that was rapidly changing. Revenues had decreased by 4.4% from the previous year with the second quarter of fiscal 2014 experiencing a net loss of $10.1 million compared with the loss in the previous year of $4 million. The downward slide in profitability could be primarily attributed to an industry-wide trend of decreasing book sales, combined with the firm-specific reality of higher administrative and operating expenses. Change throughout the industry was afoot, and Indigo needed to figure out quickly how to adapt.

In-store book sales had been rapidly decreasing. The great e-commerce hope was not yet materializing, as online sales experienced only a marginal offsetting increase of 0.7 percent. The historical pseudo-monopoly that Indigo had previously enjoyed was now lost to increased competition from the online giant Amazon. The time had come for Indigo to re-evaluate the industry in which it operates to determine how to do more than simply stay afloat.

Brothers Carl and Jack Cole opened the first Cole Stores in Toronto in 1940. Decades later, in 1995, SmithBooks and Coles merged to form Chapters, which then became the largest competitor of Indigo Books & Music, a cultural department store for booklovers, aiming to provide an inspiring and welcoming environment for its customers.

In 2001, Indigo acquired Chapters, controlling 70.5 percent of the company. As a result, Indigo Books & Music became the largest book retailer in Canada, progressively pushing many small retailers out of business and becoming something akin to a monopoly in literary retail in Canada. In the same year, the online website chapters.indigo.ca was created. However, the entry of Amazon and e-readers helped destroy the monopolistic power of Indigo, effectively bringing other alternatives to the Canadian book market.

Many bookstores were permanently shutting their doors as a result of decreasing sales attributed to a consumer base that was rapidly switching to the lower cost, more convenient alternatives of e-books. This phenomenon is not without precedent. It presents significant parallels to the 1990s crisis within the newspaper industry and similar upheaval during the early 2000s within the music industry. It seems that into the 2010s, brick-and-mortar book retailers and the entire publishing industry are both facing existential crises and are under the serious threat of becoming totally obsolete. Book retailers are seeing the beginning of the end as bookstores are closing while e-book sales are rising. In the United States, e-books doubled in popularity in 2011, and their sales surpassed hardcover adult fiction for the first time in history.

During the early waves of the changing industry, Indigo was able to capitalize on the digital era with the introduction of Kobo, Indigo’s own e-reader. In 2011, however, Kobo was sold for $315 million to the Japanese e-commerce company Rakuten. This was seen as an opportunity for Kobo to expand further globally as well as provide cash for Indigo’s transformation.

The bookseller is attempting to boost its profitability by offering more high-margin products, such as toys and lifestyle items. The adaptation process continues as the company introduces more “stuff” to its lifestyle section. Indigo’s main growth categories are paper, toys, and gift products, such as home and fashion accessories. By September 28, 2013, Indigo had launched its first 12 IndigoTech shops. Indigo will be opening more shops in the third quarter and into 2014. These stores are within the larger bookstores and will be selling Kobo and Apple products, as well as other electronic accessories. Although Indigo is delving into more diverse product categories, it still maintains that the core of the business remains around books and attempts to relate everything back to the love of reading and life surrounding a book reader. These shifts have resulted in books accounting for 78 percent of sales, as opposed to the 88 percent five years earlier.

Although Indigo has been making organizational changes to adapt to the changing industry, it is uncertain whether they will be enough to ensure its future success. Continuous re-evaluation of the Canadian publishing industry and the changing competitive landscape are needed for Indigo to fully understand the new industry environment.

requirement:

 Indigo Case How can the 7’s model help Indigo drive operations synergies and thus strategically leverage its resources to create superior value for its customers? (5 marks) Is it true that the “soft stuff” (soft square elements) is the “hard stuff” to execute in business? Why or why not? Defend your position. (5 marks)

Answer rating: 100% (QA)

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