"We believe books are here for the long term," chief executive Heather Reisman said following Indigo's annual general meeting Thursday. "Yes, people will read digitally but a lot of people are reading both. We are huge believers in books ... that is at the core, at the very essence of our business."
Reisman said Indigo (TSX:IDG) may be the "only people on the planet" who are still investing in bookshelves, which have gone through a recent redesign so they can hold more titles, but take up less space on the floor.
She said one of the reasons behind the company's decision to stock more books in stores is that the appetite for digital books may be waning.
"We can only go by what the curve says and the curve right now has completely flattened out," said Reisman. "That's not to say that over the course of 10 years, we're not going to see an increase. But for the moment, books seem to be behaving in a contrarian way to other digital media."
Unlike music, newspapers and magazines, which have lost a huge proportion of market share to digital options over the past few years, she said physical books still have mass appeal.
"Books seem to be behaving in a different way. I think they play a different role in our lives," said Reisman. "There is something about the physicality of books."
But even though Indigo is continuing to bet heavily on books, the company is still readying itself to grow into more than just a bookseller. It hopes to complete its five-year transformation to become the "world's first cultural department store" by 2015.
Some of these changes have already taken hold, as the stores continue to expand their gift sections with candles, soaps and jewelry, and educational toys. The company has also opened Apple kiosks that sell iPads and Apple TV, and American Girl doll boutiques, in hopes of drawing in more customers.
It also wants to become a destination for more public speaking engagements and author visits. Last week, former U.S. secretary of state Hillary Rodham Clinton signed copies of her new book at Indigo. In the past year, the store locations have also welcomed Hollywood star Arnold Schwarzenegger, singer songwriter Paul Anka and tattoo artist and television personality Kat Von D.
Indigo first began making changes to its business model in 2010 as the popularity of ebooks and e-readers, like Amazon's Kindle and its own Kobo, grew. Indigo sold its remaining share in Kobo Inc. in 2012 to Japan's Rakuten Inc. in a deal worth US$315 million.
Since then, the bookseller has been struggling with sales amid intense competition from mass merchants, such as Walmart and Target, and online giants like Amazon.
Expanding into different categories has been a smart move for Indigo, which needs to keep up sales to justify the large square footage of its stores, said Maureen Atkinson, senior partner at retail consulting firm J.C. Williams Group.
"They've got to do something. You can't sit back and say it's going to be business as usual," she said.
Atkinson said the company's push to bring the American Girl dolls to Canada seems to be paying off.
"The American Girl dolls is built around a stronger women model. From that point of view, it fits very well with who their customers really are," she said. "It gives their customers more reasons to be in the store if they're buying these kinds of things. It's complementary and could potentially help them with the main part of their business."
Last month, Indigo reported a $14.4-million net loss in the fourth quarter as the company cited lower margins along with costs for severance and store closures and continuing investments in its transformational strategy. That compared with a net loss of $8.2 million, or 32 cents per diluted share, for the same period a year earlier. Revenues for the quarter came in at $184.3 million, up from $184 million year-over-year. Indigo reports its first-quarter earnings on Aug. 5.
Since January, it has closed two major Toronto bookstore locations at Chapters Festival Hall and the World's Biggest Bookstore near the Toronto Eaton Centre. The company, which is Canada's largest book, gift and specialty toy retail chain, operates about 95 superstores under the banner Chapters and Indigo, and 131 small format stores under Coles, Indigospirit, SmithBooks and The Book Company.
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