McNally Blames Expansion for Woes

A few weeks ago I accused bookseller McNally Robinson of missing the plot twist following their entry into bankruptcy protection. What I said was (1) that they had expanded at the wrong time, in the wrong way and (2) that they didn’t have an effective strategy for competing with online book sales.

Well, last week McNally emerged from bankruptcy protection and Paul McNally made some public comment on what went wrong, as he saw it. The biggest single factor he cites was the failure of their Don Mills store to meet the sales targets for which they had hoped. He speculated that their strategy of community involvement maybe didn’t play as well in T-Dot, but it has also been noted that the Don Mills mall in which they were located has been a disappointment to many of its retail tenants.

It wasn’t a good time to open the Don Mills and Polo Park locations, but apparently the commitments to do so had been made before the economic downturn. The big soundbyte from Paul McNally: “It was clear from the opening sales at Don Mills that we had entered into a death spiral.” Polo Park sales were characterized as being positive, but were evidently not stellar enough to warrant keeping the location open.

According to Quill & Quire, Ernst & Young estimates that “approximately $3.2 million in debts to unsecured creditors — most of whom are publishers — will go unpaid.” Their emergence from bankruptcy protection leaves Paul and Holly McNally with the flagship Grant Park and the Saskatoon store remaining under their control, as well as their wholesale division. (The New York store was unaffected.)

I’d say again that it was expansion at the wrong time, in the wrong way. They said wrong time, wrong location. Whatever. The McNallys have a tough row to hoe ahead of them. With the value of the company that’s left essentially eroded, they’ll be facing a difficult time buying books on credit from the publishers who bore some pretty heavy losses. Still, I suggest they sharpen up their strategy for dealing with competition from online sales, because those aren’t going away anytime soon. Expansion wasn’t the only factor here.

I’ve wondered since my earlier post if the bricks-and-mortar book trade won’t favour second-hand sellers from this point on. As I’ve said, books are almost a quintessential online purchase. By my observation, people who love books and vow most vehemently not to give up turning physical paper pages when they want to read are the same group of people who seem to most appreciate used bookstores. Perhaps there’s something to the idea of a trend toward online book sales where the product is then cycled through a used bookstore for those who like to browse and take special enjoyment in the smell of dusty paper.