As Heather Reisman sweeps through the offices of Indigo! Books & Music Inc., she tidies. She closes closet doors left ajar. She straightens a pile of books here and rearranges a product display there. In the wake of her successful takeover bid for bookstore giant Chapters Inc., made jointly with her financier husband, Gerry Schwartz, Reisman has just resigned temporarily as CEO of Indigo, Chapters’ much smaller superstore rival. In an hour, she will leave the premises, and under Competition Bureau guidelines, will not be permitted to return until it rules on the $ 121-million deal. Lush bouquets of flowers from well-wishers sit on a cabinet in the entrance. Congratulatory e-mails and phone calls pour in from publishers and business associates from across the country—even one from the Prime Minister. Yet she still takes a moment to lean in and quietly say to a staffer seated at her desk—she says it nicely, mind you—“The place is a bit of a mess.”
Not really. The place, on Toronto’s funky King Street West, occupies two spacious floors of a converted warehouse. It is mostly open-concept workstations, interspersed with filing cabinets. The high, exposed ceilings and natural light give it an airy, fresh feel. Reisman’s office is in the far corner, but this ain’t the bank-tower exec version. It is modest in size, simple and tasteful in decor—and open: while a wall separates her from her assistant and the adjoining creative department, it doesn’t reach to the ceiling, and at each end, there are no doors, only broad entrances that leave her wide open to a poke-your-head-in style of doing business.
Reisman is a self-confessed “clean nut,” and as charming as she is, it seems she can’t let go, even though she’s about to leave and really isn’t in charge anymore. She’s just won an intense two-month takeover battle and is set to take on the role of chief executive of Chapters Inc.—and with that, the mantle of czarina of books in Canada. Still, everything must be just so.
For Reisman, it’s been a short, fast ride to the top shelf.
From a standing start four years ago with the launch of Indigo, Reisman today is arguably the most powerful figure in publishing in Canada. Limit the field to bookselling, and Reisman doesn’t like it, but her glamorous lifestyle is very public—the house, the parties, the cars, the art on the walls there’s no discussion—she’s it. With the Chapters takeover, Reisman and Schwartz are the controlling shareholders of a bookselling empire that includes 77 Chapters superstores and 231 Coles and SmithBooks stores. There’s Toronto’s quirky World’s Biggest Bookstore (which it might even be, by number of titles, according to general manager Tim Kieley); Pegasus Wholesale Inc., the struggling book wholesaler; and Chapters Online Inc., a separate publicly traded company that Reisman is attempting to pull back under the Chapters Inc. umbrella. Plus, of course, Indigo and its string of 15 superstores.
Reisman likes to cast the takeover of Chapters as a triumphant David-versus-Goliath story (“Indigo is a peanut,” she tells interviewers). But this was no small slingshot. The player buying up the Chapters shares is Trilogy Retail Enterprises LP, a new firm privately owned by Reisman and Schwartz (and named, says Reisman, for the sense that out of two companies will emerge a third, “better and stronger” entity). The pair are now indisputably Canada’s most formidable business couple. Schwartz, 59, the consummate deal-maker and takeover artist, is a powerhouse in corporate Canada, and his Onex Corp., which he has been running for two decades, specializes in picking up underperforming companies and transforming them into solid and steady profitmakers (page 46). Not content to play the charity-queen, wife-of role, Reisman is a hands-on operator who, with the backing of private investors, has built Indigo from scratch.
At 52, she has loads of energy; she is passionate about books; she’s focused, and determined to see her vision of a “cultural department store” materialize. The pair, married since 1982 (both for the second time), are closely linked to the Liberal party in Ontario and nationally. They are solid supporters of Finance Minister Paul Martin and his coming bid for the leadership of the federal Liberal party. They are friends of ex-PM John Turner, too, and will be throwing an engagement party for his son, David, who is to marry Deirdre Horgan, Indigo’s chief of marketing.
The couple are also among the country’s wealthiest citizens—they are estimated to be worth nearly $800 million. They own a home in Palm Beach, Fla., and property in Bel Air, Calif. They summer in a rented 100-year-old Nantucket house and they live in Toronto in an exquisitely appointed Rosedale home. Invitations from Reisman and Schwartz are among the most sought after in the city. They frequently host quasi-public functions at the house: book launches, fund-raisers for causes like world literacy, salon-style parties for visitors such as architect Frank Gehry or the Hollywood stars that Schwartz hangs with.
Reisman is unhappy her lifestyle is part of the public record—the ritzy glamour just generates animosity, she says. “I’m a private person,” she maintains. “Nobody has a right to know how I live my private life.” But many already do, and there has been no shortage of coverage of the swank parties, the cars (his red Porsche, her Indigo-blue Beetle), the elegant gold-leaf antiques, the art on the walls (from Auguste Renoir to A. Y. Jackson to Andy Warhol), not to mention details of the extensive Rosedale renovations— buying up and tearing down a neighbouring million dollar house to make way for an underground garage, a pool and a garden where 5,000 new tulip bulbs are planted each year.
From their book-lined study in that house, Reisman and Schwartz plotted their strategy to acquire control of Indigo’s rival. Last winter, Reisman spotted trouble at Chapters. She knew from Indigo’s own operations that online book sales were a money pit. Pegasus, the Chapters-owned wholesaler, was struggling. And in her opinion, Chapters had opened too many stores too close together. “I could see there were real vulnerabilities because they had grown so quickly,” says Reisman. Last spring, Reisman and Schwartz decided to approach Larry Stevenson, Chapters’ founding CEO, to make a friendly takeover offer. And even though Reisman was Stevenson’s competitor and the one who would run the company, the couple agreed that Schwartz should make the call. Stevenson wouldn’t be comfortable dealing with Reisman, she believed. “He’s a very macho kind of guy,” she says. “Why create an uncomfortable situation?”
Stevenson and Schwartz met three times in April and May of last year. Schwartz says he offered between $ 18 and $20 a share for 100 per cent of Chapters’ stock— which would turn out to be a better offer than the final deal, $17 for 70 per cent—but Stevenson held out for $25. Stevenson says the $25 was a bargaining position and Schwartz never gave him a final, firm offer. Says Schwartz of Stevenson: “He wasn’t willing to consider it unless I paid what he wanted.” There was no deal.
For Stevenson, the hostile bid, arriving on Nov. 28, was a surprise. Schwartz had made it clear earlier he wanted a friendly deal, Stevenson says. In Schwartz’s estimation, the battle for Canada’s bookselling business was not what he’d call a serious fight. “This was an easy one,” he says. “They made a tactical decision that gave us the deal.” It went like this. Stevenson and his allies responded to the hostile bid by accepting a white-knight offer from electronics retailer Future Shop Ltd. of Burnaby, B.C., and then locked up their 30 per cent with that bid. “As soon as they did that, it gave us the opportunity to bid for the remaining 70 per cent, and to be bidding for all of the stock in an all-cash deal,” Schwartz says. With the new Trilogy bid of $17, the Stevenson group had only two choices, says Schwartz. They could stay locked up in the Future Shop bid, and watch other investors sell, or they could get out of the lockup and tender to the Trilogy bid. “They put themselves into a box where each door out of the box led to Trilogy owning the company,” he says.
The hard part lies ahead. “It’s going to take longer than we thought for Heather to get Chapters cleaned up,” Schwartz warns. He readily admits that he was a critical force in the takeover—“I was totally involved because it’s my milieu. This is what I do. This is what I get paid for.” But he says it will be up to Reisman to make a go of managing the bookstores. “I’m happy to give some guidance from time to time,” he says, “but this is Heather’s show.”
And it’s showtime, all right. Reisman—gracious, elegant and confident—has landed in the spotlight at a time when the publishing industry is in shambles and the 6,000-employee company she now heads looks very rocky. Moreover, she has to face the skepticism of a business community that still sees her husband’s achievements as far outweighing hers. “This is a big business,” says David Peterson, former Liberal premier of Ontario, formerly a close friend, and most recently her opponent as chairman of the Chapters board. “It’s going to require a different set of skills than running a smaller company.” He adds pointedly: “You can’t go and dust off every bookshelf.” And how her style will play with her new team is also a question mark. Says a former Indigo colleague: “No question she is a perfectionist—we would do things over and over again until it was absolutely to her liking.” For a retailer, the colleague says, this is a positive attribute—“in retail, you’ve got to get it right, first”—but the style would ruffle some feathers. “She was very decisive. She’s a dynamo and her presence is felt wherever she goes,” the colleague says. “So you get other executives with egos and sometimes you get a clash of titans.”
Reisman did not set out to run a bookstore. A native of Montreal, she grew up in middle-class comfort as the daughter of a real-estate developer, Mark Reisman (and niece of economist Simon Reisman, who would serve as chief negotiator for the Canada-U.S. Free Trade Agreement). Her mother, Rose, owned a women’s clothing store. Heather studied psychology at McGill University and married another student; they had two children together, Andrea, now 31, and Anthony, now 29. She became a social worker, but after the marriage ended, she moved into the business world. Following stints at her brother Howard’s computer firm and a management consulting firm, she opened her own company, Paradigm Consulting Inc., which she operated for 17 years. In the much-told story, she met Schwartz through her work. He was scouting out a company in Montreal, and while he decided early on he wouldn’t buy the firm, he maintained a semblance of interest in order to check out Reisman.
Schwartz, then living in Winnipeg, and Reisman eventually both moved to Toronto and married. He had two children from his first marriage, Carey, now 35, and Jill, now 33. Reisman continued consulting, but in 1992, she was enticed by a client, Gerry Pencer, the maverick CEO of Cott Corp., to become president of the soft-drink bottling company. She was there for two years.
Pencer, who died in 1998, was notoriously difficult to work for. Reisman says she and Pencer agreed on strategy but clashed in their operating styles. She decided early on to leave. “It was after all his company,” she says. They agreed she’d make a well-planned departure in due time. But in the end, it turned out badly—as soon as Reisman left, Pencer made Dave Nichol president, leaving the impression that Nichol (who could not be reached for comment last week) had bumped Reisman out of her job. Now, years later, Reisman is still bitter about Pencer. “He left me out to dry. He didn’t talk to reporters; he didn’t do anything,” Reisman says. “I couldn’t believe that someone would do this. I had stayed on to help him with the transition and I was screwed, basically.”
Reisman, devastated by her Cott experience, spent months casting about for the next thing to do. “I had a couple of months where I was unbelievably disconnected from reality,” she says. She fielded calls from friends, many offering jobs or career advice. She read Faith Popcorn. She wrote down what she needed. She needed to be in charge. She needed to be in something she is passionate about and that, in turn, had to be something that could grow to real size. And she needed to be making some sort of contribution. She started a test kitchen, and launched a company called Now! Foods, that was to sell fresh, almost-prepared dishes.
Then, in late summer of 1995, she got the call to be the Canadian frontline investor for a big-box bookstore chain, to be run by the U.S. bookseller Borders Group Inc. The newcomer would have presented a powerful challenge to Chapters, which Stevenson had just launched. After a public outcry, including strong lobbying by Stevenson, Borders was turned down by the federal government. But Reisman was hooked. “I was 47. I just was nuts to do it. I was starting to develop this idea about a cultural smorgasbord centred around books,” she says. “It was everything I loved.”
Indigo was launched with high hopes and big bucks. An initial $25 million came from Reisman, Schwartz and other private investors, including, Reisman says, Working Ventures Canadian Fund Inc., a labour-sponsored investment fund; mutual fund giant Altamira Investment Services Inc.; and the Canadian Imperial Bank of Commerce. Another $10 million was raised a year later, mainly from the same group, followed by a further $35 million the next year. The stores are clean, airy, inviting—much like the Indigo office space. Each has a red signature wall by superstar designer Bruce Mau, a $10,000 mural with the names of well-known Canadians in relief overwritten with the line, “The world needs more Canada.” But Indigo today captures only about half of Reisman’s total vision for the company, which she describes as “the ultimate environment for book lovers.” Still to come, in addition to the gifts, gardening supplies and, of course, books, are fresh-cut flowers, and in two or three years, an educational program that will offer courses— both online and in the stores—on subjects such as feng shui or writing. “The notion of life-long learning is really going to take root as we move forward,” she predicts.
Indigo is not yet turning a profit, but Reisman says it will in the fiscal year beginning Feb. 1. On an operating basis, all but two stores are making money, she says. The battle between Indigo and Chapters hurt—Indigo would have been profitable a year earlier, she says, if Chapters had not been so aggressive. But Reisman doesn’t appear worried by Indigo’s financial state of affairs, which remains private information. “Our investors are very patient,” she says.
What does get under her skin is the carping about whether she’s up to the job. “What they may not remember is that I ran a billion dollar company, Cott,” she shoots back. “Will there be challenges? Absolutely. I’m hugely respectful of those challenges.”
She will have no shortage of those as she takes over where Stevenson left off. The onetime paratrooper launched the big-box concept in Canada by merging Coles and SmithBooks to form Chapters. The idea, Stevenson says, was to create an inviting, but low-key environment—a cross between the family room and the study—holding between 100,000 and 150,000 titles. (Before Chapters, the average bookstore in Canada carried up to 10,000 titles.) From 1996 to 1998, he opened 50 new, super-sized bookstores, each needing acres of books. While there was much gnashing of teeth over the demise of many independent booksellers, it was like manna from heaven for the publishing industry.
But the pace of new store openings slowed in 1999 and almost stopped in 2000, and publishers were slapped with a heavy dose of reality. Now, many complain they haven’t been paid by Chapters in months and that massive numbers of books are being sent back. Schwartz says Chapters has not paid publishers in the past 45 days. A normal rate of returned books is between 25 and 30 per cent of gross sales, but in 2000, many publishers were receiving close to 50 per cent back from Chapters, due mainly to the company overstocking its stores’ shelves and a slowdown at Pegasus. Conceived as a national book wholesaler, Pegasus bombed, partly because other bookstores refused to buy from it and partly because it was poorly managed. Publishers fear that 2001 will be just as bad as 2000, and that this could push some Canadian publishers under. Says Kim McArthur, chairwoman of the Book and Periodical Council and president of McArthur & Co. Publishers Ltd.: “In terms of returns, we all thought last year was a stand-alone horrifying year.”
Some publishers regard Reisman as a potential saviour. Even before locking up the Chapters deal, she made important promises to publishers by negotiating and signing a code of fair conduct—an agreement the Competition Bureau is studying closely and may adopt as part of an approval for the takeover. The code states that within three years, Indigo and Chapters will bring the level of returns down to 30 per cent of publishers’ gross sales, reduce payment terms to 90 days from 120 to 150 days and cut back on deep discounting.
The promises have gone a long way to bringing publishers onside. They respect Reisman’s business skills and are encouraged by her genuine interest in books and writers. When Sex and the City author Candace Bushnell was in Toronto, Reisman invited her to come for a coffee at an Indigo café, simply because she wanted to meet her. When former Guess Who and Bachman-Turner Overdrive star Randy Bachman’s autobiography, Takin Care of Business, was released, she threw the launch party at the Indigo store in downtown Toronto and had him play. “Heather has already proven she’s a superb retailer,” says McArthur. “For an industry that has been so battered as we have been in the last 18 months, the combination of her retailing ability and her declared plans have given us the first rays of hope we’ve had in a long time.”
Assuming the Competition Bureau approves the takeover, Reisman plans to merge Chapters and Indigo. Chapters, she says, will negotiate with Indigo’s special management committee on a price to acquire her old company. She’ll save on head-office spending, much of which she wants to put into training and better salaries for salespeople. But for now, she is taking a wait-and-see attitude on further decisions. Possibly the new corporation will operate the two chains as separate brands. Probably between 10 and 15 stores will be closed.
Reisman wants to know what Chapters customers like about the store and intends to conduct extensive focus groups to find out. One thing that’s 100 per cent sure—Reisman won’t drop the Indigo name. She says it came out of three ideas she wanted to get across: to inspire, inform and indulge. On top of that, Reisman and her people were listening to the jazz standard Mood Indigo as they discussed the name.
She doesn’t expect to do many things very differently in her vastly enlarged empire. “The growth from 1,000 people to 6,000 is actually much less onerous than the growth from zero to 1,000,” she says. She will still spend a lot of time in the stores, just less time in each of them; a decision on the month’s theme (such as “passion” for February and Valentine’s Day) can easily be extended from 15 stores to 92. And she’ll continue to be a hands-on CEO. “Do I have a point of view and do I get involved in all aspects of the business?” she asks. “I absolutely do. In order to make the overall experience special, you really do have to care about the little pieces.”
Last week, Reisman and Schwartz left on a long-planned, five-day Caribbean cruise. By phone off Antigua, she allowed that taking control of Chapters is “both exhilarating and a little bit daunting.” It will certainly be her biggest test.