Indigo Books and Music, Canada’s largest book retailer, recently reported its highest quarterly profit in three years, as third-quarter profits jumped 60%. The retailer also posted its second consecutive quarter of double-digit same-store sales growth. CEO Heather Reisman credits the growth to a strategic shift toward general merchandise four years in the making. Starting in 2012, with its traditional category in peril, Indigo enlisted the help of Kurt Salmon and began the journey of re-envisioning itself as a cultural marketplace, offering everything from toys to technology and dish sets to gifts, while still keeping its core identity as a bookseller. To learn more about this successful transformation and what it took to pull it off, read the full case study below.
Case Study: Indigo Books and Music, Inc.
What do you do when you have built a successful retail business as a category specialist, only to find that the category itself is under threat?
That was the challenge that Indigo, Canada’s largest book retailer, found itself facing. The response it chose demanded a change in its business model and a tightly coupled approach to strategy and operations.
From its launch in 1996, Indigo has grown to 247 stores plus an online channel at indigo.ca. Headquartered in Toronto, Ontario, the company now employs over 6,500 people across Canada.
The store portfolio includes about 100 large-format superstores averaging 24,000 square feet and operating under the banners Chapters, Indigo and the World’s Biggest Bookstore. The small-format stores operate under the banners Coles, Indigo, Indigospirit, SmithBooks and The Book Company. The smaller stores are typically located in retail shopping centers, street-front retail areas, major airports and central business districts.
Although Indigo had successfully built a market-leading position in the bookstore category, it was increasingly clear that the category itself was undergoing severe disruption from the growing popularity of e-books and the global decline in book sales. Indigo needed a new strategy to fuel its ambitious growth plans.
In 2012 Indigo’s leadership team, led by CEO Heather Reisman, began to reconceive the business as a cultural department store, offering books and e-reading, specialty toys, gifts, and “lifestyle-enhancing products that affordably offer intrinsic quality, beauty and timeless design.” Books would remain at the core of Indigo’s business, but the company’s mission became “to provide our customers with the most inspiring retail and digital environments in the world for books and life-enriching products and experiences.”
The new strategy would have significant implications for the company’s business model and key business processes. As Reisman said, “We are fundamentally rethinking our business from books-only to general merchandizing, so it’s a moment of complete redesign of the business.”
Tod Morehead (executive vice president and group general merchandise manager) and Mike Mortson (executive vice president, supply chain) joined the team in 2012 to help lead the transformation. Here’s how Mortson described the challenge: “Indigo was historically a book retailer, so all of the systems and processes had been created to support that. The book business is liability free, in that you can return what you don’t sell to the publisher.”
Not so in general merchandizing, as Morehead pointed out: “Everything was bought like a book, but general merchandizing has seasonal rhythms and a variety of categories.”
The business had built its merchandizing, planning and inventory management processes on a category management model. The change to a seasonal merchandise planning model would have to include:
- Shifting to a buyer/planner organization model
- Shifting inventory management responsibility to Planning
- Adopting a cross-functional pre-season calendar
- Integrating online and retail planning and execution
Late in 2012 Indigo decided it needed outside help and began interviewing consultants. They chose Kurt Salmon because, as CEO Heather Reisman put it, “Kurt Salmon had by far the best combination of conceptual and technical knowledge of any firm we looked at.”
EVP Mike Mortson said, “Before we selected Kurt Salmon, we had them up here to present to us and so that we could get to know them. We were sizing them up for cultural fit. Their people were outstanding. They demonstrated a great ability to listen, they were empathic and non-judging, and they spent the time to get to know each person.”
The Kurt Salmon team began its work with Indigo in January 2013.
Objectives and Concerns
The project objectives were to design future-state processes and define roles and responsibilities to support Indigo’s transformation into a cultural department store.
Kurt Salmon’s deliverables included:
- Capabilities assessment and gaps analysis
- Detailed process designs
- Roles and responsibilities definition
- Supporting tool requirements
- Templates and job aids
- Implementation plans, including change management, communication and training plans
But there were other considerations too. For one thing, the project had to integrate with other initiatives underway within Indigo. “They were already far along with putting in an integrated planning system, so we had to ensure there was nothing there that would not support the process we were designing,” says Joanne Neidorf, senior manager on the Kurt Salmon consulting team. Indigo had also already begun to redesign its book promotion process, so the consulting team had to ensure that general merchandising promotions integrated with books.
Then there was a set of concerns around the organization’s readiness, the process for managing the change (bringing people along, providing the necessary training and support, and helping people make the often scary journey from one way of working to another), and the consultants’ ability to fit with the unique culture of the organization.
“We wanted to have highly productive processes that enable us to plan, purchase, allocate, replenish and mark down in an effective and efficient way,” said CEO Reisman. “But we also wanted to ensure that the quality of work life for our people would be enriched.”
Manual workarounds and inefficiencies were already causing frustration and meant that staff spent more time on execution and less on thinking about strategic improvements to the business. The good news was that as a consequence, Indigo’s people were eager for change.
That was the context for Kurt Salmon’s work.
The Battle Plan
The Kurt Salmon team proposed a two-phase plan spread over 15 weeks:
- Current Assessment and Strategy Definition: to produce a common understanding of current operations and identify performance gaps and areas for improvement
- Detailed Design: to produce the future merchandise planning process, roles and responsibilities, as well as a comprehensive execution plan
The goal was to get Indigo to the point where it was ready to implement the changes (i.e., where there was a documented set of tool and system requirements; a set of templates and job aids; agreement on roles, responsibilities and headcount; an assessment of the organization’s and individuals’ readiness for change; and a set of training, communication and change management tools available to support Indigo in its transformation).
Meanwhile, the Kurt Salmon team had to win trust and respect in order to engage with the Indigo team and help them embrace change.
Culture, Courage and Change
Kurt Salmon took great care to ensure that the people on its team had stood in their client’s shoes and could talk with practical insight and human understanding about the complexities and compromises involved in getting the job done. Their starting assumption was that everyone truly wants to do a great job and they deserve a business process that supports them.
For its part, Indigo insisted on three key things: genuine senior team involvement, a weekly meeting of the project’s steering committee and real skills transfer (therefore high involvement of Indigo people in the project).
Kurt Salmon partner Jon Mays, who co-led the team, says: “The weekly steering committee meetings led to remarkably more input than usual, and that produced a high degree of self-confidence in the team on the ground.”
Joanne Neidorf agrees: “It was a pleasant surprise how engaged the steering group was. We had them for an hour every week, and those were such productive sessions. I think the key thing we learned from them was how powerful a dedicated senior team is.”
How Was It for You?
From Kurt Salmon’s point of view, the things that set this project apart and made Indigo an exemplary client were the level of senior executive commitment, the cadence of the steering committee meetings and the upfront acknowledgement that this was a transformational project.
From Indigo’s point of view, Kurt Salmon’s combination of strategic perspective, operational know-how, senior team engagement and cultural adaptability made for a successful project.
CEO Heather Reisman put it this way: “I feel hugely helped, my people feel hugely helped. We are not a good company for BS consultants, and we had a lot of respect for the knowledge and conceptual rigor in Kurt Salmon’s work. There was a low level of consultant-speak.”
For EVP Tod Morehead, “This project was the smoothest of any consulting firm I have worked with. The Kurt Salmon people were fully grounded and they knew what it was really going to take to execute. They were able to meet with everybody from the CEO down, all levels, and make people feel comfortable and included. Plus, the fact that their people had real experience in the jobs they were interviewing really helped.”
And EVP Mike Mortson said, “Kurt Salmon became part of our team—they were not viewed as consultants. They blended in with us—they were like Indigo employees. They were collaborative, responsive, flexible, deeply knowledgeable in their space and very open. I honestly believe that there is a relationship there that means I can call and get support without being sold to. It feels like more than just a client relationship.”
Both consultants and client agree that Indigo is now well on the way to building a retail business that is ready for the future, whatever that future may bring. “This has been a real transformational effort, taking a leading bookseller and helping them turn into a leading general merchandiser,” says Madison Riley, managing partner of Kurt Salmon North America.
10 February 2016