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Indigo to focus on new product design with Kobo cash influx

A story in today’s Globe and Mail looks at what the Kobo sale means for its majority owner, Indigo Books & Music, which is likely to find itself flush with cash as a result of the deal. The sale, which could net Indigo up to $150 million, frees up the retail chain to invest in new products and “expand non-book ventures,” the Globe reports.

Indigo president and CEO Heather Reisman is quoted in the story:

We have to grow very considerably to balance off what we lose in our book business, said Ms. Reisman, who, with her husband, financier Gerald Schwartz, owns more than half of Indigo. But I have every expectation that within 18 months, we will fully make that transformation … I would rather, for shareholders, to employ the funds and deliver to them a great result.

The Globe goes on to report that Indigo expects book sales to fall to 50 per cent of overall sales in coming years, down from the current level of 75 per cent. Reporter Marina Strauss points to the 2013 Canadian expansion of Target as a major competitor in the toy, home decor, and giftware market.

For anyone who has visited one of Indigo’s new format stores, in which books vie for floor space with an array of household products, Indigo’s survival strategy will not come as a surprise. However, with its significant investment in Kobo, Indigo had seemed to be in an enviable position in the burgeoning e-book market. In an interview yesterday with Canadian Business, Reisman said the capital requirements of remaining competitive in that market were too much.

Still, e-books will remain part of Indigo’s future. According to the Globe, “[A] 10-year pact with Kobo ensures Indigo a ‘meaningful’ share of Kobo’s profits on electronic-book sales in Canada.”