Meeting Minutes 120318

Annual Shareholder Meeting

Seminary Co-op Bookstore

December 3, 2018

MINUTES

1. Call to Order

Ken Warren, new Chair of the Seminary Co-op Bookstores Board of Directors, called the meeting to order at 5:35pm. He began by asking for shareholders’ continued, active support of the stores, and giving thanks to departing Chair Deborah Epstein for her service. The shareholder meeting minutes from 2017 were unanimously approved via voice vote.

2. Director’s Report

Jeff Deutsch, Director of the Seminary Co-op Bookstores, welcomed all attendees both in person and via livestream and presented the Director’s report.  Jeff’s remarks are excerpted below

I am now in my 5th year as Director of the Seminary Co-op Bookstores. During that time, in these forums and elsewhere, I have been speaking with you about how difficult the last 20 years have been for the Co-op and for bookselling more broadly.

1. Bookstores Worthy of Preservation

I have shared with you a strategy to help ensure we protect the values and character that make these stores worthy of preservation, worthy, in many ways, of our devotion, while doing so with a realistic engagement with the larger financial and cultural issues we face. In my annual letters, I have shared thoughts with you about wise inefficiency, the necessity of books, and what it means to maintain a space devoted to works of enduring value, whether they were published two millennia ago, two centuries ago, or two weeks ago.

I have also shared my reverence for these stores and what they stand for, which has led me to engage you in a conversation about our structure, and the difference between perks and the responsibilities of governance. Our new membership program has been wildly popular, and has allowed us to expand our community by an additional 20k readers.

I have responded to your request to provide more means by which you might support these institutions, and I have learned to ask more of you, although many of you will still say I don’t ask enough.

And you have responded. You have been so generous with me, sharing ideas about, memories of, and warmth toward these stores. You have made me a better listener and helped me sharpen my notion of the work ahead. Just as the Co-op has historically created and reflected the community it has served, so must it now create and reflect a bookish culture that will ultimately justify it as an institution. I – we – must now articulate the purpose of keeping such an unlikely bookstore alive when all of the traditional market forces are telling us it’s time to pack it in.

So before we get into the financial year in review, I’d like to pause for a moment to reflect on who we are, what we do, and why, I believe, we are necessary, now as ever. Why, to put is simply, like you, I don’t want to live in a world without a Seminary Co-op.

B. What Were We Then?

The Co-op was founded in 1961 as a means of pooling resources to get obscure books cheaply. In 2018, when most books are readily available cheaply online, we must ask a foundational question: if we were to found a community bookstore today, what would the impetus be? Who are we as an institution? What is our purpose?

C. What Are We Today?

I’ve thought a lot about this question over the last five years. I think about it all the time. We are a cultural institution disguised as a retailer. That cultural work is creating an unparalleled browsing experience and a hub for community – a gathering place predicated upon the written word and the printed page. Our thoughtful, patient, and humane staff takes a democratic approach to our space and a catholic approach to our book selection. This approach identifies and reveals intellectual trends and books of high literary quality.

D. The Bookstore as Cultural Institution

An unparalleled browsing experience. How?

• We look closely at approximately 30k (~300 Front Tables) new books published each year and over 30k additional books that sold off of our shelves

• 57% of titles that sold off of our shelves at the Co-op last year, sold one copy -- we sold 28k total titles, 16k of which were unique sales

• That means we made 16k correct decisions on behalf of a single member of our community

And how are we a hub for community? Here are some highlights:

• 35th Anniversary Celebration for 57th Street Books: Anyone who attended our 35th anniversary celebration of 57th Street Books, which featured a ribbon cutting and story time with Cook County Board President and 35+-year member Toni Preckwinkle, or has attended any of our three weekly storytimes, or really has just visited the store can share with you the warmth of one of the most charming bookstore in America.

• Booksellers Without Borders: Our Co-op Manager, Adam Sonderberg, was recently awarded a Booksellers Without Borders Fellowship, one of only sixteen fellows to receive this honor. Adam brought his perspective, gleaned from 20 years of bookselling to the international community, and brought his insights back with him to ours.

• Pop-up Shops: We supported multiple conferences this past year with pop-up shops, including the Obama Foundation Summit and the Equity Summit. This is a way for us to build community around books for communities that share our belief in the written word and books as a way of bringing people together.

• Chicago Humanities Festival: Our partnership with the Chicago Humanities Festival has flourished. We have provided book sales for over 140 events since October 2017, and have worked closely with them in curating their world-class lineup, featuring Ta-Nehisi Coates, Doris Kearns Goodwin, Kwame Anthony Appiah, Natasha Tretheway, James Comey, Alice Walker, Ai Weiwei, Jill Lepore, Jesmyn Ward, and David Mamet, among many others. These events have brought in over $325,000, as well as immeasurable goodwill with new and familiar customers throughout Chicagoland.

• Michelle Obama Book Launch and Signing: Mrs. Obama visited the Co-op in last month on publication day for Becoming. This was her only in-store signing on the tour. The local and international press witnessed a truly remarkable community event, as the gathering drew from fans and members throughout Chicago and Chicagoland, and the mood was festive and joyful. Mrs. Obama noted to her millions of social media followers that she started her book tour with the same stores she and Barack raised their daughters. her family once frequented.

• Children’s Section Expansion/ Educator Program: We have focused on increasing our children’s programming, children’s section, and our educator outreach. For those of you that have not yet visited the reimagined space in room three at 57th Street, please do. Franny, Kevin, Clancey, and the team have done an incredible job creating a magical space for the next generation of bibliophiles.

And usage of our educator program, which allows teachers to make tax exempt purchases for their classrooms with 10% discount off the top, increased by 15%. We also continue to expand and refine our school bookfair program.

Seminary Co-op Non-gala Gala Fundraiser:  And lastly, we held our first-ever Non-Gala Gala this year through a playful monthlong email campaign inviting customers to help make our stores stronger, more robust cultural strongholds by staying home, reading a book, and giving a gift to support our bookstores. We raised over $20k through the initiative, with contributions coming from over 200 individuals.

D. Fiscal Year in Review

So, clearly, the cultural results are something to celebrate. Let’s move on to the financial results.  We have worked to be what some might call “inefficient” deliberately, as it relates to our cultural mission, but not as it relates to our commitment to service and staff, or to our business protocols. And I am pleased to report that we have made great progress, instituting many industry practices that the smartest and best bookstores are modelling. We still have some work to do to realize our aspirations in process and procedure, but we have made an impact on the most important areas:

• re-establishing good relationships with publishers

• maximizing cashflow

• ensuring we are getting the best margin from our publishers as possible (ordering direct, utilizing specials, consolidating orders)

• working closely with the staff to ensure a nourishing and meaningful work environment

E. Finances

F. Notable Numbers and Trends

Sales were up 7.6% or ~$225k compared to last year and 32% or ~$779k compared to three years ago. The Seminary Co-op generated over $2.1 million and 57th Street Books generated just under $1.1 million in sales. That is a 12.9% or $240k increase for the Co-op compared to last year and a 26% or ~$427k increase to three years ago. It is a .4% or $1,500 decrease for 57th Street Books and a 15% or ~$141k increase to three years ago. Our children’s department was up 16% or $55k to last year and 53% or ~$135k to three years ago.

(Note: we have restated sales for the last four years, subtracting discounts from the top line instead of the margin department, following industry standards.)

Coursebook Sales

• 12% or ~$67k increase compared to last year

• 39% or ~$262 increase compared to three years ago

Website Sales

• 31% or ~$45k increase compared to last year

• 147% or ~$112k increase compared to three years ago

Children’s Sales

• 16% or ~$55k increase compared to last year

• 53% or ~$135k compared to three years ago.

·We hosted or supported 555 events last year, serving over 53k patrons, compared to 442 events in FY16-17, when we served 26k patrons; 348 events in FY15-16, serving 22k patrons; and 188 events in FY14-15, serving just under 9k patrons. This reflects a 26% increase in the number of events and a 101% increase in attendance compared to last year, and a 195% increase in number of events and a 588% increase in attendance compared to three years ago.

The events generated ~$387k in book sales compared to ~$216k in FY16-17, ~$141k in FY15-16, and ~$61k in FY14-15. This reflects a 79% increase in sales compared to last year, and a 634% increase in sales compared to three years ago.

(Note: this number only accounts for the featured titles at a given event, not additional purchases during events.)

Our online sales continue to grow thanks to a more user-friendly website (launched in September 2016) and strong work from our mailroom. In FY17-18, our website yielded $187,916 in sales, a 31% increase over the previous year, and a 147% increase over four years ago.

Our operating loss increased slightly to ~$256k. I will speak to some of the challenges to our bottom line below, but the two driving factors here were our cost of goods sold and staff costs. Our gross margin was down by 8% or $80k, mostly due to a significant increase in our discounted purchases (discounts were 40% or $80k higher than last year). Our staff costs were up 18% or $183k due to investment in new initiatives, including the podcast and Chicago Humanities Festival events programming and staff raises (due to compression issues created by the increased minimum wage, the minimum wage increase itself, and merit increases).

G. The State of the Industry, The State of Our Stores

I thought it might be helpful to share some numbers from the larger industry, mostly independent bookstores. Many of you have sent along the good news reported by the media: independent bookstores are seeing a resurgence! This is all true and good. Let’s have a closer look.

H. Industry Comparisons

• Growth Outpacing the Industry

• 2017 sales growth of 7.6%

• loss of 3.6% in the bookstores industry

• loss of 5.6% at Barnes & Noble

• increase of 3.2% on average of independent book stores and and 5.9% for the most profitable stores

While the growth is outpacing the industry, there are unique reasons that our increases in the topline aren’t resulting in commensurate increases in the bottom line. There are some challenges created by our business model, and our commitment to the cultural work of bookselling.

I. Challenges Detailed

Given the above, what are we to make of our losses and unprofitability? Because we’re talking about sustaining a bookstore that is a cultural institution, there are decisions we’re making that are not necessarily the right thing for the business but are necessary for our core values. Here are some of those things, including the business “Implication,” or change we could make in the interest of profit, but won’t in the interest of what we stand for and believe in.

A. The Challenge: Unprofitability Despite Growth

• No coffee, no knick-knacks, just books

Book sales (vs. non-book sales) is 98% compared to industry average of 81.7%

Implication: more knickknacks, sweatshirts, and non-book “items”

• Academic and scholarly books

B. The Challenge: Cost of books as a % of net book sales is 62.3% compared to 54.7% industry average

Implication: buy fewer low margin (academic and scholarly) books

• Slow sellers/ low turn

C. The Challenge: Inventory turnover is 1.3% compared to 2.7% industry average

Implication: reduce our stock by 50%

D. The Challenge: Days in Inventory is 280.5 compared to 132.7 industry average

Implication: don’t carry books that sell slowly

E. The Challenge: Salaries

• Total payroll as a % of sales is 31.6% compared to 23.9% industry average (32.2% higher)

Implication: Reduce staff and service, and pay as little as possible

F. The Challenge: Employee benefits (not counting PTO) as a % of sales is 1.6% compared to industry average .9%

Implication: reduce employee benefits

J. What you can do

While I understand there was a real case to be made for trying to lure Amazon’s second headquarters to the city, including real jobs implications, it also made clear the extent to which our local government might support our work of creating jobs, creating community, increasing property values, and helping define the culture of the city.

Earlier this Fall, the city of San Francisco in a truly visionary, yet also somewhat obvious step, granted over $100k to its local bookstores, in addition to assistance with professional services, “According to the Office of Economic and Workplace Development there are 57 independent bookstores in San Francisco that together generate more than $9.8 million in sales, create and retain more than 100 jobs, host more than 40 free community events each month, and have been in business for an average of 21 years.” Let’s compare this to our stores last year:

According to OEWD, there are 57 independent bookstores in San Francisco – we have two -- that together generate more than $9.8 million in sales – we generate nearly $3.2 million, create and retain more than 100 jobs – we have 37 booksellers on staff, 17 of whom are part of our professional staff, host more than 40 free community events each month – we host 46 -- and have been in business for an average of 21 years – we have been in business for an average of 46 years.

While we are exploring alternative revenue streams, including revenue for our podcast, a new subscription service for 2019, and institutional support, including better terms from publishers, cheaper healthcare through our trade organization’s efforts, and hopefully some investment by our municipalities, we still need your support.

• Buy Books

• Give

• Gift Cards

• Financial Gifts to the Stores

• Advocate on our Behalf in Your Communities

• Link to Our Website

• Forward Our Email

• Rate and Share the Open Stacks Podcast

• Engage on Social Media

3. Board Nominations

John Mark Hansen, the chair of the Co-op’s Nominations Committee, presented the evening’s slate.  Mark explained the Co-op had 16 new or revised submissions/nominations for membership on the board this year, as well as those carried forward, with several dozen in all. Seven nominees were voted on. For more information on candidates, click here.

Up for reelection were Stuart Flack and Julie Getzels (both for their final term), as well as Hal Wilde (for a second term).

Up for election to a first term (2018-2020) was James Schwinn, to replace Theaster Gates, who stepped off due to an engagement at Colby College in Maine.

Up for election to a full first term (2018-2021) were Philip Halpern, Kate Hannigan, and Katie Parsons.

Vacancies for this year were a mix. They reflect the previously determined expansion of membership to 18 in order to accommodate interest and enthusiasm in being involved. This year was the last year of this expansion. Several members also decided they would not seek further terms: Mark Pattis has stepped down after single term, and Carolyn Alessio has stepped down after two terms.

Mark asked for questions. There being none, he asked for a motion from the floor to accept the slate. It was seconded and the slate was accepted unanimously via voice vote.

Mark concluded with an acknowledgement of new Board leadership. Deborah Epstein has retired as President of the Board after 3 years, having stepped in at crucial time to replace Harry Davis. Ken Warren, who was previously Secretary, has stepped in and as new President, and is replaced as Secretary by Erin Adams. Julie Peterson remains Vice President, and Julie Getzels remains Treasurer. Finally, Mark invited all to see our website for a full list of Board members, and asked for questions, concerns, and ideas to be sent to the Board at any time.

IV. Open Discussion/Q&A

Jeff opened the floor to questions.  Below are excerpts of the ensuing discussion:

Q: Why have sales been flat at 57th in spite of growth in children’s sales?

A: We have done a lot of work over the past few years there in terms of protocols and selection. There’s an incredible team now in place to make that happen, but we have had some struggles over the last couple of years. While the children’s department was expanding and growing, some other sections did not get as much attention, which we expect to change in the coming year.

Q: Can you talk about the cost of salaries and new staffing, specifically vis-a-vis events? I.e., what is the cost of events from a salary perspective?

A: It’s difficult to quantify due to the complexity of events -- planning emails, ordering, receiving, selling, transportation. Our goal is to make events break even if not make some money, but it’s impossible to break out entirely. Raw dollars vs raw sales would not be accurate because of everything that goes into events. We’re confident that, currently, events do break even, and will make money. We also don’t do any advertising, and that events contribute considerably to marketing/exposure, in addition to their cultural value.

Q: Balance sheet numbers have not been provided, and there have been significant losses over the years. How are these losses being funded?

A: There are balance sheet numbers on all reports put out, including AP & cash on hand. We are raising money -- we have generous people and the University of Chicago, without which we wouldn’t exist. We’re raising money through institutions and very generous individuals. We don’t have petty cash or slush fund. For cash flow, we borrow money every year (sans interest) and pay back in full.

Q: Last year, the idea was raised of changing the corporation structure, as well as looking into a different status for the bookstore. Can you talk a bit about that?

A: It’s been remarkably difficult finding any experts in co-op law, especially in DC. We know that governance structure needs to support the cultural work we’re doing, and we’re actively at work in figuring out what that solution is. We’re engaging with counsel in DC and Illinois. We hope that in 2019 we can deliver some definitive legal opinions on what can and can’t happen. Our goal is to figure out some way to establish in Illinois as a non-profit, but don’t know what the legalities of that are.

Q: Everything presented has been very retrospective. What are goals for the coming year, in terms of the business side?

A: We project lower and lower increases each year. We’re at double digits right now, with margins looking really good if things continue, due to the efficiencies we’ve created and the events programming. We really want to think about the cultural work of the podcast, as well as the possibility of it doing financial work for us. We want to focus on subscriptions, children’s books (book fairs). We’re hoping to work with schools with means to support endeavors with South Side schools. We want to recommit to having the right books on the shelves, and don’t expect to have too many more innovations.

Follow-up Q: Over half the increase in sales over last year come from events. Are we capping out on events?

A: Not yet, but we expect to every year.

V. Adjournment

Jeff Deutsch asked for a motion to adjourn. Seconded. Concluded 6.26pm