Meeting Minutes 120516
Seminary Co-op Bookstores
Annual Shareholder Meeting
December 5, 2016
Jeff Deutsch, Director of the Seminary Co-op Bookstores, called the meeting to order at 5:15pm. He briefly reviewed the evening’s agenda:
Shareholder Meeting Agenda
- Introduction (Jeff Deutsch)
- Director’s Report (Jeff Deutsch)
- Governance vs. Perks (Jeff Deutsch)
- Bylaw changes (Deborah Epstein)
- Nominations (Mark Hansen)
- Board leadership transition (Mark Hansen)
- Open forum
Introduction
Jeff’s introduction is excerpted below.
I have been the Director of the Seminary Co-op Bookstores since July of 2014. I have revered these stores since I was a teenager, and spent my 20+ year career in bookselling trying to replicate the curation, seriousness, and intelligence of the stacks here.
When I assumed leadership of the Co-op in 2014, we had a $300k operating deficit. I was given two charges: break even, and do it without compromising the character of the stores. A tall order, to be sure, but the only direction I would have wanted, and the only conditions under which I would have accepted the assignment.
I sent out a call to action to our membership in June (a copy of which is in your packet). In it, I explained why making profitable a store with our character is such a difficult task. I also explained that we could become profitable without too much difficulty, but the compromises involved would make the store unrecognizable, and, frankly, not worth saving.
But I also wrote that I believe our best days ahead, and I am here to reiterate that today. I don’t want to give you the wrong impression. We are far from stable and have quite a bit of work to do. Anyone on our team can tell you about the stress that we operate under, essentially living “hand to mouth” and trying to find ways to ensure we can meet our financial obligations on a day-to-day basis – to our staff, our publishers, our vendors, the government, etc. Without generosity from the University and a couple of exceptionally generous members, we would have gone out of business long ago.
I truly believe our best days are ahead. There are many reasons I believe in our future. I believe in the incredibly talented team of booksellers and leaders that are currently running the stores. I believe in the power of the reputation that Jack Cella (and the fine booksellers that came before us) built as a force to propel us through difficult times. And perhaps most importantly for tonight: I believe in our membership, and your ability to act cooperatively to ensure that the stores continue to serve generations of readers.
In your handout [attached to these minutes], you will see a few excerpts from the 100+ emails that I received last June in response to the call to action I sent to our community. I won’t read them all, but I do want to briefly share two.
o Owning most exquisite works of art, for many of us middle-class folk, is beyond our financial means. But the Co-op/57th Street Books allows us access. Without you, we would neither see nor be able to keep a piece of the truly beautiful. Thank you for sharing, and giving us an opportunity to own a portion of, such extraordinary work. Without your curation and guidance, it would be unknown, invisible. ...Our bookshelves are inspirations to others, because of you.
Your work brings such meaning, changed our lives. Thank you, from the quiet, bookish thousands. It’s a lonely world out here.
o …thank you for your thoughtful and illuminating e-mail. Your message is delivered. I will make sure I visit soon and buy several books! In addition I will seek out at least two new members. Forty-two years ago, before The Seminary-Coop took over what was then Stavers Book Store (The 57th Street site) I used to sweep, mop and wash the windows after school. If Hyde Park were to lose this institution I think it might very well lose its soul.
We are more important than ever. And we have a responsibility to steward these stores through this difficult time. The booksellers at these stores are ready to take on this challenge, and we invite you to join us in the “good fight.”
Financial Results
Jeff’s presentation on financial results is excerpted below. He referred to a handout [attached to these minutes] showing sales, margin, operating loss, accounts payable, and cash on hand for fiscal year 2015-16 and the previous four years.
· Overall sales for both stores combined were up 5.3% or $144k vs. last year. The Seminary Co-op generated just under $1.8 million in sales, while 57th Street Books generated just under $1.1 million. This is a 3% or $50k increase for the Co-op and a 10% or nearly $100k increase for 57th Street Books. Compared to two years ago, this is a 5% or $85k increase for the Co-op and a 6% or $60k increase for 57th Street Books. This our first year-over-year sales increase in more than a decade (possibly this century!).
· Course book sales for the year were up 10.9% to last year ($712k vs. $643k). These figures aren’t precise, as our inventory software aggregates all units sold for every title ever used for a course since June 2014 (regardless of whether the book is still used for a course), but the numbers are likely close. We do not have a breakdown of course book sales prior to the implementation of our new software in 2014.
The industry trends for textbooks are down, in many markets by double digits, but the Co-op is bucking this trend. One of the reasons is an innovation in how we order. Last year, we brought in used books for the first time. Used books generally have a higher margin (35%-40), but are non-returnable so they represent a big risk. We ended up with $39k in used book sales for the year, representing just over 5% of all course book sales. Considering that used books are generally priced about 25% lower than list, this makes the 10.9% increase in overall textbook revenue all the more remarkable.
Another way to look at our performance is unit sales. We sold 32,849 course books this year compared to 28,410 last year, an increase of 16%. We are also starting to branch into ebooks.
· Sales of children’s books increased by nearly 10% ($282k in FY15-16 vs. $257k in FY14-15). This department has yet to realize its potential, and a similar increase is expected this coming year. Through the end of November, we were up nearly 24% since the start of our fiscal year (July 1st). One-third of the increase is a direct result of the new Harry Potter play, but two-thirds are a direct result of the hard work of Franny Billingsley and the staff at 57th Street Books.
· We hosted or supported 348 events last year and generated $141k in sales, compared to 2014-15 with 188 events and $61k in sales. This reflects an 85% increase in the number of events and a 231% increase in sales.
Some of the luminaries we hosted or supported include Hal Foster, Amitav Ghosh, Sara Paretsky, John Corbett, Christian Wiman, Aleksander Hemon, Robert Reich, Robert Alter, Paul Muldoon, Joyce Carol Oates, Henri Cole, Peter Singer, Eileen Myles, Thomas Piketty, Garth Risk Hallberg, Margo Jefferson, Katha Pollitt, Amy Klobuchar, John D’Agata, Matthew Desmond, Natalie Moore, Daniel Clowes, Thomas Frank, Viet Thanh Nguyen, Michael Eric Dyson, A.O. Scott, Mary Gordon, Marilynne Robinson, Dierdre McCloskey, Simon Montefiore, and Cass Sunstein.
In response to an audience question, Jeff noted that publishers starting to recognize the Co-op as an entity that can pull in a good crowd, citing the recent Colson Whitehead and Zadie Smith events.
· Our operating loss decreased to <$205,136> last year. This remains a significant area of concern even though it represents an 18% decrease in our deficit compared to last year (on a 5.3% increase in sales). We need to bridge this gap over the coming years to remain viable. While the trends noted above are positive, it remains a critical time in the Co-op’s history, and we are incredibly vulnerable.
· We saw a 28% ($58k) increase in sales in the month of June as a direct result of the aforementioned call to action email sent to all members. In addition to email, the letter was distributed at the stores and extensively shared on social media. In total, the message reached at least 20,000 people, and the response was overwhelming. The sales increase for June alone accounts for more than 40% of our total sales increase for the year. So again, because of our membership, there is reason for optimism about our future potential.
· Jeff recognized the Co-op’s managers and coordinators for their efforts this year:
o Franny Billingsley, Children’s Book Manager at 57th Street Books
o Kevin Elliott, Store Manager at 57th Street Books
o Rich Germer, Course Book Manager
o Malia Haines-Steward, Course Book Coordinator
o Cheryl Harris, Assistant Store Manager at 57th Street Books
o Evan Higgins, Financial Coordinator
o Alex Houston, Marketing Director
o Alena Jones, Inventory Manager
o Colin McDonald, Assistant Marketing Manager
o Annie McIntyre, Financial Coordinator
o Katy O’Brien-Weintraub, Membership Coordinator
o Linda Quinde, Assistant Director
o Adam Sonderberg, Store Manager at the Seminary Co-op
· Jeff concluded his financial remarks by answering the following audience questions about the Co-op’s financial performance:
o What are our average expenses per month? This varies widely due to course book sales and seasonal activity. Jeff will provide additional detail to those who are interested.
o How many managers do we have per store? Combined, the stores have 8 managers (including the Director, Assistant Director and Marketing Director, all three of whom serve both stores). At present, total staff (including managers) at both stores = 30, which is at an annual high due to seasonal hiring.
o How many active members does the Co-op have? 6,800 members bought books last year. If we look at the past two years, the number increases to 10,000. Over the years, many students bought memberships simply to receive the 10% credit during their college years. These students usually leave the area after graduation, and often don’t continue patronizing the stores, but they remain voting members of the Co-op. It presents a serious issue for the Co-op that a large number of our members are uninvolved, since they technically retain responsibility (and voting rights) for governance of the stores. We will further discuss the governance issue later in this meeting, and also discuss the new membership launched this academic year.
o How are online sales? Jeff discussed the positive reaction to the Co-op’s new website, which launched in September 1st. After a few small hiccups, it has already doubled our volume of online orders (and climbing!). We also did a promotion with the Nation magazine in November.
o When do things get dire? Jeff responded they already are. If it weren’t for the University of Chicago and several very generous members helping with our deficit, we would already be out of business. It is critical for us to find ways to bridge the gap.
o Have we done any business with U of C’s satellite office in Shanghai and other sites around the world? Not at this time, but we can look into it.
o How do we break down sales? By department (Fiction, Non-Fiction, etc.) and category (within the Non-Fiction department are the categories Psychology, Science, History, Political Science, etc.). We also look at aggregated sales by store and for the Co-op as a whole.
o Have we tried to collaborate with the U of C alumni association? We are just starting to be deliberate about it. Jeff is having lunch with the director next week. We will be actively looking for their help in getting word out to their members about the Co-op.
o Has the enthusiasm from Jeff’s letter last June been sustained? Not at the level we saw in June (in fact, we saw a year-over-year sales decline in July, which seemed to be a hangover from all the activity in June). But sales have rebounded since then, and we’re up 4% since July.
o What is “My Chicago Indie,” and is the Co-op involved? It is a collaboration of 12 independent bookstores in the Chicago area. A new website has been launched to promote the stores and their events. The initiative started as a means of responding to Amazon moving into Andersonville.
o What is our competition? Time, cell phones, and Netflix. We need to keep reminding people about what’s so special about having actual books that can be carried around and passed along.
o How do we foster reading with younger kids? We are holding book fairs at Ancona and the Lab School this month, and are encouraging schools to take field trips to the store and allow kids to browse. We hold kids-specific events at 57th Street (such as our celebration of the picture book A Snowy Day held last week). Also, we are doing a holiday book drive to support several underserved schools on the South Side, and are considering whether to keep the drive going indefinitely. We consider children’s books a major growth opportunity for us.
o How do we get kids hooked on reading for pleasure, not just course books? First, we try to get them through our doors, where they’ll find an inviting space, great books, and fun events. We’re also starting to carry a wider variety of books for all ages, including the hard sciences.
Governance Changes for a Functional Co-op
Jeff gave an update on work being done to ensure a more functional Co-op. His remarks are excerpted below.
· The board of directors and I have three main objectives:
o Remain financially viable
o Do so without compromising the character of our stores
o Engage the community
· I believe strongly in the co-op model. There was a reason why the bookstore was created as a co-op, and it’s worth considering what was intended by that and what value the co-op model provides. Clearly one of the primary ones is a shared investment in a literate community that goes beyond financial profit.
· What defines a functional, effective co-op? Working together as a community to ensure that the co-op remains robust and viable, so that this rich resource (and the community we have built around it) can continue.
· In many discussions with the board and with Co-op members, it became clear there was an important distinction to be made between shareholders willing to take on the responsibilities of governance vs. those interested is in engaging with the larger community and participating in our events and perks (such as our monthly 10% rebate). We need to respond to this clear statement from our shareholders.
· As of 6/30/16, we had 61,395 shareholders on the books – which means that just .0008% of our governing members are present for this annual meeting. This is not because people are indifferent to the stores, but because many of them care more about shopping here, attending events, telling their communities about their wonderful experiences at the Co-op, and less about the finer points of governance and an annual meeting. There is no doubt this is true for many of our current shareholders. I asked several if they were planning to attend this meeting, and the typical response was “Just keep great books on the shelves – I’m not interested in all that [governance] stuff.”
· Of our 61,395 shareholders, 6,868 of them made purchases with us last fiscal year (and 10,000 within the past two years). This is just over 11% of all shareholders. Those who make purchases clearly desire to engage with the Co-op community (including access to events and perks), but only .7% of this group of shareholders also attended the annual meeting and participated in our governance. And just .0008% of ALL shareholders participated. That is an astonishing number, and one that is worth listening to.
· In order to be a functional co-op, we need to have the ability to vote on initiatives, including some that require a 2/3 vote of our entire membership! You can see how difficult this would be. In fact, it is virtually impossible. Two initiatives that we are very interested in exploring – incorporating in Illinois instead of Washington D.C., and possibly incorporating as a non-profit – we cannot even entertain because we couldn’t functionally vote on the topic. (Side note: We’re incorporated in Washington D.C. because Illinois didn’t have co-op laws in the 1960s, but they exist now.)
· According to Article VII, Section 2e of our bylaws, “the Board has the authority to cancel the membership of any shareholder (1) who shall have died; (2) whose purchases from the Association have totaled less than ten dollars during any fiscal year.” I have asked the board to exercise this clause in order to achieve a more accurate, and more functional, shareholder list. This is not a change in our bylaws, but rather an effort to enforce a longstanding clause. Doing so will ensure that those who choose to remain active shareholders are those who are interested in being involved in the governance of the Co-op.
· We will use last known email address to contact the 54,527 inactive shareholders and invite them back to the Co-op. We will let them know that if we do not hear from them in the next 30 days, we will presume that they are no longer interested in playing a role in the governance of the Seminary Co-op. (This must be done electronically; postcards are simply too cost-prohibitive.) If they don’t respond, their membership will be changed from Shareholder to Charter Member, and we will encourage them to continue to purchase books, attend events, and participate in the life of the Co-op community. If they decide they’d like to reengage and get involved with governance again, they would be welcomed back with open arms.
o We will likely find that some shares that have been passed along to a member’s heirs; this is no problem.
· In the future, interested customers will still be able purchase shares, but will be asked to meet with Co-op leadership beforehand to fully understand the governance responsibility that accompanies becoming a shareholder.
· As part of our efforts to separate perks from governance, we launched a new membership on September 1st. The new membership, which is free of charge, offers a store credit based on purchases, but does not require a stock purchase. It proved very popular with students during the fall quarter.
· A note on nomenclature: Those who sign up under the frequent buyer program (without buying stock) are now referred to as Members. Those who bought stock in the past, or buy it from now on, are referred to as Shareholders. Shareholders who decide to give up their responsibility for governance will continue to receive store credit for purchases and participate in the Member sale in June. They will be referred to as Charter Members to recognize their tenure.
· An audience member commented that notices about the shareholder meeting are hard to find (e.g., buried at the bottom of the weekly newsletter), and asked if people realize they have to be signed up for our email? Jeff noted there were two emails sent out about this meeting and another sent specifically about the bylaw changes, plus a meeting notice was posted at the store. It may be that some people aren’t identified as shareholders or we don’t have their current email address; Jeff said we will look into this. The Co-op really wants to encourage shareholder participation and will bend over backwards to offer more information through multiple channels (including asking people to tell their fellow shareholders).
· Another audience member commented that if we really care about getting students involved, we should consider doing the annual meeting at another time of year (finals happen in early December each year). Jeff said he would commit to holding at least one additional meeting in 2017, and said that the Co-op is working on other ways to engage students.
· An audience member commented that, while there may not be students at this meeting, many at the meeting became members as students.
· Jeff concluded the section on governance with the following comments:
o Why am I sharing all of these details? Why are we enforcing these longstanding protocols? We don’t want the fiction of being a Co-op; we want the reality of those that care about the Co-op being engaged in governance. In addition, we are not doing this to take something away; we are doing this to acknowledge an existing reality based on behavior, geographic location, etc. The store’s future should be in the hands of those that are currently engaged in the store, not those that once were. I believe that this step will get us closer to our ideal of a functional co-op.
Bylaw changes
· Deborah Epstein, the board member who chaired the ad hoc committee to revise our bylaws, reviewed a set of proposed changes to the bylaws. [These changes are included in the attached document]
· Deborah explained the purpose of the revisions:
o To bring bylaws into compliance
o To streamline certain procedures
o To ensure the bylaws reflect the Co-op’s current practices.
There was a motion to approve the revised bylaws as presented. The motion was seconded and approved unanimously by voice vote.
Nominations
Mark Hansen, the board member who chaired the nominations committee, presented the nominees to join the board of directors
· Many Co-op members were concerned that no new directors came aboard last year. To address this, changes were made to the size and structure of the board:
o The board will be expanded from 15 to 18 members by adding a new seat each of the next 3 years.
o A system of fixed three-year terms is being implemented for board members. This way, one-third of the membership of the board will be up for election each year.
o The nominating committee was tasked to select candidates for an unusually large number of board openings this year (8). The committee received two dozen nominations (plus 35 names carried over from previous years) and culled them down. Mark noted how great it was to see all the interest, and his regret that we can’t
· Mark said he was very excited about the slate his committee had put together, which represented the most diverse set of nominees ever:
o Returning board members nominated for a full (3-year) term: Mark Hansen and Julie Peterson were nominated for re-election to a second (and final) three-year term, ending in 2019.
o New board members nominated for a partial (2-year) term: Mark Pattis and Harold Wilde were nominated for election to a partial (two-year) term, ending in 2018.
o New board members nominated for a full (3-year) term: Natalie Moore, Nicholas Pearce, Martha Roth, and Connie Spreen were nominated for election to a full (three-year) term, ending in 2019.
A motion was made to approve the slate of directors as presented. The motion was seconded and unanimously approved by voice vote.
Board Leadership Transition
· Recognition and gratitude was offered for the service of retiring board members as well as Art Sussman, who passed away earlier in the year and is deeply missed. It was also noted how much outgoing board president Harry Davis will be missed. Harry is a professor of creative management at Booth, and being president of the Co-op’s board has required a lot of creativity over the past few years! The board and Jeff deeply appreciate Harry’s good advice and his very active and very strategic management of the relationship between the bookstore and the University of Chicago.
· New officers of the board for 2017 (elected by the board itself) are:
§ Deborah Epstein, President
§ Julie Peterson, Vice President
§ Julie Getzels, Treasurer
§ Ken Warren, Secretary
Question and Answer:
· How would the Co-op be different if we were a 501c3? It would be an acknowledgement that we aren’t here to be profitable. Also, we could accept donations (in the past, donors purchased stock as a means of supporting the Co-op, whereas a 501c3 could directly accept donations). Two similar non-profit cultural institutions are the Court theater and WBEZ radio.
The reality is that fundraising and donations will be required to close our gap. These efforts are underway, but it would make a difference if we could invite people to participate in the bookstore as a charitable donation.
· Is our membership a liability on our balance sheet? Yes, it’s a liability of $1.8 million. Removing inactive members will reduce this liability.
In the past, if a member wanted to deactivate and redeem shares of stock, we gave back exactly what the member originally paid (usually $10 per share). However, this was not truly representative of the value of the shares (which is closer to $3-$4 per share). Even using a more accurate valuation, however, the Co-op isn’t in a financial position to repurchase thousands of shares in the coming year as shareholders bow out of governance. This situation is addressed in the bylaws, which say we can forego buying back the shares if it would provide a financial hardship to the Co-op.
· What is the difference between a member and a shareholder? It’s all about governance. A shareholder is expected to assume the responsibility of governance; a member simply enjoys the perks of regular bookstore patronage.
· Will you be accepting new shareholders in the future? Yes, but we won’t be actively looking for them; our focus will be signing up new members of the rewards program. We will also focus on getting our current shareholders more involved.
· If the store turns a profit, do we share it with shareholders? The board issue a dividend if finances allowed, but we haven’t been in a position to do so for at least 20 years . Our last dividend was in the early 1990’s, and there isn’t one in the foreseeable future due to our retained earnings issue.
· Are BOD meetings open to the public? The meetings are not open to the public. We often get into sensitive financial and personnel matters. Members of the Board are always willing to meet or correspond with members who have concerns and suggestions, which we can then introduce into the board meetings. In addition, the members of the Board would be glad to share details on the current goals, strategy, and initiatives of the Co-op and its Board.
· What is a remainder? Are they new? This is our second year selling remainders, which are books sold for pennies on the dollar when publishers have overruns. It’s a fantastic deal for both customers and the store, and helps us expand our book selection (rather than contract it, which is happening at bookstores everywhere).
Meeting adjourned at 6:30pm
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