How Indigo survived by reinventing itself.

TORONTO• Indigo Books & Music Inc.’ s ability to move beyond its big- box roots while chains such as HMV Canada have failed is largely due to the booksell- er’s success in reinventing its stores, analysts say.

But it also might come down to consumer appetites for purely digital media, and the divergent appeal of paper books and CDs.

“If you go back 20 years ago and contrast the two retailers, they were not all that different, and they ended up on very different trajectories,” said Bruce Winder, partner in Toronto-based Retail Advisors Network.

As box retailers, both lost their business advantage of a huge store selection with the rise of online retail, even as they also ventured into ecommerce.

Facing the spectre of Amazon eating into their key revenue bases with online sales of books and CDs and the rising threat of e- books and purely digital music on iTunes, both Indigo and HMV worked to broaden their merchandise base far beyond their core assortments.

Indigo, as a result, has closed very few stores and steadily grew its share of non- book goods such as toys, home decor, electronics stationery and gifts: general merchandise sales accounted for 43.2 per cent of revenue in its healthy third quarter announced Tuesday, compared with 39.5 per cent in the same period last year.

HMV, despite moving to smaller outlets and remerchandising some of its retail space with fan collectibles such as bobbleheads and T- shirts, did not wind up in a similarly good place: The retailer confirmed two weeks ago that it will have to close all 102 stores across the country, owing its largest secured creditor $39 million.

“I think with music, the industry was much more punishing and unforgiving in the value chain,” Winder said. “Music changed even more radically in terms of ( giving up physical formats for digital streaming, and ebooks have not occupied the percentage of the market the people thought they would. ( Streaming music) made HMV obsolete and they lost their foot traffic.”

Indeed, BookNet Canada reported last week that sales of e- books actually dropped in 2016, to 16.8 per cent of the market, from 19 per cent in 2015. Hardcovers and paperback books still account for roughly 80 per cent of the market.

“E- book sales declined again, which is further reinforcement of the core of the business,” Reisman told analysts and investors during a conference call Wednesday.

Another advantage Indigo has had over HMV is a dedicated longtime owner with a vision, Reisman, who founded the company in 1996 and successfully took over rival Chapters in 2001. HMV, a former subsidiary of its British parent, had a less certain future since being sold in 2011 to the British retail restructuring specialist Hilco UK.

Analyst Robert Gibson of Toronto- based PI Financial credits Reisman with hitting upon a retail assortment that makes people want to visit its stores for shopping ideas or for browsing, something that might not have been the case with HMV.

“They have done a really good job in selling non-book stuff — look at American Girl ( dolls). That has been huge for them. They are able to find things that they put into stores that really resonate and drive traffic.”

For t he t hird quarter ended Dec. 31, sales at Indigo’s stores open for more than a year rose 3.8 per cent compared with a year ago, when sales rose a robust 15 per cent. Store traffic dipped slightly in the quarter but online traffic grew, leading to an overall boost in traffic and sales, Reisman said.

WITH MUSIC, THE INDUSTRY WAS MUCH MORE PUNISHING.