Future uncertain for McNally

DAVID LIPNOWSKI / WINNIPEG FREE PRESS Enlarge Image

It was business as usual Tuesday as the Polo Park location prepared to shutter its doors for good on Sunday.

Analysts believe the company that once famously stuck its finger in the eye of the book-retailing giant, Chapters Indigo, probably fell victim to circumstances beyond its control.

McNally Robinson Booksellers and the husband and wife owners, Paul and Holly McNally, had been heralded among the great entrepreneurial success stories in the province.

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The sign says it all.

But in filing for bankruptcy protection, many believe the company succumbed to a combination of the sudden surge in e-book sales and an ill-fated foray into southern Ontario that coincided with a dramatic drop in consumer confidence in that region.

"Some things are just too great to overcome," said Sandy Shindleman, a Winnipeg developer who has been working with retailers in Winnipeg and elsewhere for more than 20 years.

Since opening its first big-box store at Grant Park Shopping Centre in 1996 as a pre-emptive strike against the encroaching Chapters empire, McNally Robinson has been a stalwart independent presence in the retail scene increasingly dominated by big-box chains.

The company opened its first store in the upper-middle-class Toronto neighbourhood of Don Mills, in April.

Paul McNally complained about the lack of support from landlord Cadillac Fairview, but others said difficulties probably arose from factors greater than that.

"Who knows what the straw was that broke the camel's back?" Shindleman said. "There's a good chance it was not Polo Park, or Grant Park or Winnipeg. But in southern Ontario, one in five auto workers are now out of work."

Rob Warren, the director of the Stu Clarke Centre for Entrepreneurism at the University of Manitoba, said the company had one of the best-defined market strategies he had ever seen.

"But that southern Ontario market was going downhill pretty fast," he said. "Also, two years ago no one would have predicted how quickly e-books have taken off."

Online retailer Amazon has reported it sold more e-books than printed books during the pre-Christmas sales rush.

Warren believes McNally Robinson's intentions to develop its online sales store is a good approach, especially if it can establish a niche selling local Canadian authors to a global marketplace.

Some say e-books will have the same effect music downloading had on music retailers and movie downloads and video on demand on the video rental stores. But in addition to the potential devastation e-books might have on the book-selling business, the retail industry in general has become much more competitive.

"Everything needs to be right these days," said Shindleman. "You need to have the capacity, the right market research, the right credit relationships."

With the pace of retail development slowing down, he said, more care and attention need to be applied to every aspect of the operation. And at the same time, operators should expect lower margins than they enjoyed in the past.

McNally Robinson has a stay of proceedings for 30 days and then must file a proposal for creditors to vote on (although it can apply to the court for an extension). That plan must then must go before a court for approval.

Records filed by Ernst & Young, the trustees in the bankruptcy-protection proceedings, show at least $3.2 million owing to more than 300 unsecured creditors. That does not include unpaid taxes and utilities.

Joe Healey, a Winnipeg partner with Ernst & Young, the trustee in the proceedings, said in addition to that, the company owes several millions of dollars -- but less than $10 million, he said -- to secured creditors, including the Cambrian Credit Union, National Leasing and the Bank of Nova Scotia.

Healey said in a typical reorganization proposal under the Bankruptcy and Insolvency Act, a variety of proposals could be presented to the different classes of creditors.

Big publishing houses, including Random House Canada and HarperCollins, who are owed hundreds of thousands of dollars, either couldn't be reached or declined to comment. Most local creditors, including many bakeries and food shops who likely supplied the Prairie Ink café, were also reluctant to comment but staff at Banville & Jones Wine Co. on St. Mary's Road said McNally has been forthcoming and in frequent communication about their unpaid bill.

Banville and Jones is owed about $2,300.

-- with files from Mary Agnes Welch

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition December 30, 2009 A3