February’s news that the distributor H.B. Fenn and Company had filed for bankruptcy sent shock waves throughout the industry, and while the fallout has dissipated some, the industry is still examining what lessons can be drawn from Fenn’s demise. Although Fenn had few Canadian clients, its problems called into question the viability of independent distributors and further deepened concerns about how publishers might get their books to market.

Jordan Fenn, son of Fenn and Company founder Harold, was publisher of Key Porter (partially owned by the distributor)and Fenn Publishing, an imprint that produced sports books for H.B. Fenn. Jordan could not comment on the fate of either Key Porter or Fenn Publishing—neither has declared bankruptcy, but both have been in legal limbo since the bankruptcy of H.B. Fenn. He described the end of H.B. Fenn as sudden and completely unexpected. “My dad created H.B. Fenn when he was my age. He was in his late 30s and he was the vice president of Coles. He left and he started distributing Coles Notes out of an 800-sq.-ft warehouse.” Gradually, H.B. Fenn attracted more and more publishers for distribution, including large clients like Warner and Disney, and eventually had 250,000 sq. ft. of warehouse space and a staff of 300. But, says Fenn, “When you are representing other publishers, you are only as strong as the lists that they produce, and if they determine that they no longer want to use a distributor to enter the Canadian market, there’s really nothing you can do about it. The demise of H.B. Fenn was seeing our distribution partners elect to enter Canada directly.”

That’s what happened two years ago when Hachette Book Group decided to move its sales and distribution for its national accounts from Fenn to the U.S. Others were rumored to be planning a similar move. In the past, foreign-owned publishers needed to have a Canadian distributor in order to comply with Canada’s foreign investment rules intended to protect Canadian cultural industries. However, in recent years, the Conservative government in Canada has not enforced the rules with much zeal. In addition to allowing Hachette to distribute directly into Canada, the government has approved an application from Amazon to set up a physical distribution facility in Canada, and is currently reviewing Canada’s foreign investment policy in book publishing and distribution. Following the bankruptcy of Fenn, the U.S. division of Macmillan, which was owed C$10 million at the time of the bankruptcy, took over distribution directly to national accounts such as Amazon and Indigo, while Raincoast Book Distribution in Vancouver took over distribution to independent bookstores, library and specialty markets, and Costco Canada. HarperCollins Canada began doing sales, marketing, and distributing for Pan Macmillan U.K. on June 1.

Among H.B. Fenn’s Canadian publisher clients was B.C.-based Whitecap Books. Whitecap was owed C$1.35 million at the time of the bankruptcy. “It wasn’t easy to take a hit like that,” says owner and president Michael Burch. “And who knows what the future might hold in terms of when the whole situation has been resolved as to whether there is anything left at Fenn with the receivers, but with or without that, we’re doing quite well.” Burch said Whitecap’s new distributor, Fitzhenry & Whiteside, moved “with lightning speed” to get its billings out by the end of February. “Without the assistance of Fitzhenry & Whiteside and particularly Friesen printers, who have been a great friend of all Canadian publishers, it would have been a little harder,” Burch says.

Another large company, General Distribution, crashed in 2002. The fall of Fenn has inspired some thinking on how to remain a viable distributor/publisher. Most publishers who are also in the distribution business say that it helps to be distributing their own books in addition to those of other publishers. HarperCollins Canada president and CEO David Kent says volume makes distribution work for his house. “Distributing our own books, distributing other people’s books, gives us volume and gives them stability.” One of the challenges for any business in Canada, he says, is that the relatively small population means that there are no economies of scale. HarperCollins Canada provides distribution for such clients as House of Anansi Press and D&M Publishers. “It is not only economical for them, it is very efficient, so they can focus on what they do best and be very comfortable with the fact that the books are going to be distributed well and handled well,” Kent says. It is also advantageous to have a warehouse in Canada, he adds. “If our customers are buying in tighter cycles all the time because they don’t want to carry the inventory, then what they need is quick turnaround.”

Mike Bryan, president of Penguin Group Canada, agrees that this kind of volume is an advantage, and in Penguin Canada’s case, he notes that its distribution center also serves the Pearson Education part of the business. Efficiency is the other key. Yvonne Hunter, Penguin Canada’s vice-president of publicity and marketing, adds that their distributor clients, such as Norton, Bloomsbury, Faber and Faber, and Canongate, fit very well with Penguin Canada’s own publishing program.

On a smaller scale, distribution works for Orca Books in Victoria, B.C., on a similar principle of volume and because the company doesn’t rely entirely on distribution. “There are 11 other publishers, but the bulk of our titles are Orca titles,” says publisher Andrew Wooldridge. “We started doing it years ago when it made sense in the U. S. to have a larger list to have more to offer, and we’ve continued doing it because, for the most part, the publishers we distribute fit well with what we’re publishing,” he says. Companies that are distributors only are more vulnerable, he says. “I think every time you see someone fail, it’s because one of their large clients jumped ship. It’s pretty hard to replace that revenue,” observes Wooldridge.

He, along with many others in the industry, awaits the results of the government’s foreign investment policy review for book publishing. That the current rules on foreign ownership are not being enforced and some foreign-owned companies have begun to distribute directly into Canada is a big danger to the whole industry, he says. “If more people start doing that, it’s not just the distributors in danger, it’s all the multinationals who are going to have serious problems maintaining a publishing program if they start losing the distribution arm of it. They’ve got active and vibrant publishing programs, which I think are supported in part by that distribution. If you lose that distribution, I hate to think what it would mean for Canadian publishing.”

Lionel Koffler, president and owner of Firefly Books, spelled out the dangers of only distributing other companies’ books. “The margins are small and you own no intellectual property so your biggest customers can buy around you if they wish. You are subject to the pricing of the people who are creating the books, and also I think that most of what Fenn distributed was bestseller fiction and nonfiction that was heavily eroded by e-book selling.” Firefly, which distributes books from Annick Press and Robert Rose but largely its own books, tries to move in the opposite direction, says Koffler. “Most of what we publish, or get as co-editions, or distribute, is four-color, not easily downloadable. We publish most of it so no one can buy the content around our porous distribution rights. We are selling most of our production in the United States, so we have world rights or at least North American rights, so are not confined to just Canada, and it gives us quite a bit more potential, margin breathing room, and ability to react and respond to changing market conditions.”

Raincoast Book Distribution in Vancouver is one of the few pure distribution companies still standing in Canada. And in a move that seems counterintuitive, given the growth of the e-book market, Raincoast moved in December to a warehouse facility that is 40% bigger than its previous facility. “We’re confident that print is going to be around for a good long time,” says CEO John Sawyer. He explains that Raincoast believes that digital books will find some new readers but that they will also take a bite out of the print market in different genres, price points, and formats. “It all depends on which chunk of the print market you are talking about,” he says. “So our strategy is that we had better sell more different print books—more volume and variety. That was part of what inspired us to move the way we did, and it has paid off.” Sawyer adds that Raincoast knows that when it promotes a print book, it is also helping the digital version get attention. For that reason, Raincoast has arrangements with some publishers to earn a share of some of their digital revenues.

In addition to picking up some of Macmillan U.S.’s business, Raincoast’s Publishers Group Canada arm will be handling the independent bookseller accounts for the Canadian branch of Oxford University Press. Last year, Raincoast also took on Sourcebooks as a client. That fits in well with its strategy for more volume and variety. “One of the strengths that we have is that we have a multitude of different publishers,” says Sawyer. “We’re not reliant on any one or two publishers, so that lends more stability.” Sawyer says he has seen client publishers sold to someone else who is already distributed by another company, and as a result Raincoast lost the line. “It’s important not to have all your eggs in a very small number of baskets and we don’t,” he says.