Independent booksellers wary of new giant

Chapters Inc., Scotia Merchant Capital Corp. and former Pacific Pipeline CEO Dennis Zook have banded together to form Canada's largest national book wholesaler, Pegasus Wholesale Inc. The new wholesaler stocks more than 400,000 titles from both Canadian and American publishers and may add U.K. publishers in the future.

Under the ownership structure, Scotia Merchant Capital will invest C$25 million in Pegasus in return for a 25% share in the company. The money will be used to help finance the purchase of the distribution division previously operated by Chapters. Chapters will retain a 72% interest in the wholesaler, and Zook, who will be president and CEO of Pegasus, will have a 3% stake.

While many Canadian publishers support the creation of Pegasus, independent booksellers are less enthusiastic. "The Canadian book industry has needed a national wholesaler for a very long time," said Anna Porter, CEO of Key Porter Books, who is a director of the Pegasus board. But Nicholas Hoare, owner of the Nicholas Hoare Bookstores in Toronto, Montreal and Ottawa, sees the move as a thinly veiled attempt to c rce the market in Chapters' favor.

"[Pegasus] is not being set up as a national organization but an internal one," Hoare told PW. "It's main purpose is fairly clear -- sort of hiring an elephant to squash a mouse."

Hoare, who is a member of the Association of Canadian Book Wholesalers, argued that a large wholesale organization like Pegasus d s not come into being without having a captive market to sell to already established. "And if you don't have that captive market, then one can only deduce the logic behind it, which is essentially a power play on the part of its indirect owners to set up an internal structure which would avail itself of wholesale terms versus retail terms for the purpose of retail sales."

Sheryl M. McKean, executive director of the Canadian Booksellers Association, said she has received many calls from CBA members concerned about the Pegasus-Chapters relationship and its effects. "We are adopting a very cautious perspective, because we really don't feel that we know enough, nor, given what we know, do we have a lot of confidence in the fact that [Pegasus] will be as positive as it's being presented to be," she explained.

McKean said that the CBA has set up meetings in Ottawa this week with the Department of Canadian Heritage and the Competition Bureau. "I can tell you that we are not going to Ottawa twice this week because we have nothing else to do," she said. "We want to discuss the `what ifs' and see where that takes us."

Amid the industry's concerns, Zook claimed that Pegasus is actively pursuing other retailers and bookstores, and will in effect "be like an Ingram or a Baker &Taylor."

The similarities between Ingram and Pegasus do not end there. Canadian retailers are concerned that Chapters, under the guise of Pegasus, will concentrate industry power, just as Barnes &Noble, whose $600 million deal to purchase the privately owned distributor Ingram Book Group has been criticized by U.S. retailers.

"Similar to the U.S., I'm sure there will be some apprehension," Zook admitted, "but my hope is that as we show that we are not Chapters and that our goal is to provide [retailers] with the biggest selection and best service in Canada, they'll warm to the idea."

With 400,000 titles currently in stock and plans to have more than half a million, Pegasus's capabilities and facilities are on a par with those of major American wholesalers. It also intends to incorporate other products, such as magazines, CDs, videos and DVDs, into its stock. "We are in every way on scale with Ingram's largest facilities," Zook said.

Although it has no clients yet, Pegasus's sights are not limited to Canadian buyers. "I will supply anyone who's interested in buying from me," Zook said. He has sales calls scheduled for the next two weeks with several of the largest retailers in Canada, and Pegasus will continue to be the supplier for Chapters' Internet site.