Booksellers, publishers and authors are still reeling from the news of the collapse of the country’s largest online bookseller, Booktopia.
This week, as creditors met for the first time, the administrators announced that they were hoping to find a buyer for the company that could see its business continue its operations. According to the ABC, up to 80 parties have expressed interest, including reportedly Dymocks, Brisbane-based QBD Books and online retailer Kogan.com.
Last week, all trading stopped on the Booktopia site. Here’s what happened.
What happened?
In January 2023, Booktopia cut 40 jobs in a round of cost-saving measures amid financial losses. In June this year, the company’s board of directors released an update to the stock exchange, revealing less than ideal results.
A series of executive-level changes took place earlier this year, with its chief financial officer Fiona Levens inexplicably resigning in May. The following month, chief executive David Nenke also stepped down — just over a year after he took on the job. During this time, the company shed a further 50 staff in an attempt to save itself more than $6 million, and revealed that it had secured $1 million in emergency funding from AFSG Capital for “redundancy related costs”.
In the six months between July and December 2023, the ASX-listed company recorded a net loss of $16.7 million, with over $20 million worth of net liabilities. The previous year, it had suffered a $3.9 million loss.
Shares fell to 4.5 cents. When Booktopia made its debut on the ASX in December 2020, shares were at $2.86. In 2021, it spiked to $3 a share, though it has been dropping since, losing more than 98 per cent of its value. On June 17 this year, shares were down to $0.05.
In March 2023, Booktopia was fined $6 million by the Australian Competition and Consumer Commission (ACCC) for misleading statements about consumer guarantee rights.
According to the Sydney Morning Herald, the company have reportedly axed a total of 165 jobs over the last year and a half, with just 18 employees remaining.
Last month, Booktopia suspended trading on the ASX, pending a strategic review update which revealed that the business had gone into voluntary administration.
Two weeks later, in early July, the Booktopia Group and its associated entities (Booktopia, Virtual Lifestyles and Making I. T. Better ) were declared insolvent after failing to secure emergency funding. The company employed the services of specialist advisory and restructuring firm McGrathNicol to manage the company’s restructuring, with partners Keith Crawford, Matthew Caddy and Damien Pasfield leading the project.
“The shares of Booktopia Group Limited (Administrators appointed) will remain suspended from trading during the administration process,” McGrathNicol said in a statement released this month.
“Shareholder updates will be uploaded to the ASX platform as required. The Administrators are undertaking an urgent assessment of Booktopia’s business while options for its sale and/or recapitalisation are explored.”
According to publishing experts, Booktopia made the mistake of undercutting the confidence and trust of its customers.
“It has been the target of allegations of misleading advertising, with titles promoted as “in stock” taking several weeks to be delivered, and occasionally arriving damaged,” Katya Johanson and Bronwyn Redden explained in a recent The Conversation piece.
Johanson, Professor of Publishing and Audience Studies at Edith Cowan University, said Booktopia’s main rival was international online booksellers, such as US behemoth Amazon, which ate up a larger portion of the Australian book market in recent years.
“Much of Booktopia’s early rise happened before Amazon started trading in Australia,” Johanson wrote. “Booktopia touted its predictive sales algorithm as a competitive advantage that allowed the business to manage stock levels and allocate advertising spend by monitoring and forecasting product demand in real time.”
Bronwyn Redden, a Research Fellow at Deakin University, contributed to Johanson’s explanation, adding that Booktopia’s fast growth in its early days led it to over-invest in its warehouse capacity.
This investment eroded its margins, due largely to “inflation-related increases in running costs on rent and electricity, and a post-COVID slump in book sales.”
Bad news for Australian authors?
Booktopia’s collapse is not welcome news for Australia’s publishing industry. This is because the company supported local authors by choosing to buy from Australian publishers instead of their international counterparts when possible.
Australian booksellers association BookPeople CEO Robbie Egan described Booktopia as “a business that hasn’t been run properly.”
“If you can’t take [nearly $250 million in annual sales] and set yourself up, something’s not quite right,” Egan said last month. However, he admits that despite them having “been a thorn in the side of my members for some time, they serve a really important role in supporting Australian authors.”
“If they’re going to collapse, I’d love an orderly one over time for people to adjust,” he said.
Last week, administrator Damien Pasfield from McGrathNicol Restructurings said that orders placed with the company will not be filled and that customers who haven’t received their orders will unlikely get a refund on their purchases.
Out of pocket customers who placed orders before the company entered voluntary administration will also not have their credits and gift cards honoured, with the administrator revealing that transactions prior to July third represent an “unsecured claim against Booktopia”.
The ABC predicts the company now owes publishers and customers millions of dollars, with roughly 150,000 unfulfilled orders worth about $12 million and $3 million worth of unused gift cards.
Whether or not any unsecured claims can be paid back to customers depends on the “outcome of that sale or recapitalisation, and realisations from other assets.”
“[We are] undertaking an urgent assessment of Booktopia’s financial position, whilst pursuing options for completing a recapitalisation of Booktopia or a sale of its business or its assets,” the administrator said in a statement to customers.
“The recapitalisation / sale process will operate within a compressed timeline to minimise business disruption.”
On Monday, when the first creditors meeting was held, the administrators said the company could be as much as $60 million in debt.
The company maintains that it was complying with insolvency laws at all times during its operation.
In a statement to the ABC, Booktopia’s executive chairman Peter George said the company has “at all times complied with the law in relation to insolvent trading”.
“Booktopia had advanced discussions with shareholders and brokers in relation to a capital raising,” it said. “Booktopia’s plans were hijacked in the week before appointment by the decision of a credit card service provider, Fiserv, to withhold 100 per cent of all credit card receipts.”
“The company had no way of funding the business in the two months between this event and the capital raise proceeds being received.”
“There will be some customers that have placed orders for books where the books may actually be in the warehouse,” he continued. “Those books are actually assets of the company or the retention of a supplier. Booktopia up until this event had every confidence that books on back order would be delivered”.
One publisher who is owed money from Booktopia is Jane Curry, who heads the independent publishing company, Ventura Press. Curry told the ABC her company had been “fearing and dreading” the collapse of Booktopia for most of last year.
Booktopia was co-founded in 2004 by brothers Tony and Simon Nash and Steve Traurig.
At its height, it sold more books than any other Australian company (selling a book “every 3.9 seconds”) and had over 5 million customers.
In its tenth year of running, it moved into a larger warehouse. In 2018, it was shipping on average 30,000 parcels per day. Two years later, it was listed on the ASX, where it never turned a profit.