Exclusive Books has registered theft totalling R5m after a recent stocktake allegedly showed proof of criminal syndicates operating at the chain.
Times Media Group will soon announce the identity of the winning bidder for its non-core asset, Exclusive Books, the country's largest trade book retailer. The new owners will inherit a business that is making a loss of R6.8-million and which has stock losses running at R5-million.
An extract from a weekly investigations report written by a former police officer retained by security company Indico Risk Services reads: "Our team raided two illegal bookstores in Jo'burg's city centre in conjunction with the South African Police Service. An estimated value of R200 000 worth of books that we identified by means of illegitimate invoices were confiscated. A Nigerian citizen was arrested. Another four stores will still be raided."
The former police officer was hired by the security company to identify and apprehend criminal syndicates that are allegedly stripping books worth millions from the shelves of Exclusive Books stores. The report was compiled on April 30.
The latest stock loss figure is R5-million and was revealed after a round of stocktaking at Exclusive Books was recently completed.
Parent company Times Media Group does not disclose the chain's financial performance in and of itself, but a senior source says that, in the 12 months to March 31 2012, Exclusive Books – aiming for a modest profit of R7-million – made a net loss of R6.8-million on revenue of R756-million.
The 52-year-old Nigerian arrested at the illegal bookshop in Commissioner Street, Johannesburg, on April 26, was released by police without being charged.
Indico's investigators complain that syndicate leaders routinely bribe the police. "We confiscate the books, but the police don't do anything after that," says one. "They don't realise the seriousness of the theft. They think it's just normal shoplifting."
Now the syndicate investigations team at Indico, as well as its 60 security guards who manned about 40 Exclusive Books stores across the country, have been retrenched as part of the book chain's cost-cutting plan. Indico had been contracted since 2008 and was billing R400 000 a month in fees for investigations, security guards and cleaning, says its general manager Sam van Zyl.
The last guards leave the bookstores at the end of the month. "When we finish, it'll be open season for the syndicates," says Van Zyl.
Indico investigators have identified three syndicates that they believe are "bulk stripping" selected titles – Bibles, motivational books and Nelson Mandela's Long Walk to Freedom are favourites – off the shelves of Exclusive Books and, to a lesser extent, the shelves of CNA and CUM Books.
Indico investigators give figures for annual book theft from showpiece Exclusive Books stores: R460 000 from Hyde Park and R83 000 from Mandela Square in Sandton. Indico's offices in Fairlands are packed with 2000 books that have been confiscated during raids, some with Exclusive Books bar codes and security tags still intact. A cell in Florida police station holds 700 more.
Indico says the books are stolen to order by teams of shoplifters who carry bags that are lined with tin foil to avoid setting off the alarms at the exits. Those who are caught only face a fine. None of the syndicate bosses have been convicted.
A senior Exclusive Books source says that, during its most recent biannual stocktake, the Sandton City store discovered that R300 000 worth of books had been stolen.
"Traditionally, those shrinkage results should only be between R30 000 and R100 000. There was a fairly huge increase in stock shrinkage over the past six months or so."
Shrinkage, explains the source, "is a euphemism for theft".
The latest stock loss figures are revealed in a memorandum to store managers and staff dated June 28. It comes from general manager of operations Jon Frith, and says: "The latest round of stocktakes has now been completed and the results are dismal. The total variance amount was R5011995.40, which equates to 0.75% of turnover. This is an astronomical amount of product to lose on shrinkage by any standard."
The first Exclusive Books was opened in Hillbrow in 1973. Former chief executive Fred Withers in later years delegated authority decisions to managers at store level.
"There was a family ethos," says one senior manager. "Managers were given a degree of control of their respective stores, arguably a bit too much at times. I did all the buying, the hiring and firing of staff, general merchandising, etcetera. My budget was in excess of R30-million to R40-million a year."
This way of doing things came to a halt last year. Withers retired and at Times Media Group – then called Avusa – directors set about boosting the management of underperforming assets and realising extensive cost savings. At Exclusive Books, the task of restructuring was given to Brian Wootton, then Avusa's managing director of the books unit.
Wootton brought in Neal Saunderson, a manager with retail experience from Look & Listen. Saunderson, who has worked at Mica, Cash Crusaders and Reliable Music, replaced Rob Shortt, Exclusive Books' long-standing and respected general manager. Cape Town-based Wootton remains managing director of Exclusive Books and Saunderson is his number two, running operations in Johannesburg with the title of operations and procurement executive.
"Slash, cut, burn!" is how a departed manager describes the incomers. "Neal Saunderson and these guys came in and created a different structure. Regional managers were appointed, mostly from Look & Listen. Just before I left I was told I couldn't authorise petty cash for more than R100. They cancelled our petrol cards and wanted to move various managers to other stores.
"People like Neal Saunderson come from a different sector of retail, and they are trying to apply the rules of 'normal retail' to a sector that is completely different. Bookselling is a fairly specialised art; it does require a modicum of intelligence.
"They let us trade through last December, but in January they started issuing warnings and exerting a significant amount of pressure. It was not so much the old feeling of Exclusive Books being gone, it was these guys. They didn't seem to be acting with the best interests of the company at heart. They seemed to be acting just to cut costs. My feeling, and the reason I left, is that they were trying to ease us out."
One of Saunderson's innovations, a "mystery shopper" to check on stores' cleanliness and customer service, yielded a sharp memorandum to store managers following the mystery shopper's visits in May. It says overall store performance was "dismal to say the least".
The accounts of Exclusive Books lie within the books business unit at Times Media Group, where it is incorporated with, among others, Van Schaik, Random House and New Holland Publishers.
In the 2012-2013 financial year, the books unit reported a total operating profit of R93-million on revenue of R1.514-billion. The latest indicator, Times Media Group's six-month interim results to December 31, records a books unit operating profit of R36-million on revenue of R756-million.
A source claims that Exclusive Books made a net loss exceeding R6-million in the 12 months to March 31 2012.
Wootton says he is unable to provide details of the net profit achieved. "However, I can say that the stores continue to deliver good profitability. It is common knowledge that in the March 2012 year the business incurred excessive costs relating to the launch of its online business, but these have now been scaled back significantly."
Asked to confirm that shrinkage in the latest stocktake exceeded R5-million, Wootton says: "There has been no marked increase in stock shortages at the latest stock count and the amount was not at the level suggested. Stock shortages result from a number of factors not all linked to theft, and there is no indication that our shortages are linked to any targeted activity by a criminal syndicate."
Why were the contracts of Indico Risk Services terminated? "We have recently reviewed the cost of external security services against the impact of shrinkage and have made some adjustments to how we manage security within our stores," says Wootton.
What about the restructuring, new management style and cost-cutting? "Exclusive Books, in line with book retailers around the world, is having to tighten its belt and make some changes to achieve better efficiencies," he says. "This is a normal response to a difficult retail environment and it obviously comes with some negative sentiment. Our focus is on the long-term sustainability of the business, which will benefit our stakeholders, customers and staff."