"Why are you picking on Family Christian Stores?"
Okay, so my recent posts (here, here, and here) on the bankruptcy, reorganization, and sale of Family Christian Stores (FCS) has created a bit of a stir. Four publishers wrote me to say thanks. Several independent bookstores wrote to tell me I’ve not told the whole story. And a few folks wrote in to say, in essence, “Why are you picking on Family Christian Stores? Don’t you want them to stay in business? And don’t lots of businesses go through bankruptcy?”
I think there are four things to note…
First, this isn’t your typical bankruptcy. Look, I’m a small businessman. I know that 
sometimes the market can turn on you, and you lose money. I had a friend who went big into microfiche, just as the ‘fiche industry was made obsolete by digitalization. Tastes change, technology creates new products, and a business can suddenly be facing hard times. Um… that’s not what’s going on here. According to vendors, the folks at FCS were ordering products in, knowing they were not going to be able to pay for them. Some small businesses delivered orders within days of FCS shutting down — and they have claimed the company simply had to have known it was receiving product for which they’d never pay.
The worst example? Bibles — and at least two publishers have said to me, “This was all about Bibles.” Of the $14 million FCS owed to publishers, about $10 million of it was in Bibles. The vast majority of money they owed to HarperCollins was for Bibles that Family had ordered in. So look at the money for a moment… FCS orders in $10 million in Bibles. But instead of paying ten million, they end up, after their re-org, paying roughly one-and-a-half million. AND they get to keep that product and sell it at full retail price, so somewhere in the neighborhood of $20 to $25 million. This is why a couple of the publishing houses insisted they be paid full value for all books ordered in the last three weeks before FCS files for bankruptcy — because some publishers felt they were being scammed. So, in my view, this isn’t all due to a change in the market. (Of course, there’s also the weirdness of having the owner of FCS turn around, create a new company, and buy out his own company in order to save millions… something everyone is holding their noses over.)
Second, the reaction of FCS administration was shockingly off-kilter. We all got to hear CEO Chuck Bengochea declare this was “God’s plan” and state that he was “celebrating.” Worse, he went back to an earlier company line about using money to help “widows and orphans.” Try to read that and not want to barf as you think about the various companies that went out of business, the publishers who lost millions, and the authors who aren’t getting paid for their books. Or think about the fact that FCS is going to shut down stores and lay off workers, even though they’ve argued repeatedly that’s not going to happen. Hey, Mr Bengochea (who was reprimanded by the judge for making a late night call to the owner in order to apparently work a backroom deal) may be a wonderful human being, but his tone-deaf response and that incredibly stupid-sounding “we’re just in it for the ministry” jingoism makes him look like an out-0f-touch corporate raider. How about a bit of “we take full responsibility” or “I’m sorry for the people we hurt”?
Third, the lack of reporting on this story, particularly among religious media, has been appalling. I’m not sure what Christian magazines and news sources are hoping to gain by not being clear about this story, but have a look — there’s been very little in print. Maybe it’s that whole “we’re all Christians so we don’t want to hammer each other” mentality. Perhaps it’s simply, “If we say something, FCS may not carry our products any more.” I don’t know… but in my view, a lot of people should be ashamed for failing to report on this. I’m no crusading journalist, but I don’t want to sit on the sidelines while the authors I represent and the publishers I do business with get taken for millions of dollars.
Fourth, I’m not rooting for FCS to fail… I’d just like them to be held accountable. I represent authors whose books sell in their stores, and losing all that shelf space would be painful — just as it was painful when Borders closed a thousand stores. (Of course, nobody at Borders was claiming they were going to be giving their profits to widows and orphans.) So I’m glad FCS is remaining open, at least for a while. I’m also a fan of all those great indie bookstores out there, including the member stores that are part of the Munce Group, the Parable Group, and the Covenant Group — all indie-owned, and mostly appalled at the behavior of FCS. Of course, I hope this spurs CBA publishers to stop being quite so brick-and-mortar focused, but my reason for writing about this is basically because it felt like nobody was telling the story. I love this business, and if you’re really involved it you’re going to hear both the good and the bad. If you only want to hear good news, I guess you should stop reading my blog… and maybe you could start reading “The Bengochea Celebration Blog.” No doubt it’s happy. And there’s probably a button so that you can contribute to all those widows and orphans.
32 Comments
I invested almost 23 of my prime years with them, when they were Family Book Stores. During that time we survived some very lean times. But, through great sacrifice and determination by all of us in management positions, we survived … and thrived. It makes me sick to see the hypocrisy and deceptive games the ownership is resorting to today. The founding family (Zondervan) would not have operated in this manner. Thanks, Chip, for setting the record straight.
Chip, do you know if Richard Jackson’s original loan to FCS was discounted during the reorganization or if it was assumed by the new FCS for the entire amount? If it was assumed, then Richard Jackson will be the only creditor paid-in-full after having shed $127 million.
Someone on the inside told me this, Sheila: “Yes, his loan is assumed in its entirety. This can all be found in the court filings at http://dm.epiq11.com/FCL/Docket.
“Another interesting item that no one seemed to have noticed is Jackson’s group purchased/assumed the Credit Suisse loan for $6 million, which is $545k MORE than they settled for the morning of the Sales Hearing. They did this just after the judge nixed the sale and before they submitted a reorg plan. This loan became a term loan in the reorg plan. The loan amount became $34 million instead of $28 million with 17% of it being paid. My guess is they figured Credit Suisse was the only wild card if they were allowed to vote, and given the amount of the loan it could have caused problems if they voted no. [Note from Chip: Actually, if Credit Suisse had voted no, the deal would likely have been scuttled completely. Several have asked me why Credit Suisse voted yes — it’s now clear the reason was because they got more guaranteed money from Jackson in what amounts to a side deal.] So, one can only assume the FCS leadership BOUGHT the vote for $6 million. They assumed that vendors were going accept the plan, because what other real choice did they have?
“This $6 million term loan became a bridge loan to FCS, to be paid in full after the reorg plan was approved. Doing so removed the requirement to pay the settlement with Credit Suisse out of the estate. The $6 million loan will simply be rolled over into Jackson’s senior secured loan. They make their money off the interest.
“So what is the ultimate result? Jackson sheds the debt, and his loan remains the senior secured loan. This loan is secured by the assets of the estate or inventory. If in 2 to 3 years they get into trouble again (which I think they will), they simply file Chapter 7 liquidation. Jackson still guarantees himself being paid.”
So… yeah. It means Jackson and his team of merry men did indeed buy this victory.
Chip, you had me cheering throughout your article until we came to the line about hoping the CBA publishers won’t be “so brick-and-mortar focused”. This has nothing to do with brick and mortar. FCS is an online store as well. The problem was with the fraud, not the fact that they had a physical location.
Thank you for affirming the independent stores. I have owned one for nearly 27 years. From my perspective, the publishers are just as much to blame for offering special deals to FCS that they didn’t offer to us. This unfair pricing structure allowed FCS to do a great deal of harm to the independents. Perhaps I will have to write an article explaining this facet for those who want to hear the devastation this caused to the entire industry.
The publishers have it within their power to finish off the death of brick and mortar stores because we are at a very fragile point. If they handle this correctly, the free markets can replace FCS with better, more honorable stores. If they continue on the same path of cheapening their products, everybody loses.
Always appreciate a different perspective, Cynthia, so thanks for writing. And for those who don’t know, publishers were giving FCS better deals than independent stores were offered, because of the economy of scale. And yes, that ended up damaging indie bookstores.
Sorry. I didn’t finish my post. I lost my job and the company is suffering. I loved that job and FCS helped to launch the company. But, we ended up with a lot of inventory that was not paid for. I also know an author who was affected. The ripples are still going through the publishing and gift products industries. Some companies and people will never recover. It breaks my heart.
And it hits here, as well. We have authors with books in FCS stores. The stores are paying the publishers, so the publishers aren’t paying the authors — meaning I’m making nothing on those books. Yeah, yeah — poor me. I’m not hit nearly as hard as others. But my point is that this has really hit a lot of folks. Appreciate you writing.
I used to work for a company affected by the FCS mess. I say “used to” because I lost my job as a result of it
Deborah, I’m so sorry. I’ve heard this from a number of people. Ugh. Hate reading those words. Hang in there.
Chip, this was great…with both the original and the follow up. Haven’t heard about the FCS problem, but it stands to reason that the economic woes have been catching up to many companies…even those in the faith-based arena. Keep up the great work!
Thanks, Mike.
I just read an article where a Christian fashion show may have to close next year because their major sponsor – Zondervan – is cutting sponsorship. You say above Zondervan aka HarperCollins Christian Publishing lost millions over the FCS debacle. The two things have to be related, and it’s sad that a small organisation trying to make a difference has to suffer because of the actions of others.
I had to read this several times, Iola, because I’ll admit I had no idea there was such a thing as a “Christian fashion show.” But that probably just shows my limited cultural engagement. The fact is, HarperCollins took a huge hit on the FCS disaster, so we can all expect them to pull back on a bunch of extra spending.
Thanks, Chip, for another great article on this mess. So, if I’m reading this situation correctly, for any books I authored (published by RiverNorth Fiction, Moody, and AMG Publishers) that they have put on their shelves in the last few months, the publishers either won’t be getting paid at all, or will be getting a small percentage of what they are due? But the stores will sell at full retail price? I’m no bestselling author, but if this is the general idea, I’m sad for all my author friends and their publishers who will have to write this all off!
Correct, Jocelyn. FCS ordered those in, but won’t pay the publisher for them. (Well… to be exactly, they will pay 14.5% on them, which is below the standard threshold for authors to be paid anything.) So yes, FCS will now sell those copies. And no, you won’t get a dime. Happy Writing.
If I were a publisher they cheated, especially one as big as Random House or HarperCollins, I might think of boycotting them until they paid.
Also, the leaders at FCS believe in a very different God than I do.
It is always disappointing, and at the same time humbling, to hear when
Christians miss the mark so badly. Speaking as one myself. Glad, Chip, that you’re reporting on
it.
Thanks, Laurel.
Just a couple of things. First, a lame attempt at humor, I’m a widow, where’s my help? (You can groan–my “help” comes from God.) Second and most importantly, God is not mocked. Christ was quite specific is his admonitions to believers. To equate God’s plan with fraudulent behavior is dangerous. I hope and pray that we reach a point where we won’t have to hold our noses and reward people who rip off other people.
Here’s a possibility for the lack of reporting: Christianity in America seems to be in a free-fall brought on by deception and hypocrisy. Unlike many of the other stories which are mostly local or regional, this manipulation involving FCS is nationwide and would impact a whole lot of believers. How much more will even faithful Christians put up with before they start to move away from organized religion and all the trappings that go with that religion?
For Widow and Orphan help, go to Chuck Bongochea.com, and click on the “Widowsandorphans” button.
I’m not sure I can shop there anymore. You are absolutely right about their tone deaf response. There doesn’t appear to be a lot “Christian” about them, from the outside looking in. Admit, repent, repair.
Correct, Michael. But that’s not part of their corporate DNA, apparently.
Thanks, Chip. I appreciate your sharp reportage. 🙂
Appreciate that, Jamie. Nice to hear from you.
I’ve read all your posts on this issue and haven’t once thought you were hoping they would fail. I didn’t know about the Bibles part. Your blog is one of the few places I’ve heard about this whole mess, and, as a writer and follower of Jesus, FCS’ handling of this bothers me more than anything else. Stores do fail, but, as a former lawyer (not like marines… not always a lawyer), ordering millions of books in the last few months feels like fraud. Thanks for being on top of this story.
Thanks, Nick.
It is apparent that you were trying to address the issue as kindly as possible in previous discussions. This is the first I had heard regarding widows and orphans as an excuse. Those held in high positions should not be protected merely to save jobs but held accountable. In the end they have to live with the consequences. I recently saw that our local store is closing in September.
It’s true, Daphne. They even used the term “widows and orphans” — and I’ll admit when I first heard that, I thought someone had to be playing a joke. Nope. They’ve claimed they are in business to help support widows and orphans. Which suggests to me they maybe aren’t quite in touch with the culture…
Thank you for this post. I hadn’t heard much of what you shared, very interesting indeed!
You’re welcome, Jennifer.
I’m glad you keep telling it like it is, Chip. We would be sorry to lose the FCS here in town, because it’s the only Christian bookstore locally, but–this whole mess has left me rethinking my previous enthusiasm for shopping there.
Yeah, I think a lot of us are torn, Krystine. I’ll shop at FCS, since they carry authors I represent… but I’d love for the leadership to respond differently in the media at some point.