Family Christian Stores, Inc.

5300 Patterson Avenue SE
Grand Rapids, Michigan 49530
U.S.A.
Telephone: (616) 554-8700
Fax: (616) 554-8608
Web sites: http://www.familychristian.com

Private Company
Incorporated: 1994
Employees: 5,000
Sales: $325.0 million (2001 est.)
NAIC: 451211 Book Stores

Family Christian Stores, Inc., based in Grand Rapids, Michigan, is the nation’s largest retailer of Christian-themed products. The company owns and operates over 340 stores in 39 states. It sells a wide range of merchandise, including books, music, greeting cards, videos, clothing, toys, and church supplies. It also sells through its widely circulated catalog and via its Web site, familychristian.com. The venture capital firm of Madison Dearborn Partners owns about 70 percent of the private company. In 2002, the company, headed by Leslie E. Dietsman, celebrated its 70th anniversary.

1931-70: Christian Bookstore and Publishing House Is Founded and Expands

The company that would eventually give corporate birth to Family Christian Stores was founded in 1931 in Grandville, Michigan, by brothers Peter J. (Pat) and Bernard (Bernie) Zondervan. The pair opened shop in their mother’s farm house, starting what eventually would emerge as The Zondervan Corporation, specializing in the publication of Christian books, including Bibles, but with no affiliation with Family Christian Stores.

In 1932, the brothers opened their first bookstore in Grand Rapids and in the next year began publishing books under the Zondervan imprint. Through the next two decades, the company slowly expanded, taking significant steps in 1959, when it bought a religious music company, Singspiration, and in 1960, when it took over the publication of Halley’s Bible Handbook, buying the rights from a private concern. Over the next few years it sold over four million copies of that work.

By the 1960s, Zondervan had started opening outlets in shopping malls and met with considerable success, encouraging the company to restrict its new openings to such locations. In 1966, the company acquired Harper Row Publishing Company’s Bible department, which transferred to Zondervan the publication rights to a number of Bibles and Bible textbooks, including the widely adopted Harper Study Bible.

1971-83: Rapid Growth for Zondervan Corporation

In 1971, Zondervan invested capital in the financially troubled International Bible Society and its translation of the New International Version (NIV) of the Bible, an investment that paid off handsomely when that publication, completed in 1978, became a best-selling Bible, ranking second only to the King James Version. Adopted as the Bible of choice by many churches, the work catapulted Zondervan into the top tier of publishers of religious works.

The company thrived through the first part of the 1980s, growing significantly via the acquisition of other companies, including, in 1980, the John T. Benson Company, a religious music publisher, several book publishers, and Tapley-Rutter Co., a specialty bindery. It also acquired a foreign subsidiary, Marshall Pickering Holdings Ltd., a UK-based printer and publisher of religious books and music. Although it logged unexpected losses in 1979, over the next four years its sales and profits more than doubled, with annual revenues reaching $93 million by 1983. However, trouble loomed just ahead.

1984-94: Buyout of Zondervan

In 1984, it was revealed that for several years the company’s books had been incorrectly kept, masking losses of several million dollars. Since the company had gone public in 1976, the disclosure brought both lawsuits and SEC sanctions. Straightening matters out became the major task of James Buick, who had became Zondervan’s CEO just prior to the debacle, a task made difficult by the bottom-line losses that followed it. In 1988, to thwart a hostile buyout attempt, Zondervan’s directors sold the company to Harper Row for $56.7 million, a figure that left some investors unhappy enough to bring new suits against the directors. However, most were mollified when Harper Row merged with Collins Publishing to form HarperCollins.

In 1989, while a division of HarperCollins, Zondervan created a New Media division and became the first in the industry to publish books and Bibles in an electronic format. However, despite is successes, Zondervan did not fit readily into the HarperCollins mode. The result was a major change that came towards the end of 1994, when the management of the Zondervan’s Family Bookstores chain purchased it from HarperCollins in an amicable buyout. The buyout group was headed by Zondervan’s Family Bookstores president and CEO, Leslie Dietzman, with the additional financial backing of a group of private individuals who were not affiliated with any other corporation or company. The Zondervan group had actually started mounting its buyout effort as early as 1992, when Buick, its former president, confided in the Grand Rapids Press that the move was designed to “return the direction and control of the company into the Christian community.” The management buyout effort was also being encouraged by George Craig, president and CEO of Harper-Collins, who, rather than put Zondervan up for sale, gave its managers time to get the necessary financial backing. Meanwhile, in September 1993, the Zondervan division split into two distinct parts, the publishing operation, which retained the Zondervan name, and the Family Bookstores operation. The split, engineered by Buick, put him out of his job. The top post of the publishing operation passed to Bruce Ryskam, while that of book sales went to Dietzman.

The private company that broke apart from HarperCollins was named Family Bookstores Co. It was totally divorced from the Zondervan name, which remained with HarperCollins as part of its publishing empire. Zondervan continued its own evolution as The Zondervan Corporation, which continued to publish Christian books under the Zondervan imprint, including its world renowned NIV Bible.

The executive team of Family Bookstores remained in place under Dietzman. He had joined the Zondervan chain in 1992, two years before the buyout from HarperCollins. His experience before 1990 had been in secular retailing, but he was the son of a pastor and had assisted his father in church while growing up in Loyal, Wisconsin. His career in merchandising took him to Wal-Mart Stores in 1990, where he became vice-president in that giant’s toy and automotive divisions. Both his family history and retail sales experience led to his recruitment to head the Zondervan bookstore chain at HarperCollins.

When the sale was made, there were 148 renamed Family Bookstore outlets, but soon after the closing of the sale the newly independent company acquired five more stores when it bought The Quest chain in Seattle, Washington. Plans called for the addition of more, larger stores. Many of the existing stores were mall-based outlets averaging 2,200 square feet, but, in a strategy change that called for moving out of the malls, new units were being added with an average size of between 5,000 and 6,000 square feet.

1995-97: Growth Through Acquisition and a New Company Name

By the summer of 1995, with the acquisition of Religious Book & Supply, with its 12-unit chain located exclusively in Florida, Family Bookstores had a 171 locations in 32 states. The company had earlier bought out some smaller operations, including Christ’s Corner Bookstore, with outlets in Plainsfield and Brownsburg, Indiana; two Christian Armory stores in Atlanta; and the Password in Pennsylvania. In 1994, it had also bought the 35,000-square-foot Living Vine store in Irving, Texas. The great majority of the established and newly purchased stores were located in the nation’s principal Christian sales areas in the Southeast and Midwest, including ten in Atlanta, ten in Chicago, four in Cincinnati, seven in Dallas, three in Indianapolis, five in the Raleigh/Durham and Greensboro, North Carolina areas, five in Nashville, and six in Washington, D.C. These cities were promising market sites because they attracted tourists to their many fine churches. Still, Family Bookstores was expanding into other markets, and also had stores in Boise, Idaho, as well as Denver and, with the acquisition of Quest, in Seattle. At the time, as reported in Billboard, Family Bookstore’s CEO Dietzman indicated that “eventually we will be nationwide.”

Family Bookstores sold more than books, and from the outset started a further diversification of its inventory. In 1995, it estimated that at least 25 percent of its annual revenues were generated from the sale of music recordings and videos, including items in its stores’ children’s departments. In fact, tapes, CDs, and videos were growing product lines, and the company indicated that they had the potential to comprise over a third of the company’s business.

For its 1997 fiscal year, Family Bookstores had net sales of $168.1 million, up by an annual growth rate of about 15.4% from 1995, when its net sales were $126.1 million. Its operating income over that two-year period also grew from a deficit of $2.5 million to a profit of $5.5 million. The growth encouraged expansion and a refurbishing of its image, starting with a change of name. Partly to reflect its mission and partly to indicate that it was selling a more diverse product line than books alone, the company was restyled Family Christian Stores, Inc. (FCS).

Company Perspectives:

Vision: Family Christian Stores ’ vision is to provide high-quality Christian products that impact the lives of people everywhere and to achieve exceptional business performance. Mission: Family Christian Stores ’ mission is to serve Jesus Christ as a growing national retailer that is Christ-centered, offering exceptional value, products, and services for our customers.

1998-99: Major Expansion

Under its new name, the company took a major step in 1998, when it acquired a Forth Worth, Texas-based chain, Joshua’s Christian Stores, from that company’s parent, Tandycraft Inc. UnderTandy craft, Joshua’s, dating back to 1982, had been a fast-growing chain, expanding to 76 stores from its single outlet before being scaled back to 56 stores at the time of its buyout by FCS. In its fiscal year ending in June 1997, the company grossed $32 million in sales but logged an operating loss of $7.7 million; however, for first six months of fiscal 1998, Joshua’s had reported an operating profit of $846,000 on sales of $18 million.

Before purchasing Joshua’s, the FCS chain itself had grown to 210 stores located in 34 states. The Joshua outlets added 56, and new openings in 1998 brought the total to 280 by May. At that time, Dietzman indicated that the company also had plans to expand by about 30 new stores by the end of 1998. FCS was already far and away the largest Christian bookstore chain in the country, having almost twice the number of outlets as the next two largest chains combined. These, the Baptist Bookstores and Lifeway Christian Stores operating 74 stores through the Southern Baptist Convention, and Lemstone Books operating 73 stores, together had a total of 147. Clearly, in 1998 FCS dominated the $4.3 billion specialty, Christian-theme retail market. The company generated $227 million in revenue, with about 20 percent of being accounted for by music sales.

In order to finance further expansion, FCS put in motion plans to go public and float an issue of common stock. In August 1998, it filed an S-1 registration form with the SEC, and although it did not indicate how many shares of common stock it was planning to issue and at what price, it hoped to raise about $45 million. It intended to use around $12 million of the IPO’s proceeds for financing new store openings and making acquisitions over the next year or year and a half. The filing also indicated that control of FCS would remain with the existing shareholders and management. At the same time, the company took the unusual step of looking for a large infusion of capital from other sources.

The company was then operating 276 stores in 36 states. Its sale of Bibles, other books, audio tapes, and videos accounted for about 39 percent of its sales, gifts and cards for about 26 percent, music for around 20 percent, children’s items for 10 percent, and church supplies for 4 percent. At the start of the 1998, to help vary its product mix, FCS had also established its own publishing imprint, the Family Christian Press. The company also had begun marketing is product line on the Internet at its www.familychristian.com site.

As matters turned out, the planned IPO was put on hold. The IPO market weakened soon after FCS filed its intention to float a stock issue. Then, in October 1998, the company filed its notice of suspending its plans. It would remain private into at least the start of the new century. In 1999, it also got the needed financial backing it sought when Madison Dearborn Partners began investing in FCS. The funds provided by that firm allowed the company to stay on its expansion track. Projected to end up owning as much as 80 percent of FCS, Madison Dearborn was also able to provide a wealth of experience in specialty retailing, in which it had a rich history of investment.

2000-02: Company Launches iBelieve.com Web Site and Slows Expansion

FCS took a major step at the beginning of 2000 when it launched iBelieve.com, described in a PR Newswire as “a comprehensive Christian lifestyle site aimed at satisfying the spiritual, social, and resources needs of the nation’s 90 million committed, active Christians.” Originally set up as a standalone sister company to FCS, iBelieve.com was supported by a $30 million private equity infusion from Madison Dearborn Partners. The site was designed by Andersen Consulting’s Global Retail/E-commerce Practice to meet various needs of the Christian community. It was launched with an on-line catalog of over 70,000 e-commerce products covering a wide variety of merchandise, from books and Bibles to music, gifts, and clothing. The site also offered a range of services, including entertainment and financial, family, and parenting consulting.

Rumors claiming that it was heading for bankruptcy plagued the company through the close of the twentieth century and the start of the twenty-first. Although dismissing such claims out of hand, in the spring of 2001, FCS did slow down its expansion rate, holding back both new acquisitions and new store openings. Although it had once been on schedule to grow to 500 locations by the end of 2000, it decided to step back to concentrate its investment in remodeling and relocating some of its existing outlets. The slowdown did not warrant speculation that the company would soon be on the auction block. It was, insisted CEO Dietzman, merely a cyclical adjustment of the sort all such retail chains faced as they adjusted to marketplace realities. Adjustments included the closing of 14 stores between Christmas of 2000 and March 2001, but, according to the company, these were largely marginal units whose leases had expired.

Key Dates:

1931:

FCS starts out as Zondervan.

1966:

The company acquires Harper & Row’s Bible department.

1971:

Zondervan invests in NIV Bible, a key to its spurt in growth.

1984:

The company is beset with difficulties when its faulty bookkeeping is disclosed.

1988:

Zondervan is bought by Harper & Row.

1994:

FCS is acquired from HarperCollins through a leveraged buyout.

1995:

The company acquires Religious Book & Supply Chain

1998:

FCS acquires Joshua’s Christian Stores from Tandycrafts.

1999:

The company launches its iBelieve.com Internet site.

2000:

FCS buys eight stores of Shepherd Shoppe chain.

Principal Competitors

Amazon.com, Inc.; Barnes & Noble, Inc.; Books-A-Million, Inc.; Borders Group, Inc.; Crosswalk.com, Inc.; Deseret Management Corp.; Hobby Lobby Stores, Inc.; The Musicland Group, Inc.; Parable Group, Inc.; Powell’s Books, Inc.; Standex International Corporation; Wal-Mart Stores, Inc.

Further Reading

Bates, Patricia, “Family Bookstores Rapidly Multiplying,” Billboard (August 26, 1995), p. 90.

Bates, Patricia, “FCS to Acquire Joshua’s Stores: Chain Is Becoming Force to Reckon with in Christian Retail,” Billboard (May 9, 1998), p. 61.

Calabrese, Dan, “Family Bookstores Gets New Ownership in Zondervan Break,” Grand Rapids Business Journal, December 12, 19994, p. 3.

“Christian Lifestyle, Commerce Website iBelieve.com Launches Today,” PR Newswire, January 26, 2000, http://www.findarticles.com.

Crosby, Cindy, “Family Christian Slows Store Growth,” Publishers Weekly (March 12, 2001), p 12.

McAlpine, John, “Praying for Business,” Everett Business Journal (September 2001), p. A16.

Milliot, Jim, “Family Christian Stores to Acquire Joshua’s Stores,” Publishers Weekly (April 27, 1998), p. 11.

Ruark, James E., and Theodore W. Engstrom, The House of Zondervan. Grand Rapids, MI: Zondervan Publishing House, 1981.

—John W. Fiero