Phil Bredesen Interview Transcript
Date: Uncertain Time: 46:04
Bill Carey (BC): HCA is head of the international nursing department.
Phil Bredesen (PB): That's correct.
BC: So you hit the streets and you got a job with HAI?
PB: That's correct.
BC: What was your first job there?
PB: My first job there was uh, marketing and management, hospital management contracts.
BC: So you had a bunch of contracts under you, or?
PB: No, I, I had to go sell them so
BC: Ohh oh oh, oh the manager- and not the, not the ownership business but the management-
PB: The management business yeah
And that’s what HAI or HCI did or did not do at that time
PB: yeah HAI did that and then. Then I moved from that on to actually developing a couple company owned hospitals to maintain which was Hendersonville hospital. That was my project
BC: Oh
PB: and and then I moved from that into running a support group that went out of the hospitals and helped solve management problems and technical problems. It was called Staff Services or something.
BC: OK, And you left in 80’ and basically the street, the street explanation is that people say that you thought you could run a better HMO than I guess INA, and INA owned HAI at that point. (1:05)
PB: INA owned HAI yeah
BC: And, you just wanted to run your own managed care company.
PB: Yeah, I had, they had they had put a toe in the water with with uh, with HMO's. They bought one called Inter- I forget one out in Los Angeles OK, but
it was a very small. Entry OK. And I've gotten familiar with the concept through that and I just said, look, this is a this is an interesting idea. I wouldn't say it was some I can do it better than AI, it was one of I think there's a business here which is a really good business, which they're just regarding as a, they regard as a small. Small add on to their basic big hospital business, but there certainly was no, there certainly was no implied criticism of INA's running up in my opinion. Just chance of, you know, chance saying this is a good business. I'd like to be a player in it. (2:00)
BC: And it was almost the exact same investment group that had started HAI was the same group.
PB: It was the same group. I went to Dick Eskin. Who was Erwin’s brother who's said he talked to him and I basically told him what I wanted to do and asked him for his advice about venture capitalists I might go see. And he said “Well I'll be glad to tell you before that when you come and talk with me and my associates.
BC: Ohk OK.
PB: So I went and talked with the, with Dick and Erwin. Baron Coleman, Herb Shelman and, and they agreed to put up some initial money and then we got started.
BC: And it's called Health Plans. Within the first two years, according to stuff I found you acquired 13 other HMO's,
PB: Probably ‘bout right
BC: to become the second largest HMO in the United States.
PB: That’s probably right
BC: Your office eventually. Up to 3322,
PB: Right
BC: I interviewed David Emery about the SunTrust Tower.
PB: Suntrust tower...
BC: Oh, oh, the whole, remember the saga of David Emery building city center and holding a piece of property? You know how this- (3:00)
PB: Yeah. Yes, yes, yes…
BC: He goes, “I can't believe you bring this up” and I said, are you kidding? It's the best story of the that whole. I have a whole chapter on the 80s and and the number one, the the the the the telling of the story of how the SunTrust Tower got twisted because originally supposed to be shaped differently and because David held out. But anyway, he said that he leased space to you. He said, he said he must have leased you space in, in another building first well
PB: 3310 W End Ave. is the company got started out of 95 White Bridge Rd.
BC: OK.
PB: And then after, I would say almost in the first year, we took some space in the building that was just being completed, which is 33 towers where aggression and Smith was progression, especially with the owner of the building. I don't remember if David was involved in leasing it or not. OK. We stay there for several years and then we wanted some more space. We were the base tenant for David. Putting up the building at 3322 in the quarter, Murphy run there, we had five floors.
BC: Yeah, it was a large company by that time. (4:00)
PB: It was large by that time yeah,
BC: And eventually, I mean I'm aware of that 1980s, you got the whole system of Medicare reimbursement changed the DRG system. I assume this has something to do with the fact that healthcare was a bad place to be back around ‘86-87, the company eventually sold it to Maxicare. The investor sold it to Maxicare, right now. Did you start? When did you run for mayor the first time?
PB: I ran for mayor after that…
BC: after selling it?
PB: Yeah, there was never any. The company had lived very successful years. We had some. Our earnings went down in 1986. OK, the company is there any financial trouble. And you know, yeah, but you had this company that was the darling of Wall Street for a lot of, you know, these huge multiples and so on. And it came down and and we had there were some interest in the party. Investors and selling, which I understand, I mean when we put the company together, the original investment was they each put up $10,000 and I put up $10,000, which I went to a local bank to get and then they put up a $250,000 line of credit which I could use. Well, that that piece
had turned into about $50 million apiece for all those original investors. So, they were kind of they were kind of in the mode of saying, well, at some point here guys, you take your money off the table at this game and, and really wanted to wanted to sell it and. Uh, I found a buyer at, I thought a good a good price. It was a premium over the price the stock was trading at and so on and, and a good profit over what it went public at…
BC: OK
PB: …for people in in Maxicare. We sold it to them basically in the summer of ‘86. And it was after that that I even thought about running for political office. I don't think it had ever been. I was very happy doing that and, and it would be the spring of ‘87 when I really made a decision to run for mayor. (6:00)
BC: And Coventry started after the first mayor's race?
PB: Yeah, Coventry no, Coventry probably actually got started in about November or December of ‘86. You know, the original, to the two people who wanted to do it to Joe Williams and, um, I’m blanking on his name now he left the company shortly after that, came to me and we met in my library and sat down and put the company together.
BC: So so yeah, but it was very similar companies just basically both HMO’s?
PB: It actually started out trying to do some different things and then became an HMO company. It was trying to. Trying to do a start out trying to do a product and insurance product that kind of built on the HMO concept. When Maxicare kind of self-destructed and were selling off plans they had on the block the plan in Pittsburgh, which was a terrific HMO and had been one of our stars and, and Coventry had opportunity to buy it at really rock bottom, rock bottom price and they did.
BC: And the company still has Pennsylvania,
PB: Pennsylvania still one of the main parts of the company. (7:00)
BC: So and you say CEO of Coventry until you ran for mayor that
PB: I've never been a CEO of Coventry.
BC: I’m sorry
PB: Joe Williams was the CEO of Coventry. I, the only relation I ever had of Coventry, is I was chairman of the board in the early years and I was a board
member. Beyond that a little bit. I've never, I've never drawn a salary from Coventry or had any position in the company.
BC: So those are. Were there any other company that you actually, again, I'm sorry not to know all this. I was actually in the Navy during these years. Was there any other company you were involved with before you ran for mayor the second time when you won?
PB: Let's see. Ohh yeah, there are other companies I was involved with.
BC: I mean, not as board members, but but you weren't running and
PB: I was the I was the investor in several companies at that point,
BC: OK,
PB: but I and you know and board member and all this kind of stuff, but I'm but I was never, I was never had a had a officership positioning in any companies. But there was a Coventry, there was Convenient Home Services in South Florida. There was a dental HML up in Chicago. There was Clinical Pharmaceuticals there was. (8:00)
BC: So you took part in this tradition of of, you know, if you get into it and you succeed, you invest in other companies
PB: Exactly.
BC: That’s the way the Frist started
PB: Yeah, exactly.
BC: See the way I've got the healthcare part of the book, It's I mean, I after I talk about the early part of HCA and the rise of[CUT]
PB: The the decision for me to leave was prior to all that stuff.
BC: Oh, oh,
PB: In other words, there were several companies that spun out when HCA acquired acquired from from INA, but my leaving was before that was even the gleam in anybody's eye.
BC: So, yeah, well, who's the is it Rags? Just been a while since I did the Richard Ragsdale. Yeah, great. Interviewed him and alright, Tony,
PB: he was a good friend of mine at HAI, he was the treasurer there.
BC: Yeah, Mike, the part on healthcare went better than I thought it would for this book. I thought it was going to be.
[CUT] (8:52)
PB: Credit to HCA for, I believe it's fair, to give for the kind of the original concept of the thing. But there were two companies right at this that were formed very close to that HAI and then the one that Joe Gordon General Care right that Joe Gordon and and those people had and those were kind of the three that grew up together. I would have I mean HCA was far and away the most successful of those of those 3. The the story with me and the HMO industry is a little different though from the standpoint that that I mean, I was always the thing that I was doing was always the ugly son in all this. From the standpoint that if you have to remember that, that for most hospital companies, HMO’s were their worst nightmare.
BC: But yeah, yeah.
PB: And um, and so there there were a lot of people at the time who were out there basically bought into the hospital business. There were spinoffs that did hospitals like Dick Ridesale’s company. And I was the guy that had over here and over here and kind of gone into, you know, gone over to the enemy and the thing, so the whole. The whole Health America thing was never as it was never as integrated into or as part of the social structure, if I can describe it that way, of the other companies as the other ones were because it was the pariah in the industry. (10:11)
BC: So you mean, but you know, in ‘85 HCA tried to get into the insurance business, trying to follow the lead of Galen with that, with this thing Equicore,
PB: right,
BC: but and that failed,
PB: right.
BC: It failed terribly.
PB: Well, the problem is they all, I think by this by ‘85, they were all figuring out that this thing was not going to just dry up and go away. All this there try to figure how to do it. But they've got these just inherent terrible conflicts of interest. It’s a tough [unintelligible] to do
BC: to negotiate with your hospital
PB: to negotiate with their own hospitals. And I mean, they're they're like any company sitting here with this big successful business, which is your cash cow, it's making all kind of money. You got this little everything or you're trying to put it out of business.
BC: Yeah,
PB: which one are you going to
BC: yeah,
PB: you know which one are you going to work with so. So while I I'll try to say, well, health America was part of the healthcare culture in the city and group we pretty good-sized company we had, I guess it was 6000 employees.
BC: How many in Nashville?
PB: In Nashville there were certainly several hundred, and I don't, I don't, I wouldn't give you a count right there.
BC: Obviously all white-collar people. (11:30)
PB: It was all white collar, yeah although a lot of it was back office stuff. we've moved a lot of the claims department, [indistinguishable], they moved a lot of claims processing and marketing functions so I’m back into the into the corporate office. And so we had a couple of floors or just people are looking at computers put claims and that kind of that kind of stuff. But um but it was you know, I'm just saying it was always, I would say sort of somewhat estranged from this sort of mainline culture of health care companies and the INE and in Nashville.
BC: I'm asking, I'm asking one other thing that's not about this subject, but in the book in the in the afterward, I talked about the fact that, you know, the 1990s from a business point of view until until the last couple of years probably almost were just, you know, unbelievable success tracker to track record of success in Nashville. Couple of things happened in the last couple of years. That people, a lot of people wish hadn't happened. And number one was, you know, the closure of Opryland, which, you know, really hurt Nashville as a tourist city. Did that frustrate you and did you ever feel like um, that you know that that wasn't something you planned for and then that was beyond your control because you had done a lot to get Opryland to do a lot of things in in the mid-90s. (12:28)
PB: I, I guess I was always disappointed that decision was made, although I absolutely understand the decision. I mean, that's what I talked with them about why they would do it and it all made perfect good business, business sense to me. I think what happened is I don't think any of us had realized the extent to which we'd perched Nashville’s tourism business on one or two things, yeah. You know, when people go to San Francisco is a tourist, they go there for 100 different reasons. When people come to Nashville as tourists, and it's all built around Opryland, country music, you know, these kinds of things. So, I think the silver lining in the cloud, and I think the city is now the whole business is much more focused on the fact that their future does not lie in being hangers-on around the side of of being large Gaylord Entertainment, but in developing our museums and Zoos and a host of different things, a much broader base of people, things for people to do. But I don't think any of us realized how how tight we were on that. I mean measure of the change is I think when I came into office. A very, it's hard to remember now, but a very common issue that people would bring up and they just get very emotional, that I wasn't doing more about was what are you gonna do about Branson, MO?
BC: Yeah,
PB: OK. And I kept saying don't worry about Branson, MO. I mean first of all, a big urban city is not gonna compete for $28.00 hotel rooms and...
BC: yeah,
PB: And fading country stars,
BC: yeah. (14:00)
PB: And, and things. And second of all, we got so much more going for us. And I don't think it's been years since anybody ever said to me Branson, you know, more strong Branson, MO. But that was the sense, I mean, it was that our whole business was built around this very narrow kind of country music thing and Branson was over here doing its thing and they're just gonna, you know, they're gonna put us out of business and of course nothing like that remotely happened.
BC: One of the interviews that shocked me.
[CUT] (14:25)
PB: I don't work for them, but I'm still pretty much invested in our big shareholders.
BC: Yeah okay
PB: This is off the record okay?
BC: Yes it is. Yes. Oh so you, it’s a private company, but you still own.
PB: Yeah.
BC: OK. One thing is I haven't called John. I haven't called the company. You know, just just as you'll know, every time I've ever called Ingram always end up with Keel Hunt.
PB: Yeah.
BC: Its kind of doesn't get me very far, but I wanted to just call you and see if there is I- One thing I did read the Publishers Weekly, couple of months ago that no one noted is that Ingram helped underwrite a new. Was it Vault.com? I found this in Publishers Weekly.
PB: What’s the name of it? (15:05)
BC: Vault- This is a, This is out of a story called Vault.com. It's an online job site whose 9 million investment to start the company came from the Ingram Book Group
PB: Doubt that they would do that and they might do it in Ingram Industries. We’re off the record?
BC: Yeah,
PB: I'm not. I've not heard a word of it and I would know. They, and if they did something like that, they’d do it at the Ingram Industries level or they’d do it individually. Not through Ingram Book.
BC: Oh OK.
PB: Unfortunately, a lot of you know, because there's so little known about the things that are going on. Sometimes David’ll do something, David Ingram who owns Ingram Entertainment.
BC: OHH,
PB: and that'll be picked up as being done by Ingram Micro, which is a public company, you know, that's reported on Ingram Micro.
BC: So that may be a David Deal, OK,
PB: David Deal, it could be John Deal. It could be Oren Deal,
BC: OK,
PB: It could be a Richard Deal. I mean, unless you pegged Ingram Book, it has nothing to do with Ingram Book.
BC: OK,
PB: It would not do that. That's just not. You know, that's just not the way that they would operate if they did something like that. In the corporation, you know, David would do it in his or John and Oren would do it in Ingram Industries.
BC: Yeah…
PB: not at Ingram book. And You know, probably not even doing it in the company, they’d probably do it individually. (16:30)
BC: Well, I know that John’s a pretty smart fellow and I understand what his logic was in merging with Barnes and Noble, at the time I didn't understand it, but after it was explained to me I really understood it. I was pretty surprised at the Justice Department, doing what they did considering how the book business is changing, how fast it is, what I what I'm curious to know is what are they going to do now?
PB: Okay, well let me, can I stay off the record?
BC: Yes sir
PB: My name cannot come in. Let me just give you a little background
BC: Okay, you will not be in (17:00)
PB: It may help you with the articles. It’d be an interesting article. First of all, um, Borders Group, which is a big customer of Ingram has been in the distribution business for a long time and there's, and I remember when I was at Ingram, actually identifying the, the real estate that Wal-Walden book distribution center was built on for Harry Hoffman who was in the head of Walden. And they’ve got a, you know, fairly significant distribution operation in Lavergne as well as around the country, they've been in the book distribution business as a retailer for their stores for a long time, but they're you know, probably probably got 11 distribution centers, there's not much press on that. People you know, they think that that, that Barnes and Noble was being innovative and going in and getting into the distribution area when in fact Borders has been doing it for their stores for some time. That doesn't have the service because they're in the distribution, you know, the
retailer sets up their own distribution capabilities, doesn't necessarily carve out, you know, cut out, um Borders as a customer, or you know, eventually Barnes and Noble as a customer of Ingram. Because they can't carry everything in their own distribution centers. They're generally focused on titles to support their Internet business and their special orders and then rapidly filling titles that they can replenish, but to try to, to be, to stop their stores totally from their distribution centers is the difficult process, project and so, but anyway. Borders was already in the distribution business, Amazon, who became a very big Ingram customer, still a very big Ingram customer in the top two or three.
BC: Mhmm
PB: Also was going to be going and you know, moving into distribution, setting up their own distribution capabilities because in their case what they needed was distribution centers that could ship one of these, and two of these, and three of these to you and me.
BC: Yep (19:05)
PB: And they weren't interested in holding a lot of inventory, but they did have to have a facility that could take shipments from publishers, take shipments from Ingram, and other hole fillers, And break them down into orders that you and I have placed with them and ship them out to us. Um, So you know, even though. Amazon is invested in distribution centers, they still do a lot of business with Ingram, they do a lot of business with other wholesalers as well. Barnes in Noble was in a make-buy mode and trying to decide do we set up additional distribution capabilities to support barnesandnoble.com in the stores? Or do we buy in Ingram? And so, there was some preliminary discussions which led to the family, you know, the people that own Ingram, you know, the principles of Ingram Industries, Warren and John and Robin and Mark and all, to um explore, selling Ingram Book group. And they engaged in investment banker, and I can't tell you who, but you know, book was put together and it was, several buyers were contacted. And there was from what I understand, good interest. And ultimately, Barnes and Noble was the top bidder and if you recall, that transaction was a $600 million transaction from stock and some cash.
BC: It wasn’t a, a wasn't a, the decision to sell was not, was separate from Barnes and Nobles specific interest
PB: Absolutely
BC: Wait so, the decision, so I assumed it was made very much with the idea of look at what's happening around us.
PB: Yeah [indistinguishable] This y’know, What's the long-run, what’s the long-run future of our book distribution business (21:20)
BC: and in the irony here is that, you know, that as I as I understand it. Ingram made, in many cases, the rise of these things possible,
PB: You know, absolutely. I mean it certainly facilitated the growth of the book retailing business. Because Ingram made it possible to put many more books in front of consumers. And that was, I think one of the big things, there are several things that have happened in bookselling but typically when I started in the business, uh y’know a bookstore was a big bookstore when they had 8000 titles.
BC: Yeah
PB: Now a big bookstore is a 125,000-150,000 titles and with, for a retailer to actually offer, many more titles than it was historically possible. And so y’know, during the early 90’s the growth of the superstores was a major boo, boom for the industry, because consumers could go on and there’s pleasant places to shop and lots of titles and people bought more books because they saw more books.
BC: But especially, these mega chains, it’d be much harder to build these chains if you didn’t have the one, the one wholesaler you could count on. (22:30)
PB: Absolutely.
BC: And that, it’s almost like Ingram helped to create these children. I mean [indistinguishable]
PB: No question
BC: Now the children are big and they say, “Y’know I don’t need you anymore” I mean, I assume that was the fear.
PB: Ohh. I'd, you know, I think it was more for, you know, sort of the long run, long-run future of book distribution as it had been defined by Ingram.
BC: OK, yes,
PB: And that’s I want to make that very clear because again, you know, we’re off the record I'm just trying to give you some background. So,
obviously, to sell Ingram Book group for $600 million was ya know that was a, that’s a fair price. And, you know, to become a, you know, to maintain an independent company, part of the Barnes and Noble group that made sense for Barnes and Noble and it made sense for Ingram. The big wrinkle in there, and this is my opinion, was the $600 million price. Because as soon as it was announced, I think Wall Street was saying to Barnes and Noble, how much would it cost you to build this vs what you’re paying for it? And there are a lot of pieces of Ingram that weren’t gonna be valuable, but we're not gonna be of value to Barnes and Noble.
BC: Hmm
PB: And, it, For example, some of the, the emphasis of Spring Arbor and the religious book market. You know how much of the independent business would an Ingram, that an Ingram owned by Barnes and Noble be able to retain-
BC: You’re going to lose it all (24:00)
PB: It was owned by Barnes and Noble. Y’know [Indistinguishable]. It's not gonna. You’re not going to lose it all, but you obviously are gonna lose some.
BC: Yes
PB: So, in my opinion, and this is again, off the record. The independent protest it’s significant. I mean it was a significant protest. The FTC never said “no.” The only thing the FTC said was that the staff was going to recommend to the Commissioners that they reject, the acl- You know the merger. They oppose it. But it never got to the Commissioners.
BC: Huh
PB: Okay? Go check this out. The announcement came out was that the staff. That were researching it, had announced that they were going to recommend to the Commissioners that it’d be, y’know that the FTC protest, or y’know they can’t block it, but they can challenge it and they can follow suit. So, what would be the next step, the next step would be the commissioners would vote. And they, that based on the staff input they decide would let the thing go through. Or they’ll vote and decide to, to challenge it.
BC: And then they have to go to court
PB: And then they have to go to court to challenge it. So still Ingram would have their day in court, and Barnes and Noble. But I think at that point. Um.
There wasn’t the, and in this is in my opinion, off the record. It wasn’t that that Barnes and Noble wasn't as intently interested in the transaction as they were when they agreed to it. So, Barnes and Nobles wasn’t that interested in y’know if the staff did recommend to the commissioners and the know that if they would and the commissioners voted no. Then, you know, you’d get in y’know if they proceeded they’d be faced with the court battle with the FTC. And I don't think that it that Barnes and Noble really wanted to. (26:12)
BC: At this point time is really, time is really hurrying them because what truly matters is they were already 7 months into the transaction and they really could have started building warehouses.
PB: So, Then you know the deals off and I think that Ingram was just as happy that the deal was off as Barnes and Noble was happy. OK, again opinion.
BC: Right
PB: But, so, but then where do you go? But then obviously the issue is, where does Ingram go from here? The y’know and the thing is Ingram’s got tremendous distribution logistics and transportations capabilities and the thing that’s interesting about the internet is the internet’s not a its not y’know we talk about e-commerce and there’s the front end of e-commerce which is the ability of you and I to navigate between these little cites. But unless its possibly microcomputer software or its music or its video, much of what we want to buy has to be physically sent to us. And maybe someday, you know, you buy a book and the book will actually be loaded on your computer and you can sit your desk or kinda go at that with your computer and try to read the book, but at this point, there's that technology isn't very well developed and hasn’t been very successful in bringing consumers over. But a lot of things that are sold on the internet will never be, I'm sure you've seen this copy machine, you know the football pops out and then you know, out of the machine. Out of the computer or out of the printer I should say. That emphasizes the fact that physical distribution logistics and transportation is still going to be a critical aspect, what we call the backroom from the Internet. And you know, in Ingram, in my opinion, Ingram Book Company is poised because of their core competencies to be a major player in that arena. (28:30)
BC: In other words. In other words, Despite the fact that there's.
[CUT]
BC: Somebody’s gotta move the goods
PB: If they become virtual products like music, y’know maybe not.
BC: But, is it not? I mean, again private and private company and I don't know the numbers. Is it not true, first of all, with or without the whole Barnes and Noble thing, would Ingram's business not be being hurt by the by the company
PB: OK. This again is off the record, from what I understand and I haven't seen the final numbers, but from what I understand they're extremely good fall.
BC: Really?
PB: Yep, and to the point of wearing some folks out. The volume of business. You know why? Because we're supporting both e-commerce retailers, as well as traditional bricks and mortar. I am not picking up that that, you know, I mean, obviously that's what I hear her say. Obviously when Barnes and Nobles was gonna acquire ingram there were a lot of booksellers that were very angry. Who went to other sources for their wholesaler needs. Once the deal was off, as I understand, a lot of that business came back. Obviously, there’s, I mean, there's still some people who, you know, will never come back. They now established themselves with other players and they're, they're not gonna, you know, they're not changing back that because, you know, sort of, the Ingram good-guy image was broken for them forever. By even contemplating selling out to Barnes and Noble. Their Arch enemy. As an independent- (30:40)
BC: Assuming Amazon makes it, of course, that's not that's not an easy one, they're losing money at such a rate, but let’s just say that somehow the company does make it, isn’t part of Amazon’s long-term plan that they basically have warehouses. I mean, they're actually building a few right now
PB: Yeah they are, and but they're focused primarily on, you know, you're gonna be stocking a lot of merchandise or they're going to be, you know. Is the purpose of their distribution centers to have bulk, large bulk quantities or is the purpose of the distribution centers to be really flow-true centers to facilitate you know to be able to do. To pick your order my order or pack my order your order quickly and get it shipped out to us.
BC: In other words, In other words, it’s very possible that Amazon will have warehouses that don’t, that maybe dont have anywhere close to a quantity of titles that ingram does.
PB: Quantity of titles or the quantity of books. Y’know.
BC: Huh (31:40)
PB: Do I envision that Amazon would ever be in a position where they would not need to do business with an Ingram? No. Would Barnes and Noble ever be in that position? No. Would Borders? No. I mean these books that move back and forth through, I mean move across the property line there in Lavergne that Borders everyday. Computers are linked, Borders does a search on their inventory that they don't have it, they immediately seamlessly. Search Ingram;s inventory.
BC: Can you squash a rumor for me? Is Ingram laying people off?
PB: I haven’t heard it.
BC: Okay, That may be a bad rumor
PB: That's a bad rumor
BC: I heard 800 people nationally. Maybe a really bad rumor.
PB: That would be a bad rumor.
BC: OK. (32:30)
PB: Yeah I haven’t heard it.
BC: OK.
[Indistinguishable]
PB: And obviously they had to go through, did they have to go through a major adjustment in Spring Arbor? In the process of bringing Spring Arbor to here? (32:45)
BC: Yes. I don't know as much about Spring Arbor. I found this story here about it. When you say major adjustment…
PB: But this goes back to last fall and summer where you know they acquired Spring Arbor. And this is again off the record.
BC: Which is the Christian-
PB: Acquired Spring Arbor, and to be to the Christian market, what they were and what they call the secular market of the ABA stores, the CBA stores, ABA is American Booksellers Association y’know the kind of bookstores that [indistinguishable] Traditional trade bookstores. The CBA market is the
Christian Booksellers Association. Bookstores that focus on the Christian literature. And uh, what they did was basically, ran Spring Arbor pretty much in fact as a separate company. But it came, either they were selling on different terms and conditions because Spring Arbor was selling on different terms and conditions. And the customers in Spring Arbor said hey, wait a minute. If it’s owned by Ingram, why shouldn’t we get the same kind of things that an Ingram customer gets. And what they all realized was that they had to really integrate Spring Arbor into Ingram if it was gonna be a part of the Ingram organization. It wasn't something they could continue to run independently. So, that’s. That was an adjustment that they went through last summer, last fall.
BC: Spring Arbors closed, probably closed a month ago according to this article actually.
PB: Their headquarters in Bellevue, Washington- Bellevue, Michigan.
BC: Oh. And they also have one in Newport, TN
PB: yeah. And that and that was just the next, you know, because they have all the Ingram distribution centers plus all the Spring Arbor distribution centers.
BC: So the CBA bookstores are now using Ingram for the most part?
PB: Well I mean, Ingram, Spring Arbor division of Ingram is their major. Is yeah, is fair to say their major wholesale supplier.
BC: So the cash flow? So that may, I mean Ingram in other words has picked up a lot of customers because of that.
PB: Yeah,
BC: Although that may not, I don't know how that affected the earnings side that may have been uh (34:45)
PB: Um and I can't, you know,
BC: Yeah, so, so. If, there’s some issues out there, but you don't think that, from, I mean I guess, what you’re saying is, the sky is not falling.
PB: Absolutely there’s issues out there. The sky is not falling. But as is the case for many businesses, the face of your business has to change, and, y’know, in my experience it was always changing... you know, you never got there, this is what I wanna be, you've never got there because it was always up and new.
BC: So they just have to watch what Barnes- but obviously as these, as new warehouses for these other, for the customers come online. It becomes an issue of concern, you just have to watch very closely to see what happens to the orders and it is possible that if Barnes and if let’s say Barnes and Noble gets great, gets great at the warehousing business that Ingrams orders from Barnes and Noble will begin to decline.
PB: Sure
BC: And hell, there’s I- I don’t know the numbers but how, at what percentage of the book market out there is basically dominated out there by a small number of chains, is 50% of it dominated by three or four large chains now? (35:55)
PB: Well, you know, the thing is how books are sold to consumers is so fragmented. First of all, more than 50% of books today, units of books, that are sold to consumers are sold outside of bookstores.
BC: Walmart
PB: Walmart, K-mart, drug stores, um newsstands, we don’t see much of that here, but in a New York City, for example, and then uh, Costco, and uh Sam’s.!!!!!!!!!!!!!!!
BC: Is Ingram contract with these? (36:30)
PB: Yeah, they sell to Costco, they sell to sams. So, In Ingram, you know, there's not any one of those segments of the business that Ingram doesn’t sell to. And then you've got the traditional bookstore marketplace, which you know my last guestimate was that about 43% of all the units of books sold to consumers were sold through bookstores.
BC: The rest through the Walmarts of the world.
PB: The non Walmarts of the world. Sold through bookstores. so you know Dave and Keith, Barnes and Noble.
BC: Yeah,
PB: You know, Borders, Walden. and without putting the major shift since 1990 has been the change, you know represented maybe. You know. 17% of the business and the independents represented say 31% of the business. And if you put the two numbers together, you’re still, less than 50% of the books were sold. But uh, the independent stores what would have been classified as independent stores represented a bigger segment of the
business. Today, That's probably something like 26% for the chains. And 17% for the independents. So You know you've seen the chains now of books sold through bookstores. Becoming a larger force in selling books than the independent, what were identified as independent. Now it's tough to make those kinds of statements because, you know, is this guy an independent or is he a small chain.
BC: It gets very like [indistinguishable]
PB: Like [indistinguishable], is that a small chain or an independent. I would be classifying them as an independent in that analysis. (38:15)
BC: And so then one of the big picture things that need to be pointed out then is that 57% of the business here or somewhere around there.
PB: Don’t quote me
BC: Somewhere in half, or maybe a little over half. [indistinguishable] Bookstores. There isnt much evidence necessarily that the Walmart's and the Costco’s of the world. Are trying to replace Ingram Book company. And do their own warehousing
PB: They’re not, You know. The books may come in bulk. Somebody’s gotta get the books to them.
BC: So Ingram is very well positioned for
PB: So the books come to them and then then they do the breakdown in their you know that we called what I would call a [indistinguishable] distribution center. So you know they're called the distribution center, but they don't inventory anything over say here's a palette of cases of 50 books each, each one addressed to an individual store. And they may store the case for Store A on the truck for Store A and the case for Store B on the truck for Store B.
BC: So of course it’s possible that when if Barnes and Noble gets 10 warehouses or 6 warehouses, they’ll be going for that business too.
PB: Could very well.
BC: OK. The um, Now, what, you say, w-we, the numbers you just added up, added to about 100. What percent do we think is internet now? (39:28)
PB: You know, it’s hard to say, y’know I'd say that probably Internet folks selling represents, uh, could represent 5 to 7%
BC: And Amazon's the biggest but buy.com which is an Ingram customer
PB: Yup
BC: An exclusively Ingram customer I think.
PB: I don’t know that’s the case, but they are an Ingram customer.
BC: I found an article that said they had a contract with Ingram But that’s probably the second, that's that's one of the bigger ones.
PB: Yeah
BC: OK.
PB: I’d say there was one time there was thinking that the Internet bookselling could get to 15% I think that its fair to say based on what I read that the rate of growth of internet book selling has slowed significantly. And obviously with what Amazon’s doing, they’re Amazon has moved off into a bunch of other arenas and they're, they're trying to establish themselves as our and I would call the Kmart of the Internet where people go to Amazon to buy something as opposed to going to Amazon to buy books.
BC: The other thing is that Amazon sells for prices that are wonderful for consumers, but the serious question is whether they can make (40:30)
PB: No matter how many they sell they could ever make money
BC: The more they make, the more they lose, and at some point the the banker shows up and um…
PB: Amazon, Amazon, three years ago their slogan was “Amazon, the world’s greatest bookstore” Today, their slogan is “Amazon, the world's greatest retailer.” I mean, I, I don't, they’re trying they still have established quite a franchise as a bookseller, but their growth is focused on electronics, toys, pharmaceuticals, number of other arenas.
BC: Do you think, If you were me, you would lead people believe that there's something…I mean obviously the marginable thing, the merger marginable thing was quite dramatic. The fact that that merger was off was dramatic. Should we expect, should my readers expect something else dramatic from Ingram in the next 6 months?
PB: You know, it's hard to say that it would be dramatic, but I, you know, it's a question that is an interesting question to ask is after Barnes and Nobles what next for Ingram? You know what and what I'm. Trying to say to you off
the record It's not a; the sky is falling situation. There is you know there is something next and and I think Ingram can can address it. They will address it. (41:52)
BC: But Ingram during your tenure for many years. And I know you gotta go soon. Ingram really didn't have, when was the last time Ingram had a competitor that was almost as big as it was? Lord and Terry has gotten pretty big huh?
PB: Baker and Taylor.
BC: Baker and Taylor, Excuse me
PB: When I, And gotta watch my schedule too. OK, I’m OK, I forgot about. When I, When I started at Ingram, Ingram was smaller than Baker and Taylor substantially. And it was in the early 80s that we bypassed Baker and Taylor. Today there's no, you know, you. Ingram still is um, substantially larger than Baker and Taylor and growing faster. (42:40)
BC: Baker and Taylor did do well in the immediate aftermath of the Barnes and Noble thing,
PB: Sure, But you know. Again off the record, what's interesting is that of course I was at Borders at the time and some of my colleagues at Borders were going crazy over the announced acquisition of Ingram by Barnes and Noble. That was, you know, looking at the possibility of zero tolerance, but, Interestingly enough, Baker and Taylor, which would have been the opportunity for Baker and Taylor and for Borders to sort of pair up. Baker and Taylor said, “we don't have the capacity to do it." Sort of almost like, remember when the UPS strike was on?
BC: And Express couldn't handle it
PB: and UPS said, I mean, the RPS said, you know, if you were a customer we’ll help offload your UPS business, but if you’re not a customer we can’t take you.
BC: That's right. (43:33)
PB: So, I mean that that's just my surmise, OK?
BC: And of course they are trying to build something quickly, but
PB: Yeah,
BC: Yeah, OK.
PB: So you know, it’s uh, did they benefit, sure, did any other wholesaler benefit? Absolutely. But was it, you know, was it a what I’m trying to convey is that that I don't think that there's any evidence that it was overwhelming. You know, this is this was a kiss of death…
BC: OK (44:00)
PB: kind of thing. So I just try to keep you steering. Avoid getting into that kind of a scenario,
BC: Borders does all their warehousing or just a large percentage of it.
PB: I mean They’ve got 11 distribution centers
BC: 11, OK
PB: Yeah, but they don't and they um, in the case of Borders stores. As opposed to Wal- They actually do it differently for Walden bookstores, the mall stores, and they do it for the superstores, which are the Borders stores that in the Borders stores every book goes through the pass-through distribution center and is actually picketed there for that particular store for sale, point of sale.
BC: So, Borders has never been a big Ingram customer
PB: Big Ingram customer
BC: Oh it is a big In-
PB: The books come for Borders to go to the stores. So, think about it, books come from Ingram distribution centers, to the Borders, past your warehouses, to the stores.
BC: How come Borders just doesn’t get them straight from the publishers?
PB: They get some directly from, they always have an always will, so does Walden, so does Mom and Pop Independent (45:00)
BC: So, it’s possible this is what Barnes and Noble will evolve into
PB: Barnes and Noble has bought, bought a lot of their books, I mean, when I was at the warehouse, Barnes and Noble was, in retail, our largest customer.
BC: OK
PB: Direct business, and yet, we knew, and we I mean, it was obviously, we were much worried of the fact a lot of our books, Random House books were
being sold to Borders by Ingram because Ingram provided a different kind of service. (45:30)
BC: So, I appreciate you talking. [indistinguishable] I will e-mail you when the story runs, what's your e-mail address?
PB: OK, um It’s uh....
BC: I won’t give that to anyone, I promise.
PB: OK, I’m just, you know, just reminding you my name not in the article
BC: No no
PB: Just giving you background, OK?
BC: I will, I will, anything you’ve said to me that I can’t-
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PB: Alright, talk later
BC: Thank you Phil
PB: Buh-bye.
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