Enter the website of Hail gives the impression that everything is fine. The page highlights the best-selling books, there’s a promotions area, and a banner calls attention to the store’s classic credit card. But behind the scenes, the mood is of concern. If in the past, Saraiva figured as the largest bookstore chain in Brazil, today it struggles not to go bankrupt. What happened?
a glorious past
Saraiva is a centenary company. The chain’s first store was opened in 1914, in Largo do Ouvidor, São Paulo (SP). At the time, the small business set up by the Portuguese Joaquim Ignácio da Fonseca Saraiva was called Livraria Acadêmico, a very convenient name: the establishment was close to the Faculty of Law of São Paulo.
Favored by its strategic location, the bookstore started to be frequented by students and professors from the institution. This led Fonseca Saraiva to enter the book publishing business, starting with works in the legal area, for obvious reasons.
The business prospered in the following decades, to the point that, in 1947, already under the direction of the founder’s sons, the company was transformed into a joint-stock company, when it then assumed the name Saraiva SA – Livreiros Editores.
But it was in the 1970s, after Saraiva became a publicly-held company, that the expansion strategy gained scale. The bookstore began to form a chain of stores in São Paulo and, in the following decade, opened units in other states.
The end of the 1990s was also remarkable for Saraiva. In 1998, the company acquired Editora Atual and, as a result, expanded its operations in the textbook segment.
In the same year, Saraiva transformed its website — www.saraiva.com.br — into one of the first online stores in Brazil.
The remarkable year of 2008
In the 2000s, expansion continued, mainly through acquisitions. It was 2007 when Saraiva bought Pigmento Editorial, a publisher also focused on textbooks. The following year, the company closed what was perhaps its biggest deal: the acquisition of rival Siciliano, including physical stores and website.
If 2008 was not Saraiva’s most important year, it came close. In a presentation aimed at investors, the company revealed that, in June of that year, its network consisted of 38 physical stores, 21 of which were megastores. Siciliano’s network, on the other hand, concentrated 50 own units and 11 franchises (all of which were transformed into Saraiva units).
In the same document, Saraiva celebrated the mark of almost 1.6 million active customers registered in June 2008, in addition to 2 million members of the Saraiva Plus card.
The time is for ascension. Why stop? Saraiva continued to expand its business in the following years. In 2010, the company launched Saraiva Digital Reader, a digital book platform; in 2012, SaraivaTec was created, a division focused on technical courses and technological graduation; in 2014 — the year of its centenary — Saraiva launched the e-book reader Lev (remember him?).
A company like this, growing rapidly and diversifying its business to stay on top of market trends, could not go wrong, right? But it did.
Saraiva’s last “quiet” year was 2012, when the company recorded net income of R$ 78 million. In 2013, net income was only R$ 13 million, but it still seemed that everything was fine, after all, the group had opened stores, invested in a new logistics center and bought Editora Érica that year.
But, if on the one hand Saraiva increased the number of stores, expanded its infrastructure and bet on new products (such as the Lev), on the other, it became worryingly indebted, although the situation did not seem to be getting out of control.
But was. Just to give you an idea, the company ended 2014 with an adjusted net debt of R$544 million.
To avoid a tragedy, Saraiva took a bold decision: in mid-2015, it announced the sale of its editorial and educational assets for R$725 million to Somos Educação (Abril Educação).
With the deal, Saraiva started to focus its entire operation on retail. At first glance, it made sense, after all, its network consisted of 112 physical units and its online store was emerging as a large Brazilian e-commerce platform.
At the time, it was no longer possible to call Saraiva just a bookstore. Books were still in the spotlight, but the company sold cell phones, video games, notebooks, games, among other products.
It was a mega operation, after all. It is difficult for a person who stopped in front of a store or went to Saraiva’s website to imagine that debts were accumulating behind the scenes.
Well, whoever followed Saraiva’s financial reports might have known that the situation was not the most comfortable. But at that point, Saraiva was so big that it seemed immune to the risk of breaking.
Saraiva asks for judicial recovery
It is normal for a large retailer to close one or another store from time to time. But 20 stores at once? This is what happened to Saraiva on October 29, 2018. The company argued that the decision was related to the “economic and operational challenges of the market”.
In fact, that was the harbinger of something much more serious: on November 23 of the same year, Saraiva filed for judicial reorganization at the 2nd Court of Bankruptcy and Judicial Reorganizations of São Paulo.
The reason? Saraiva declared that it had debts totaling R$ 675 million. The company was already delaying payments to suppliers, so much so that, weeks before the recovery request, it proposed a debt negotiation plan to the National Union of Book Publishers (SNEL), without success.
Saraiva also couldn’t get more financing. The company used bank loans to expand its operations in previous years and was no longer honoring these commitments. Not by chance, the list of creditors presented by the company at the time was headed by Banco do Brasil (R$90.7 million) and BNDES (R$41.7 million).
But banks can handle it. For publishers, the scenario was far more worrisome. The Saraiva crisis affected many of them, especially those that were heavily dependent on large retailers, such as Saraiva and Livraria Cultura.
The aforementioned competitor filed for bankruptcy protection at the same time. Together, Saraiva and Livraria Cultura opened up an unprecedented crisis in the bookstore sector in Brazil, which had already gone through a big scare with Laselva: the chain filed for bankruptcy protection in 2013 and was declared bankrupt in March 2018.
But that doesn’t mean that the bookstore sector has died in Brazil. With more than 80 stores spread across 21 states, Livraria Leia has consistently grown and takes advantage of part of the gaps left by Saraiva and Livraria Cultura in the market. Let’s also take into account that many smaller bookstores are still standing.
If the crisis in the sector is not widespread, everything points out that management failures are at the root of the decay of the two giants.
In the case of Saraiva, there seems to have been a concern with rapid growth. If, instead, the company had focused on consistent growth — which includes more insightful analysis of points of sale or types of stores, for example — perhaps the company would not have taken such a dismal path.
Nobody wants to buy Saraiva
Reorganization is a bankruptcy protection mechanism. To have an application of the approved type, the company must present a plan to get back on its feet and pay off debts.
Due to several setbacks, mainly impasses manifested by creditors, Saraiva’s judicial reorganization plan was only approved in August 2019 and ratified the following month.
Basically, the company proposed paying 5% of its debt — then updated to R$ 684 million — in 15 years and transforming the remaining 95% into debentures (debt bonds) to be issued in 2035.
With such a generous recovery plan, it looked like the worst was over. But there wasn’t. While approval of the plan was awaited, the company had to close stores and deal with eviction lawsuits, just to name a few complications.
All this for a single reason: Saraiva continued to be heavily indebted, so much so that, in February 2020, it declared to creditors that it had only R$15 million in cash. To make matters worse, at least 21 publishers went to court in São Paulo to demand the return of stocks of books.
As the situation did not improve in the following months, Saraiva asked for an addition (adjustment) to the judicial recovery plan. Approved in February 2021 by creditors and approved the following month, the amendment established a plan for the sale of stores and e-commerce.
Then came another setback: no one wanted to buy Saraiva’s assets.
The ghost of bankruptcy now scares more
There were three sales attempts. The first, held last April, aimed to raise R$189 million from the sale of 23 physical units or R$150 million from the sale of the online store, with the possibility of combining the two operations. No interested parties appeared.
In the second attempt, in May, the collection targets were revised: R$ 113.5 million for physical stores or R$ 90 million for e-commerce operations. Again, none interested.
The third and final attempt took place in August, again with targets of R$113.5 million for physical stores or R$90 million for e-commerce. You already know what happened.
Given the lack of interested parties, Saraiva offered creditors its own actions to settle the debts or the option of a staggered payment that would start in 2026 and end in 2048.
Interestingly, the company also presented an economic-financial feasibility report signed by JVS Assessoria Empresarial, which forecasts an 80% increase in revenue in 2022 and 83 stores in operation by 2026 — currently, the bookstore chain comprises 37 units. The document was presented along with a new adjustment to the recovery plan.
But it’s not that simple. The truth is that Saraiva has never been so close to closing its doors. Infosys, the biggest creditor after the banks, challenged the recovery plan presented in March in court. Now, the bookstore has 30 days after the court notice to submit a new proposal.
If the deadline is not respected or the plan is considered unfeasible, the bookstore may be declared bankrupt. The fans are for that not to happen, of course, but, at this point, it seems that only a miracle saves Saraiva.