Grand Rapids-based Family Christian Stores filed for Chapter 11 bankruptcy last week.
Family Christian is the largest physical retailer of Christian books, music and gifts in the United States, with 267 stores across 36 states.
It has been a little more than two years since new ownership took over and converted the company into a nonprofit organization. It has also been a little more than a month since Family Christian announced the addition of a filmmaking business.
“I can’t think of a more financially challenging time to be in retail,” said Josh Niemyjski, owner of Illect Recordings and Sphere of Hip Hop, an 18-year-old Christian hip-hop website. “The internet, for better or worse, has changed everything.”
Family Christian Bankruptcy Threatens Physical Music
Family Christian accounts for nearly half of all physical Christian music sales.
Although physical sales have steadily declined, this is where the music industry once earned virtually all of its revenue.
The independent artists, record labels and distributors pouring their souls and finances into creating music will be hit where it counts: the balance sheet.
However, the effects will not reach every genre or business model equally.
Artists and labels that have already moved away from physical distribution may feel little immediate impact. Those still dependent on retail shelf space could face a significant loss.
The implications for Christian hip-hop moving forward may be limited.
Humble Beast recording artist Propaganda called the concept of the Christian bookstore dated. He also acknowledged that the bankruptcy would not directly affect him or Humble Beast because they do not physically distribute their music.
“The fact that they are going under is kind of a sign of the times,” he said. “The industry has just moved on.”
The End of an Era for Independent Music
This represents the downfall of one of independent Christian music’s largest historical allies.
Family Christian, which is not affiliated with a particular denomination, supported music that often struggled to find shelf space elsewhere.
That included independent artists, smaller labels and genres that had not yet received broad approval from the Christian music industry.
Christian hip-hop provides one of the clearest examples.
Family Christian featured its artists in merchandising programs and kept their music on shelves when many other retailers would not.
“It saddens my heart to hear this news,” said Grammy-nominated gospel artist Tonéx, who appeared on and produced dozens of Christian hip-hop albums.
“It’s like the end of an era. Family Christian was our Tower Records. … They completely went against the grain. They offered a platform that had never been available before.”
That support came partly because Family Christian’s two most recent music buyers, Dan Hubka and his predecessor, John van der Veen, were Christian hip-hop fans.
They kept the shelves stocked long before the music received the success and broader approval it has today.
Most Christian retailers were unwilling to take that chance.
Some considered hip-hop a passing fad. Others believed it was the devil’s music.
Fortunately, supporting it became good business for both Family Christian and Christian hip-hop. In 2001, Billboard reported that Christian hip-hop sales grew by 20%.
The same willingness to make room for music outside the safest and most established categories benefited the broader independent Christian music community as well.
Chuck Bengochea, who became Family Christian’s CEO last summer, cited the economic collapse of 2008, the digital revolution and excessive debt as the three factors that led to bankruptcy.
The first two are certainly legitimate factors, but they also leave Family Christian off the hook.
The company had no control over the national economy. It also could not prevent entrepreneurs from developing new ways for people to consume music, books and other media.
Still, Cliff Bartow, Bengochea’s predecessor, previously acknowledged that the challenges facing Christian retailers were no different from those confronting other bookstores and retailers.
He appeared optimistic about the digital revolution and believed Family Christian was not shut out of the digital age.
Sleight of Handling and Shipping
Family Christian’s business practices may also have contributed to its bankruptcy, according to Jason Hollis of Life-Line Worldwide.
Hollis co-founded Infinity Music Distribution, which spent several years placing products from Reach Records and other independent labels on retail shelves.
“Family Christian never pays the distributor,” he said. “They simply return a product and receive credit so that they don’t have to pay their debt.”
Hollis was referring to a shell game some retailers play by moving products back and forth to avoid paying their bills.
The practice can cost distributors substantial amounts of money while creating surcharges that chip away at an artist’s profits.
Here is how it works.
A retailer might receive 90 days to pay for products that have been shipped at no cost.
The retailer places those products on shelves during that period. Anything that has not sold gets returned before the 90th day.
The retailer may not have to pay shipping in either direction. It can then order more copies of the same titles it just returned and receive another 90 days to pay.
By the time a consumer purchases a product from the shelf, that copy may have traveled back and forth four times.
When retailers sold several thousand copies of each release, distributors, labels and artists eventually received payment.
Now, however, too few actual sales remain to cover the costs created by the maneuver.
More importantly, the practice raises a question.
How can a retailer that receives most of its products on consignment and does not pay shipping in either direction accumulate enough debt to enter bankruptcy?
“Christ said in a warning to his disciples that if we live by the sword, we will die by the sword,” blogger and pastor Douglas Wilson said. “Perhaps we can extend the warning and say that if we live by the boom-and-bust cycle, we will die by the boom-and-bust cycle.”
What Comes Next for Artists and Labels?
Independent artists, labels and distributors are in a difficult position.
Digital music surpassed physical music in market share in 2012. Yet many artists still want to release physical products such as CDs and vinyl.
For smaller companies, those products can remain important sources of revenue and tangible connections with listeners.
That is why Niemyjski wants fans of Illect Recordings to know the label remains committed to producing physical releases.
DJ Maj, a veteran of Christian hip-hop who, like Tonéx, purchased his first Bible at Family Christian, is holding out hope that the retailer will not only recover but renovate.
“Family Christian was a lifeline for thirsty souls, including mine,” DJ Maj said. “Many retailers are facing challenges due to the changes in the industry. I hope bright minds can help turn FCS around to be able to once again impact our culture.”
Every business leader must navigate difficult decisions and react to conditions outside his or her control.
At the same time, leaders must work to keep the doors open, the balance sheet in the black and debt under control.
With that said, it is time for artists, record labels and distributors to listen to the music consumer.
The music business will continue to change, but there will always be music, and there will always be business.
Those willing to remain nimble, adapt and keep their integrity intact will be just fine.