Thursday, May 31, 2007

Even the Giant Booksellers Are Struggling to Show a Profit

Book lovers like us are already aware of the way that independent bookstores are struggling for survival these days and that Barnes and Noble and Borders are often blamed for squeezing the life out of the independents. But how many of us realize that the two giant booksellers are themselves finding it difficult to turn a profit? Or that they feel squeezed by Amazon.com? According to Forbes, Borders is still losing money and Barnes and Noble has pretty much conceded the online book sales market to Amazon.
Books sales are flat, discount super-centers like Wal-Mart have gobbled up half the best sellers and no one touches Amazon online. So where does that leave Barnes & Noble and Borders?

Possibly in no-man's land, particularly in Borders' case.
...
And despite recent rumblings, don't look for the two chains to turn to a merger as a way to shake themselves out of the doldrums. A combined company would invite serious antitrust scrutiny, according to Jefferies & Co. analyst Donald Trott, since the only other serious hardcover player is Amazon.
...
Overall U.S. book sales, which include school textbooks, have averaged 4.4% growth annually since 2002, according to the American Association of Publishers. But book club orders and mass market paperbacks are down. Adult hardback books, meanwhile, are off 1.5% since 1997, a sign of the increasing amount of people's leisure time eaten up by the Web, DVDs and the proliferation of television channels.

Barnes & Noble's decision to shut down the warehouse it uses exclusively for its Internet business is a telling sign that the company has effectively given up hope of matching Amazon's book-selling volume over the Internet. Amazon doesn't officially disclose the percentage of its $10.7 billion in annual sales that it derives from books. But industry followers estimate the number at 50%, or over $5 billion. That's about 10 times Barnes & Noble's online book sales, which stood at $459 million a year ago, according to the company's 2005 annual report.
And the news is even worse for Borders because, as Forbes reported yesterday, the super chain lost almost $36 million during the first quarter of 2007.
In fact, one serious problem plaguing Borders is that customers increasingly choose to purchase their books online. Amazon.com had traditionally handled Borders' online business, leaving Borders with just a commission while Amazon hoarded most of the generated revenue.

But now that's changed. In March, Borders announced it would launch its own Web site as part of a broader strategy to improve business.
So it appears that both chains concede the fact that their business decisions are now being driven by what happens at Amazon.com. It's interesting, though, that while Barnes and Noble is cutting back on its investment in the online business, Borders is expanding its own efforts. No one could have imagined a decade ago when the big fish in the business like Borders and Barnes and Noble were gobbling up all the little fish that a killer whale like Amazon would come along to chase the big fish around the book selling ocean. As a book lover, and one who spends way too much money on books (according to my wife, at least), I find all of this interesting and I wonder what the book market will look like ten or twenty years from now.

Should we care? Should we, the consumers, be worried about this trend? My main concern, personally, is that the book market will become very much like today's music industry which makes it difficult for the consumer to find and purchase anything other than the same old homogenized product that is offered at every music retailer. Will bookstores of the future sell much more than an expanded best seller list? I can't believe that a merger of Barnes and Noble and Borders would be good thing. I want more bookstore diversity, not less.

25 comments:

  1. I don't like this at all. The truly troubling part being the decrease in sales of books. Less and less people reading is not good. But it's also troubling because Borders is my favorite store, and it would be quite depressing to see them all closed down. Amazon certainly has good prices but I enjoy being able to walk into a store and handle the books, not just look at the few scans they have on Amazon. I can't imagine that Borders can continue to lose that much money for long.

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  2. It's scary, Matt. I never dreamed that Borders was losing that kind of money or that Amazon was killing the two big chains that way.

    I'm with you...I want to hold a book before I purchase it as often as possible. Sometimes that's what actually sells me the book, in fact...that special feel that some books have, the look and feel of a quality product that I will be proud to own, etc. Shopping for books online is a completely different experience from walking into a bookstore, an experience that will always come in second, IMO.

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  3. It would be horrible if they merged. I hate the idea of an industry being dominated by only one or two players. I think that is partially why I have gone looking to small presses for different and unheard of books. I have found the B&N has pretty competitive prices with Amazon and their shipping is actually faster. I am not surprised though this is happening--there are too many other choices and Americans are just not reading so much anymore. Scary.

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  4. I think that it makes most avid readers pretty uneasy, Danielle. A merger of the two remaining giant bookstore chains can do nothing but result in a further limiting of the choices available to us. That's a bad, bad thing.

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  5. Ah well, now I feel bad. I few months ago, I embarked on a plan to start shopping at independent bookstores more often. Now it appears that I just need to shop at bookstores period, which I do (I never order from Amazon - I have instant gratification issues). I have my problems with Borders and Barnes & Noble but I don't want to see either of them go (or merge into some giant beast like Barnes & Borders, or something). This is sad and scary news, indeed.

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  6. We just can't catch a break, can we? :-)

    Where, oh where, to spend my tiny book-buying budget?

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  7. I dunno, Sam, people have been predicting the loss of publishing diversity since the beginning of these big retailers, and yet they continue to carry a much greater range of materials with better availability than small bookstores (and the service is beyond excellent). The sky simply has not fallen; in fact it seems to be getting higher all the time.

    Not only does disability prevent me from shopping for books in person, but local bookstores simply don't have what I want. Independents are fine when you want the newest, hottest, most popular books, but if you are looking for something off the beaten track, the big retailers are the place to go.

    It amuses me that the big chains are now being seen as victims. It's too bad the industry keeps its numbers secret because we could use more real facts in this debate. Not that there is anything wrong with being romantic about books, but in absence of facts, fears and theories can seem to be real when they are not. At any rate, readers are voting with their dollars.

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  8. I just noticed something. Even though book sales have been growing strongly (well exceeding inflation), the Forbes article calls this "flat" and one of the comments above says book sales are falling. Whaaaa? Looks to me like publishing is doing just fine, and people are reading as per usual. If hardbacks and mass market PBs are down, it must mean trade paperbacks are way up. How is that a bad thing? Let's not invent a crisis that is not happening. We have enough real crises to deal with!

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  9. Sylvia, I agree with you that the big chains offer a pretty fine selection of books...and certainly a higher number of choices than most independents will ever be able to offer. But they don't offer some of the titles that I find only in smaller shops nor cover some of the small publishers that I see represented there. There is a place for both of them.

    I'm not as familiar with Borders as I am with B&N but, from what I can tell, their inventories are at least somewhat different. A merger of the two would probably result in fewer titles being available to the public is my guess.

    I'm like you in that I love the choices offered by the internet and I use if often for the obscure titles that you describe. I've discovered a countless number of titles that way. But, even with that, I would really grieve if local bookstores were to disappear. There's just something about browsing the shelves that the internet will never be able to duplicate.

    I had to chuckle myself when I saw that the major chains were suddenly in the same boat with the smaller shops that they began to clobber just a few years ago. Ironic, isn't it? I guess it verifies the old "what goes around, comes around" saying.

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  10. Almost forgot, being a numbers man during my whole working career, I have to agree with you. Stats can be made to prove just about anything if the spin is done correctly. :-)

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  11. I warn you now - given that this involves my livlihood, this may get long (also, my Enter button is not working, so no paragraphs). First of all, incorrect numbers or not, money is a HUGE concern for B&N and Borders. We're in a lot of trouble. My store sends employees home or calls them and tells them not to come in because they aren't making enough to pay us. The number one thing we hear about is whether or not we "made plan," the financial goal for a day, week, month, etc. NONE of this was an issue 10 years ago when I started working there. Amazon is killing us; Wal-mart is killing us; Costco is killing us. For the last Harry Potter book, people bought it at a discount from us, saw it even cheaper at Costco, returned ours, and went back to buy Costco's. This year we're discounting the stinkin' book so much we won't make a cent, just to be competitive. It's ridiculous that we'll sell a record-breaking amount of books and not making any money from it. How can any business stay afloat like that? I'll tell you another thing - no other business in the world lets you use the product for free the way these large bookstores do - I know for a fact people read entire books in our store and never buy anything more than a cup of coffee, IF that. It's a pet peeve of mine, but the bookstores are often treated as libraries, not profit-requiring businesses. Borrow a magazine or newspaper, read it, and then leave it in the cafe. Even worse, leave it destroyed so we have to send it back and LOSE money on it. I know we open ourselves up to it with the cafes, but it galls me. We even have people do the crossword in a newspaper they didn't pay for! That's another way we're losing the money; we're not selling books as many books as Amazon or Wal-mart or the like because people can just read 'em and leave 'em. Also, I cannot stand the idea of the stores closing - online shopping sucks and there are NO independent stores in this area - I'd lose my ability to buy books!! As for B&N and Borders combining, I certainly hope not. For 10 years, Borders has been the "enemy;" we can't join forces with them - it's just wrong. Besides which, Borders will just bring B&N down. ;)

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  12. I just knew that I could expect a heartfelt response from you, Annie. Sorry to hear that things are so tight at your B&N these days because that has to be a bit rough on employee morale.

    Discounting books is great for the consumer, and I love it as much as the next guy, but I can understand that the cut-throat competition is starting to take its toll on the bookstores.

    I've bought lots of books off the B&N Best Seller shelves by compounding their already-hefty member discount on best sellers by adding another 15% off because of an extra email discount coupon that I receive on a regular basis and using my B&N credit card for another 5% off. I figure that gets my cost below what the store pays for the book from the publisher...at least, I know that bookstores used to pay 40% to 45% of the list price.

    BTW, that's my local B&N bookstore in the first image of this post. It's a two-story store in The Woodlands, Texas, and is across the street from my former place of employment. It's a great store...but they don't want to hire me either. :-)

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  13. I still hold that it's their loss for not hiring you. ;) That's a nice looking store - I love shopping in the multilevel stores, but I'm sure glad I don't work in one. :) (And I love buying discounted books, too, despite the cost to the store [no pun intended]. Think I'd offer to turn down my employee discount? No way!)

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  14. Well, by not hiring me they are in good company. :-(

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  15. I'm sorry. :( I was wondering how the job search was going for you. I hate it when people tell me that "something will come along soon," so I'll just let you know I'm praying for you.

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  16. It's all my fault for moving out of the country. Sorry.

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  17. Annie, I knew it wouldn't be easy and I've shifted gears to the point where I'm looking for something that I would actually enjoy doing for a while rather than what pays the most or relates the closest to what I've done in the past. That seems to confuse prospective employers. :-)

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  18. Well, bybee, so that explains it. You need to hurry home before it's too late.

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  19. Sam, you bring up a good point about small publishers, though I have seen local interest books from local publishers available at Amazon. In fact one locally-edited book from a small, specialized Canadian publisher is on its way to me right now. But it is certainly an area independents could capitalize on. They obviously can't compete with Amazon on general books so they must try a different approach. If there was a store here that specialized in only local authors/publishers/subjects I would definitely be interested. I can think of a few specialty bookstores that do very well because of their specialization. That's the way forward for independents, I think. It's the way nature works--if you can't compete with the generalists the only way to survive is to specialize, and that leads to greater, not less, diversity.

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  20. Danielle's latest post prompts me to mention that in addition to the savings, convenience, and selection of online buying, you also get the joy of receiving parcels. I think the kid in all of us loves getting packages in the mail Even when you know what's inside it's still a surprise because you don't know exactly how it will look and feel and smell. It's like your birthday every time you buy books. Buying books online is more fun that the naysayers would probably like to admit.

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  21. Sylvia, I think that you are entirely correct in that the future of independent bookstores is in finding their own individual specialties. They have to differentiate themselves from the big chains and that's the most obvious way to do it...that and becoming a part of the community by hosting literary events and the like that the chains don't do as much of...they have a good shot, I would think, if they can do those things.

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  22. Oh, and you are absolutely correct about books coming in the mail...I love receiving packages of books. They are packed so nicely these days that it's a treat just to tear into them to finally get your hands on the book that you've only seen on a monitor screen. Danielle nailed it.
    :-)

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  23. Considering that I practically LIVE in Canada's mega-bookstore Borders-conglomo-equivalent [Chapters].... I don't WANT to see the mega-stores failing in business.
    I HATE that it kills the business for Independents, but long ago I have reconciled my angst by coming to terms with a simple mathematical fact.
    No matter how much my HEART says "independent", my WALLET says "discount!"
    I need the megas!
    I am TOO DAMN POOR FOR HEROICS when it comes to book-buying!

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  24. Cip, I hear you. We're among the majority whose heart is in the right place but whose wallet is not.

    I feel exactly the same, even to the point of feeling guilty at times about it. But, since there are so few independent bookshops within 30 miles of me, I can justify my buying habits by the fact that gasoline is so damned expensive and I'm doing some good by shopping closer to home. :-)

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  25. You right Cip, but big industries don't look for poor peoples, just think to increment their profit ..it's a damn law.. lol

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