The Future of the Book and Bookstore
A few days ago, hedge fund manager who controls almost 40% of the Borders bookstore company offered to finance a $900+ million dollar offer for the larger and more successful Barnes & Noble chain. Borders has been in real trouble for many months now, with their stock down below $2 a share, off over 90% from its high. (Barnes & Noble has also been “in play,” with management and outsiders looking at options for the company. Of course all this is in the context of the Kindle/Nook/iPad battles and ebook evolution, symptomatic of the incredible changes taking place throughout traditional media.
The Borders “offer” for B&N – not yet formalized – provoked a lot of conversation in retail circles, including at my favorite retail industry website, Retail Wire (http://www.retailwire.com/; you have to register but its free).
Of course I had to add my two bits to the discussion:
I founded Bookstop in Austin in 1982, which many consider to be the first book Superstore. I had studied the industry for 7 years before launching the new strategy. We stretched from Miami to San Diego by the time B&N bought us in 1989. So I am very interested in this industry.
While Borders was off to a wonderful start under Tom and Louis Borders, the Riggios and their colleagues have significantly outmanaged their successors.
We have overcapacity in the industry, it’s a mature concept.
We need fewer stores.
Sadly, Borders probably needs to go away and maybe B&N needs to close some stores.
I love books and live with 50,000 of them.
It may be that the big winners are Half-Price Books, Powell’s, and the relatively few libraries that are forward looking.
Amazon is Great but you cannot browse effectively, you cannot research social trends as well as observing bookstore shelves, and certain types of books do not sell well online. Paper and ink books will shrink in market share, but unlike local daily newspapers, they will not go away. Old ones will also continue to circulate and be desired. Abebooks wins no matter what, as does Print on Demand.
Then, a couple of days later (12/8/10), this story which I believe reinforces my point, made the front page of the Wall Street Journal:
Record Price for Printed Book
In a four-minute bidding battle in London that set Sotheby’s astir, an original edition of John James Audubon’s "Birds of America" on Tuesday set what the company called a record for the sale of printed books at auction.
Michael Tollemache, a London fine art dealer and bird enthusiast, bought the four-volume illustrated work for $11.5 million.
John James Audubon’s "Birds of America" sold for more than $10 million today at an auction in London, setting a new record for a printed book. Simon Constable and Dave Callaway discuss.
Two people, one speaking Italian, bid by telephone through Sotheby’s representatives. A London book dealer bid from the front row of the saleroom until the price reached roughly $9.5 million, according to a Sotheby’s official.
The Audubon book sale helped draw an overflow crowd of about 200 people, including roughly 25 auction-house employees working the phones, as well as four television crews, according to Sotheby’s.
Leading the sale, Henry Wyndham, chairman of Sotheby’s Europe, leaned over the podium after Mr. Tollemache, standing at the back of the saleroom, pushed his bid to $11.5 million.
"Just one more—even a little one?" said Mr. Wyndham to laughter. "I’m not proud."
Collectors are circling one of the world’s most expensive books. A tale of trophy hunters, billionaire bidders and ruffled feathers: inside the sale of ‘Birds of America’ (11/26/10)
After the sale of the Audubon book, Lot 50, he banged the hammer to quiet the buzzing crowd. "I’m afraid," he told the room, "the show must go on."
Mr. Tollemache, who is 66 years old and has worked in the London art market for more than 40 years, said he purchased the work both to keep as stock and to enjoy for himself. "I intend to enjoy it for however long I am able to enjoy it," he said in a phone interview.
He did not rule out reselling the books.
The Audubon work sold in the middle of a larger sale of rare books and prints from the estate of a deceased British lord. The sale price of "Birds of America" exceeded pre-auction estimates of $6 million to $9 million.
Audubon, who came to the U.S. from France as a young man, created the 435 life-size bird watercolors that would become "Birds of America" between 1827 and 1838. The books are more than four feet wide when opened.
Mr. Audubon observed many birds in the field, often shooting them, stuffing them and stringing them with wires to create lifelike poses on which to base his paintings. The images were printed on copperplate, many of them hand-colored in London under the supervision of engraver Robert Havell, Jr.
Eleven of the roughly 200 original sets are in private hands. Although the book rarely comes up for sale, Christie’s is set to auction another complete set of "Birds of America" in New York in January, 2012.
Other manuscripts, which are not printed books, have sold for more money: For instance, the Codex Leicester, an early 16th century manuscript featuring scientific drawings by Renaissance artist Leonardo da Vinci, sold for $30.8 million to Bill Gates in 1994.
The previous record for a printed book at auction also was set in 2000, also by "Birds of America," when it sold for $8.8 million at Christies. The buyer was identified by rare-book experts as Sheikh Saoud Bin Mohammad Bin Ali Al-Thani of Qatar.
Mr. Tollemache said his love of ornithology partly drew him to Tuesday’s auction.
Asked how long he has enjoyed bird watching, he replied: "I imbibed it with my mother’s milk."
Finally, toward the end of this exciting week in the book business, Borders announced comparable store sales growth for the most recent quarter of negative 13%, alongside a huge increase in their bottom-line loss compared with last year. Comp store growth is the most important non-profit “metric” in retailing – it’s the sales increase in stores open both this year and last year, so it doesn’t get distorted by the opening or closing of stores. Any number below the inflation rate is an indication customers are leaving your store, or buying less, or both. Ironically, the same report mentioned that Borders had made some improvements, including reducing their inventory. Might anyone notice that fewer books make for fewer booklovers shopping your stores? A 13% decline is about as bad as I have ever seen other than companies on the verge of bankruptcy. Borders admitted they could be facing a “liquidity crisis” soon – Wall Street doubletalk for running out of money.
(For a more holistic view of the industry and what is going on, see my post on the evolution and present crisis of superstores in America (http://hooversworld.com/archives/3005 ).
This latest bit of news is even more evidence for my case for the (sad) end of Borders.
And, the more I think about it, the more I like Half-Price books – and other book distribution ideas yet to be evolved – as an investment in the future!
If you are even more deeply interested in such things, here are two articles from Publishers Weekly, one about Mr. Riggio who built Barnes & Noble and is still the largest shareholder, and about the bargain book industry – those are some of the books I intended in my remark “certain types of books do not sell well online.” Bargain books move best in a retail environment, stacked on tables, etc. Some of them represent excellent value to the customer.
Publisher Weekly Person of the Year
By any standard, the past 15 months have been eventful for Barnes & Noble. In September 2009, the company completed its purchase of Barnes & Noble College Booksellers and two months later introduced the Nook, its entry into the e-reader wars. This spring, B&N appointed William Lynch as CEO and announced a $140 million investment to upgrade its digital capabilities. In late summer, the retailer emerged victorious in a proxy battle (while announcing that it was exploring the possible sale of the company), and in the fall surprised the industry with the launch of Nookcolor. The man behind all these events, who is leading the nation’s largest bookseller through an unprecedented transformation, is Len Riggio, PW’s Person of the Year.
While acknowledging that "a lot happened this year," B&N’s chairman says the year’s developments have been long in the making. "We’ve been working hard on this for the past three years. The digital transformation didn’t start in 2010," Riggio says. B&N had hoped to get into the device market as early as 2008, Riggio reveals in an interview in B&N’s New York offices, but the company was unable to get the technology in place.
Although B&N may have been a little late to enter the e-reader field, Riggio is very encouraged by the reception the Nook and Nookcolor have received from customers and publishers. He is especially proud of the Nookcolor, which, Riggio says, "is the first time in the history of the company we made a technology leap over our competitors. From that perspective, it’s very gratifying." B&N is manufacturing Nookcolors at a rate of 18,000 per day and is loading up a 747 every four to five days to bring devices to the U.S. from China, Riggio says. "We’ll be up against it to produce enough for the [holiday] season," he says. Riggio expects demand for all e-reading devices to accelerate in 2011 due to positive word-of-mouth from customers, before tapering off in 2012. By that time, Riggio anticipates that new, upgraded and cheaper devices (including Nookcolor) will be on the market. "It’s the history of technology. Function improves and prices decrease. It’s inevitable."
As disruptive as the digital revolution has been and will be to book publishing and bookselling, Riggio says a bigger shift occurred more than a decade ago with the arrival of the Internet. The rise of the Web "disintermediated entire book categories," Riggio explains, as free online information led to declines in interest in a host of what had been strong backlist segments, like cooking, travel, reference, and how-to. Now, Riggio says, digital books are putting pressure on what had been the strongest sellers for bookstores, frontlist titles, especially for books that receive lots of media attention, while a number of genres have been affected by e-books as well. But that doesn’t mean B&N can’t profit from that shift. Taking the romance segment as an example, Riggio estimates that B&N has 2% of the romance physical book market but 26% of the digital business. And the sale of Nooks has helped to offset declining sales of physical books at the retailer’s trade bookstores. With price points for the device well above that of print books, the average ticket purchase made by a Nook buyer is around $300 compared to the average $17 to $18 by book buyers, Riggio notes.
Selling Nooks as well as other nonbook products such as educational games and toys is part of B&N’s strategy to attract more upscale customers to its stores in an effort to spur sales of books as well as provide new revenue streams to keep bookstores open. The tactic has increased sales of nonbook items and, while not stemming the steady drop in customer traffic, has slowed the decline, Riggio says. He also believes that just as bookstores devote less space to books, other outlets that sell books as a sideline will reduce the number of titles they carry, a move that will benefit all booksellers.
Riggio hears the experts talk about the demise of bookstores, but insists B&N remains committed to operating physical stores. "We intend to have a lot to say about the future of bookstores," Riggio promises. "We’re in it to stay." Still, the challenge remains to make bookstores relevant in a rapidly changing media environment. Superstores were originally designed to be piazzas of culture, public spaces that offer both information and entertainment in book formats, Riggio says, and bookstores can still serve as community hubs. "The need to touch and feel things won’t go away," he says, be that flipping through a book or learning how to use a Nook. There will remain a substantial number of people who prefer books in printed form as well as books that work best between covers, he predicts. Riggio’s efforts to blend the sale of physical books with e-books is appreciated by publishers. "Len is the only person looking to integrate print and digital," says Simon & Schuster CEO Carolyn Reidy. For publishers to succeed, Reidy adds, "we need robust print and digital markets. What Len is doing is unique."
Bargain Books in Transition
On the eve of the 20th anniversary of the Chicago International Remainder and Overstock Book Exposition (October 28–31), the biggest bargain book show in the country, the remainder book industry, like much of the book world, is in flux. Within the past four years, four of the largest wholesalers have closed their doors—Book Club of America, Kudzu Book Traders, Strictly-by-the-Book, and A1 Books. Nor are things necessarily booming for those that remain. "This has been a tough year for wholesale," says Robin Moody, founder and president of Daedalus Books & Music in Columbia, Md., "between the snow storm, the ash cloud, and the economy." Still, business is steady, even up, at a number of wholesalers as consumers look for cheap books in the weak economy.
Despite what CIROBE cofounder Brad Jonas, managing co-owner of Powell’s Chicago, characterizes as a "total nervousness" about the shrinking of Borders and difficulty of getting titles into Barnes & Noble, as well as e-readers and Amazon, Jonas took advantage of lower real estate prices to buy a building, where he moved the warehouse. What he’s found, he says, is that his best customers are ordering more than ever, plus more product is available.
With the collapse of large wholesalers, midsize is starting to look appealing. And some wholesalers are wary of growing too fast. "Right now, I feel okay with how big we are," says James Crates, sales manager of Texas Bookman, the wholesale division of Half Price Books, which opened in 1983. "We usually hover at about 2,000 titles, which is fairly small inventory. Our buyers always say if they could find enough titles to fit our mix, they would add more. But it seems to remain fairly steady for years and years." He describes Bookman’s inventory as "the brainier side of mainstream." Half Price gets most of its inventory for commercial fiction from used books.
Although Half Price’s own 100-plus bookstores are Bookman’s biggest customers, the wholesaler has been affected by the closing of many mom-and-pop stores. Part of the slack has been taken up by bigger orders from fewer customers, says Crates. In addition, Bookman continues to grow its business overseas. "A lot of our business has always been foreign. But now it’s a bigger chunk," he says. After a 15-year hiatus, Bookman returned to the Frankfurt Book Fair four years ago, where it meets with customers from East Asia and the Middle East that it doesn’t see anywhere else.
Similarly Daedalus, which has a large mail order and Internet presence (DaedalusBooks.com) in addition to its wholesale operation, has looked abroad to increase sales. "For us, more and more of our business is export and mail order," says Moody, who doesn’t often have the quantities to satisfy chain retailers like Borders or Barnes & Noble. However, he does supply Daedalus’s two outlet stores. One opened a decade ago and operates out of the Columbia warehouse; a second, freestanding bookstore opened four years ago in Baltimore. Together the two brick-and-mortar locations account for roughly 7% of Daedalus’s sales.
Other wholesalers are looking to stay midsized but diversify by expanding their retail operations. That’s the case at Bradley’s Book Clearance, which began in Pittsburgh, Pa., as an outlet bookstore in 1993 and then moved into wholesale a decade later. "The retail came first," says v-p Michael Paper. "Otherwise we might not have gotten into it." However, with the closing of a number of Borders Express stores in the region, Bradley’s began intensifying its retail push this year. Next month Bradley’s will open its fourth store this year and its eighth overall with its newest location in Indiana, Pa.; all four new bookstore were originally Borders locations. Paper hired a general manager for the bookstores and is looking to add two or three stores next year. But wholesale still accounts are 80% of Bradley’s business.
Even newcomer Jason Zutaut, former v-p of sales for Strictly, who started his own wholesaling operation, Book Enterprises, in Bedford, Mass., last year, is planning to diversify his business with retail. "I’m looking to do a store for the holiday season with a four- or five-month lease," says Zutaut, "that will be 30 to 45 minutes from the warehouse.
"Diversity today is the key for all of us to survive," says Larry May, who co-owns the Great American Bargain Book Show and the Spring Book Show. Certainly that applies equally to small and midsize wholesalers as well as World Publications Group in East Bridgewater, Mass., the industry’s number two. In the last few years World Publications has experimented with its product mix and gotten into sidelines. A couple of years ago it added stationery and closeouts, but has gotten "more aggressive" this year, according to CEO Jeff Press. In addition, World introduced Dr. Seuss and Fisher Price puzzles under its JG Kids promotional books imprint. With the new PBS Dr. Seuss show, The Cat in the Hat Knows a Lot About That, the response has been "unbelievable," says Press.
For U.S. Media Partners in Centerport, N.Y., founded by former Book Club of America head Albert Haug four years ago, diversity has more to do with the inventory mix. Although U.S. Media Partners has quickly become one of the industry’s larger wholesalers, double his original projections, Haug has no desire to pursue growth for growth’s sake or to go into retail. "We are at a level where we want to be," says Haug. "My philosophy is to work with a couple of premier publishers, really focus on them, know their systems, and know their products. Since this business is very difficult to forecast, we don’t want to expand too fast, or as we say in Germany, ‘Dance at too many weddings.’ " One of the first to create exclusive deals with publishers to take all their remainders and hurts, Haug tries to be strategic when it comes to making deals for U.S. Media. "We try to have types of books that don’t overlap too much," he says. "There are, however, never enough children’s books." Among the publishers U.S. Media represents are Simon & Schuster, Houghton Mifflin Harcourt, Creative Homeowners, and Reader’s Digest Juvenile hurts.
The nation’s largest wholesaler, American Book Company, is one of the few companies to have experienced growth every year since it began in 1997—and it keeps getting larger. American Book, which has 15,000 unique ISBNs and carries about 22 million–25 million books, is in the midst of closing its original 280,000-sq.-ft. facility in Knoxville, Tenn., and moving into a 955,000-sq.-ft. warehouse in nearby Jefferson City, Tenn. The new facility will allow the company to handle rollouts for 1,200 or 1,500-store grocery chains and other large drug stores chains and mass merchandisers, as well as traditional book retailers.
Chris Eaton, senior v-p of purchasing, isn’t worried about going the way of Strictly or the other wholesalers that have recently closed. "In our opinion, they simply overpaid for product to gain market share," he says. "We have positioned American Book Company as a low-cost operator. Being a 100% employee-owned company, everyone has a stake in our success and a desire to do things in the least expensive and most efficient way. Also we have a wider customer base with multiple trade channels."
"We are very excited about the future of this industry," says Eaton. "Although we realize that the industry will continue to change, we see only continued demand for bargain product." Still, e-books remain the great unknown. "Obviously, they will have an impact," says Haug. "Eventually, there will be less product available, but that’s still three or four years down the road. Will it be catastrophic? No." Paper predicts that e-books will take their toll on popular fiction first, but that the two can co-exist. "There’s always been change," he says. "First superstores were going to take over, then the Internet, and now e-books."
In the meantime, Paper, Eaton, and other wholesalers continue to look forward to CIROBE. "It’s still our biggest show," says Crates. Even it has undergone transformation. It has been extended to five days this year to include a preshow to enable buyers to start earlier. However, there will be little hoopla beyond that to acknowledge its 20th birthday. The date also marks the first anniversary of the death of CIROBE co-founder Marshall Smith.