The Future of the Book and the Bookstore

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.

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."