The Shatzkin Files


Oil in the bookstore ecosystem marshlands; danger ahead


I am finding an eerie similarity between the disastrous Gulf oil spill and the parlous state of America’s bookstores. In both cases, the forces are in place for a disaster that will play out over the coming months and years. And while the tragedy of what is happening in the Gulf is far more consequential to everybody on the planet than what is happening to our bookstores, we are appoximately as powerless to prevent an eco-system disaster of the first magnitude in both cases.

Of course, the causes of the problems are quite different. British Petroleum, it would seem from here, could have operated differently and the blowout might not have happened. If the US government had the same offshore drilling rules as the Canadian government, requiring the relief well to be dug at the same time as the main drilling well, the disaster might have been averted.

Just like the shrimpers on the Gulf Coast, we are entering the highly visible stages of what will be a painful and accelerating change in the circumstances for general trade publishing. In an exchange in the comments of a post here from last November called “Why are you for killing bookstores?”, I was told by a resident of Orange County, California, that he didn’t even know where his nearest bookstore was. Now there is news that Laredo, Texas, is aware of its status as the largest city in America without a bookstore because its local B. Dalton outlet has been closed. Unfortunately, I don’t think Laredo will retain that status for very long. Much larger cities will be joining Laredo. These are like ships not bothering to leave the harbor because there is nothing out there worth catching.

Bookstores in the US are being pushed aside by the forces of what in the larger sense is definitely progress. The four biggest villains are the switch by consumers to Internet shopping (which affects all brick-and-mortar retail; Walmart’s sales are down too) and three aspects of that switch that amplify the problem: the ubiquitous availability of used books sold alongside the new, competition from long tail books that would have disappeared from commercial view in years past, and the rise of ebooks. All three of these effects reduce print sales in terrestrial stores, crippling retailers and damaging publishers as well.

The trend is impossible to ignore. Borders, just rescued by the latest White Knight that believes the business can be saved, announced that same store sales were down over 11% in the first quarter compared to a year agoBarnes & Noble’s reduction in same-store sales was put at “2 to 4 percent” in its most recent reporting. [Late add: B&N actually reported same store sales down 5.5% in the most recent quarter.] Borders is a financially challenged operation with an inadequate supply chain, which could have led to not having the books they need to get all the sales that might have been available to them. But, if that’s true, the well-financed and well-operated B&N would be benefiting from their rival’s problems. (They probably are; sales would have been down more if they weren’t.)

I first worked in a bookstore almost 50 years ago, in the summer of 1962 in Brentano’s flagship store on Fifth Avenue. I’m going to guess that there were about 25,000 titles in that store: 10,000 hardcovers upstairs on the main floor and about 15,000 paperbacks downstairs in the brand new paperback department where I worked. Maybe there were more, but not a lot more. And this was one of the best bookstores in America at that time.

There just weren’t a lot of bookstores in America in 1962. Mass-market paperbacks were on sale in many drugstores and on many newsstands, and were in somewhat limited supply in bookstores. Paperback distribution then was just about exclusively through rack-jobbing local wholesalers and offered lower margins than trade books. Even Brentano’s, which was one of the few stores served direct by mass-market publishers, displayed the mass-market paperbacks by publisher rather than by subject to make it easier for the publishers’ reps to check their stock and fill in empty pockets every week.

Department stores were critical outlets for publishers. They provided what amounted to local chains in each city which were, at that time, just beginning to expand into suburban locations through a nascent shopping center industry. Reps for Dolphin Books (Doubleday) and Collier Books (Crowell-Collier, later Macmillan), two trade paperback lines begun by my father, were putting racks of their books into barber shops and motel lobbies in many parts of the country which had virtually no bookstores at all.

Running a bookstore was very hard. Publishers were numerous, title acquisition was fragmented. The only national wholesaler, Baker & Taylor, was really a provider for the libraries, which were willing to wait for B&T to go get the book after they ordered it from them. Local wholesalers, sometimes the same operations that rack-jobbed the mass paperbacks, didn’t attempt to stock much more than the bestsellers, the resupply for which was their real profit center.

In the late 1960s, as shopping center construction heated up, this started to change. Two national chains, Waldenbooks and B. Dalton Booksellers, grew on the back of that expansion. Shopping center developers preferred a national chain to a local independent as a tenant; they were more “bankable” when the developer was borrowing money to build. So these two chains started to grow as fast as suburban mall development would let them, which was pretty damn fast. When I went into publishing sales in 1974, each of the chains had about 300 stores nationally.

Dalton revolutionized backlist sales. Before scanning technology existed, Dalton instituted unique SKU numbers for every title which the cashier would punch into the register when each sale was made. (The SKU number was on a sticker on the book.) That enabled an automated reordering system to bring core backlist (designated “model stock quantities”) back in as they sold it.

Dalton had a “hot list” and a “warm list” of titles. The “hot” titles sold 10 copies a week across the chain. The “warm” list sold 10 copies a month across the chain. That was in a chain of about 300 stores and gave me my first real understanding of how few titles sold very much in a bookstore! Those lists were very important. If your book wasn’t on the hot list, it wasn’t going to get noticed by a buyer for re-ordering. And if it wasn’t on the warm list, the title was likely to be returned.

At about the same time, the early 1970s, the Ingram Book Company introduced technology that changed life for the independent bookseller: the microfiche reader that allowed every retailer to know, before they ordered, what Ingram was carrying. All of a sudden, just as Dalton was demonstrating how important a broader selection and in-stock backlist could be to a store’s economics, independent stores could imitate that strategy by ordering regularly through Ingram. Although computerized inventory management help was still a few years in the future, just being able to get the books from a single reliable supplier enabled independents to begin to compete and grow. (Of course, independents still didn’t have the advantage of 300 locations providing data so they could detect a “hot” book or “warm” book that might not be evident in a single store.)

There were two newer operations spawning stores with robust backlists in the 1970s: Paperback Booksmith and Little Professor. Both jump-started new independent stores with their branding, their inventory, and systems to support both new title buying and keeping key backlist alive. The Doubleday and Brentano’s chains had fewer stores, but bigger and richer ones.

From the publishers’ perspective, this was all providing more and more opportunity: more stores, more efficient stores, more backlist-conscious stores. So general trade publishers grew. Title outputs grew. Dalton and Walden grew. Independents and various smaller chains grew. Ingram grew. Baker & Taylor grew.

In the 1980s, the growth continued, fueled by increased efficiencies. Machine-readable fonts enabled Walden to imitate Dalton’s point-of-sale monitoring without having to sticker every book. Computerized inventory tracking systems improved efficiency at stores far and wide and at the wholesalers as well. New retailer Crown Books pioneered a new idea: a more limited selection of new books, combined with a lot of remainders and bargain books, and aggressive discounting of bestsellers. Even while the chains grew, the independents grew and became more powerful. A newly-energized American Booksellers Association became an aggressive advocate. They sued major publishers, ultimately forcing changes in sales policies that were deemed too chain-friendly.

Throughout the 1980s, the independents were the ones building the big category-killer stores. Good independents were confident that they beat the chain stores on title selection. They were even competing pretty much at full price against Crown’s deep discounting simply by being the place you could find the books you wanted. In the late 1980s, Borders and Barnes & Noble, along with Wall Street, saw the opportunity. Borders acquired Waldenbooks and B&N acquired B. Dalton to give them operational scale, and then they started to open very large 100,000+ title stores (under their own brands, not the acquired ones) in a model that had been developed by a Texas operation called BookStop (which was acquired by Barnes & Noble.) This just meant more growth for publishers; more backlist being stocked in more places. This might have been when the big indies first started feeling a pinch; I recall Andy Ross of Cody’s expressing concern about a big Barnes & Noble opening in Berkeley about that time. But the indies and the chains had a much bigger problem just over the horizon.

In the summer of 1995, Amazon.com opened for business. And, probably since Day One, but certainly increasingly and increasingly obviously, Amazon has been damaging the ecosystem which spawned a robust bookstore network and, which, in turn, fostered large and powerful general trade publishers. That was when the wall protecting the water that fed bookstores and trade publishers was breeched by the oil of digital distribution.

The analogy is not precise. Amazon is not a villain like BP. They aren’t just destroying an old eco-system; they are building a new one. To the consumer that is finding shopping easier than it ever was before, finding books they could never find before, being presented with cheaper choices of used books and electronic books that were not available before, there is no crisis here. In fact, there is no problem.

But to bookstores that depended on customers that had little other choice but to come to them for the books they wanted, shop from what was available under the store’s roof or wait for something to be brought in from outside, and who were effectively restrained by geography from shopping around for price or selection, the waters have become toxic. And to publishers that built a business whose principal competitive advantage is their ability to take intellectual property and put it onto bookstore shelves, the imminent prospect of reduced revenue, increased costs, more difficult title acquisition, and competition from old IP long-sold or long-dead, are now fouling the drink for them as well.

All of the eco-destroying forces that have so far hit the  bookstores, like the oil coming onshore in the Gulf, are just harbingers of much bigger waves of challenge to come. More and more people buy ereaders and cut print consumption drastically; more and more books get digitized; the long tail only gets longer as more and the more digitized stuff meets increasingly efficient print-on-demand. And more and more competitive material enters the supply chain with some appeal to the public but with no participation in the structure that makes bookstore stocking easy. The bookstores’ problem is not just about demand, it is also about supply. That’s competitive advantage for trade publishers in getting their books on bookstore shelves, but it is competitive disadvantage for bookstores competing against a universe of content a click away from more and more eyeballs and mindshare.

In an exchange in front of a large audience at BookExpo last week, one prominent publishing executive took relative comfort in the fact that “more than 90% of our business is still print.” That’s (still barely) true, but only about 70% of the business is still occurring through brick-and-mortar outlets. That number will be under 50% in 12 to 18 months, and the slide will still be accelerating. Big publishing grew in an eco-system of expanding retail shelf space. It has been challenged in the past 15 years as all that growth was stopped by the new forces unleashed online. Now that shelf space is going to start to shrink faster and faster, it is hard to see how big trade publishing can avoid doing the same.

Another aspect of this problem was raised this morning on a mailing list I’m on. Public libraries are losing the funding they need to stay open. Public libraries buy a lot of books from trade publishers, although most of those sales go through wholesalers and not all publishers are managing library sales discretely the way they should. Library purchases have tended to act like ballast in previous recessions; public funding wasn’t usually as volatile as consumer spending. Unfortunately and somewhat coincidentally, the erosion of the bookstore infrastructure is occurring when we’re also facing what is likely to be a longterm crisis in public funding as well.

Two Australian booksellers were in my office last week. The trauma they face is even worse than it will be here. Geography has protected Australia from competition so books are priced 50-to-100 percent higher than they are here. That’s been great for bookshops. Their trade looks like ours did 15 or 20 years ago.  With the arrival of ebooks and POD, they’re probably facing the changes we’ve seen since then in the next two or three years.

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  • http://www.InklingBooks.com/ Mike Perry

    Your final remarks are especially interesting. Ingram's POD service, Lightning Source, already prints in the UK and, if I understand them right, will soon be printing books in France and Spain. Adding countries with large, English-speaking populations, Australia, New Zealand, Japan, Singapore and Hong Kong, would be the next major step forward. Two week delays and heavy shipping costs would disappear. Even small publishers would have fast and efficient global distribution.

    But if bookstores in countries such as Australia have been depending on long shipping delays as an excuse to charge prices “50-100 percent higher than they are here,” that'll have to end as ebooks and POD becomes more common. They'll need to substitute quick availability for higher prices to stay in business.

    • /blog Mike Shatzkin

      There's no ostensible connection between the delay and the price. They're
      not connected.

      Australian stores would love to get books faster. In fact, if the prices
      would stay high (which ebooks pretty much assure that they won't) then
      they'd be able to adjust to POD easily because the 2x or 3x manufacturing
      cost increase would be easier to absorb.

      But your central point is right. My post focused on the fact that POD is
      giving offshore publishers a real crack at the US market. The same is true
      in reverse. US publishers will find a following for their books all over the
      world that has been hard to tap in the past.

      Mike

  • chris

    Mike, I think your history lesson has clarified something that has been on my mind for some time.

    In 2005 I published a crappy 32 page tourism mag that I self-distributed. The next year we went national with 180pp through a distributor. Surprisingly, I outsold the newsagent distributor by supplying tons of additional outlets myself.

    The task was onerous the first time, but the rewards high. I stocked places like roadhouses, off-road spare parts stores, motels, cafes, tour operators. Anywhere that had advertised with me (because we already had a biz relationship), anywhere that had a captured market for a moment of time and anywhere with the right reader traffic.

    After reading your post I wish I had thought about barbers!

    I often look at the current distribution model for books and I see a wasteful and costly exercise that targets one demographic – book buyers. Of course, some will say that is the only market to target.

    It's not.

    Yes, every single reader is a potential book buyer – although not every single reader is a bookstore shopper. I bet I can sell 100 times more non-fiction war titles in a barber than in a bookstore. Ditto, a romance novel in a hair-dresser. Or a parenting guide in a childcare centre.

    Good distribution requires hard work, a personable disposition and a whole lot of honest sales talk. A good title can always succeed if you identify the market in which it 'could' sell.

    I love bookstores. I don't want them to fade away. Bookstores are designed for people like me: voracious readers. But the future is not in supplying people like me, we're just another niche. The future is supplying all the other niche markets – the average punters on the street – with cheap, relevant entertainment.

    You just have to go back in time and work a little harder on the distribution. The same goes for online sales. Why market solely to people who are looking for a book? That's a dumb business model.

    What if a publisher is selling war books? Sure, stock Amazon … but for the love of god, get off your arse and find the online barbershop too! :)

    • /blog Mike Shatzkin

      My father would have loved your post, Chris, but I'm not sure what he did in
      1962 applies as broadly in 2010.

      What Len did was to look in what was then Sales Management Magazine to get
      the wealth index (I think it was called “disposable income”) by county. Then
      he (and his mathematician, George Blagowidow), figured out which areas were
      underserved with bookstores. He really aimed his guys at the barber shops
      that were where bookstores should have been, but weren't.

      The reason I wouldn't rush to apply that formula today is that people have
      access to all the books they want on the Internet. What Len had going for
      him was not just that he found people who go into barber shops and motel
      lobbies, but that people in the neighborhood that wanted access to books and
      found them wherever they were would come back.

      Mike

      • Chris

        “…I'm not sure what he did in 1962 applies as broadly in 2010″

        I'll disagree with you here, Mike. If only because I know from experience that some of the keenest consumers are not always in search of a product. If that makes sense?

        They need to be exposed to it personally.

        Again, the industry assumption is that book buyers are bookstore customers. That assumption is fatally flawed. If it was the case then the Da Vinci Code would have sold barely 5% of what it did. It's the same reason why The Lost Symbol was on display stands by the dozen in our grocery stores. The modern mass market book buyer is way too busy to venture into a bookstore. Sure they can shop online, but they still have to find your title. No chance of that unless they know something about it already.

        As for identifying the 'wealth' demographic – that is still applicable today as well. That info is freely available to those looking for it (Bureau of Stats. Census etc) This is why direct marketing still works. If done properly.

        Would I direct market my local suburb? You betcha. Beach suburb, high disposable income, majority of residents are retirees, plus holiday makers. It's the perfect market for direct promotion of books.

        Would I target the suburbs 10 clicks inland? Nope. Single income, mortgage, kids, etc. Pointless.

        The down side is that this distribution/sales work is labour intensive. But if you want to sell thousands of books then you best get the attention of the plebeian mass at all costs. That;s the difference between 'marketing' and 'selling'. Any one can market a title … but can they personally sell it?

        You think Coke would be as successful if it was just sold in cafes? They have the best distribution model in the world. Cheap product available everywhere. I even had some kid sell me a bottle when I was sitting on a sand dune in the middle of the Rajasthan desert. That's good distribution.

        My issue with the book industry today is that we are out of touch with the common reader. We know the avid reader, the early ebook adopter, etc. We've lost touch and forgotten about the average Joe.

        Remind you of anytime past? The advent of pulp fiction and PB for example. Cheap reads for the masses. We're too busy focusing on everything but that.

      • /blog Mike Shatzkin

        Chris, have you ever done any book marketing? It sure doesn't feel like it
        from reading your note. You can't market books like Coke for a million
        reasons. Maybe someday I'll write a post on it, but it's far too big a
        subject for a response in comments.

        And you can't market anything like Coke unless you can put it on sale in as
        many locations as Coke. Do you know how few slots there are for books in the
        mass merchants you cite and how many books compete for those slots?

        Without full-line bookstores, the number of books that will be able to be
        marketed that way will be relatively miniscule, and certainly not enough to
        support six major trade publishers.

        Mike

      • Chris

        Mike, you can market books like coke all day every day. That's the beauty of online sales. You can promote the shit out of your titles on the ground with any number of standard promotions. Sure, put your display ads in the trade press, illicit your book reviews, sharpen the PR, promote online, whatever.

        I mentioned the porn example elsewhere.

        These guys made hundreds of millions and pulled the carpet from underneath the traditional print skin mags. They used cheap/stolen content. They relied on free sample sites run by pimply-faced kids who drove millions of users to the main sites for a revenue share. These guys pioneered affiliate marketing online (not to mention CC processing and streaming vid). In 1996 there were 18 year old kids making $1mill a month from affiliate sales through dozens of different 'online publishers'.

        14 years later and the publishing industry has affiliate programs from Amazon! A retailer no less. Unbelievable!

        Who are the smart publishers in this day and age? Well, I'm gonna back Harlequin and their eharlequin.com pub/retail/affiliate enterprise.

        As for the people marketing on the ground? Take a look at these guys from my local town http://www.4ingredients.com.au/ – 3 million copies sold… self-pubbed. Plus, knowing their distributor, they probably had to take a hit with a 70% discount first go round on a $17.95 RRP.

        They sell everywhere. They do cooking demos in the supermarkets. They promote, promote, promote. They are the Coke of Cooking Books. Of course, like you said, you can't do this with every title. And of course, every title can't be sold 'everywhere'.

        I think we differ here – you're looking for solutions to the publishing industry as a whole. You're a consultant. That's your job. I'm looking for solutions for 'my' publishing. I don't care about Random House or HarpersStudio (RIP). I care about businesses like Harlequin and Elora's Cave because they really do have a clue. I also know of quite a few quiet indies that are doing well with niche products. These indies have never been exposed to traditional publishing so they are doing what ever they think works. And guess what? It's nothing like what the big guys are currently doing.

      • Chris

        I forgot to add that Commission Junction (who looks after Harlequin's affiliates) stipulates that advertisers must generate a minimum of $50,000 per month in online sales before they are allowed to sign up to the program. Obviously Harlequin is doing all right with ebooks.

        I should also give you a face to put to the last statement I made in the previous post. You always talk about the publishing industry's future success is dependent on owning the community. Forget the future. That's here already. Has been for a few years. All done by outsiders.

        You show me the publishing company of 2020 and I'll show you http://Envato.com

        Find some time and check out what they're up to over there. Leave your traditional publishing baggage preconceptions at home and be sure to take note because Collis truly knows what he is doing.

      • /blog Mike Shatzkin

        Chris, I'm also an admirer of both Harlequin — whose global strategy
        meeting I'm speaking to this week — and Ellora's Cave — which I featured
        at the Digital Book World conference last January. Neither of them markets
        their books “like Coke.” There is nothing mass or generic about what they
        do. It is highly targeted.

        What they demonstrate to me is both nothing like Coke and nothing like
        HarperStudio or any big house. They demonstrate the power of vertical and
        the necessity for a successful publisher to go the same audience repeatedly,
        not to a different one with every book they publish. I agree that the big
        guys are challenged, but it isn't because they fail to “market their books
        like Coke.” It is because they have a different market — which, for books,
        always means “a different NICHE market” — for every book they publish.

        Mike

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