Where will bookstores be five years from now?
Upton Sinclair famously said that “it is difficult to get a man to understand something when his salary depends upon his not understanding it.”
I keep putting facts about publishing’s commercial realities that I think most of the smart people running things accept together with forecasts for the future that I think most of the smart people running things accept and coming up with a view of where we’ll be sometime pretty soon that I find very few people will accept.
We have definitely passed what Michael Cader has dubbed “peak bookstores” in the US. Shelf space for books is probably dropping faster than the number of stores as book retailers look for other items to keep their customers more satisfied and give those items space previously devoted to books. And shelf space available for publishers who don’t own bookstores is dropping faster than that because Barnes & Noble, the leading provider of bookshelf display space, is aggressively sourcing their own product both to improve their margins and to develop proprietary product not available to their competitors.
The fate of bookstores is an existential question for today’s book publishers (not to mention today’s booksellers!) Although it isn’t often stated this starkly, the core value proposition for the biggest trade book publishers is that they can put books on shelves. All of the rest of what they do (and often do quite well) — selection, editing, development, packaging, and marketing — is fungible. And usually not scaleable.
A big publisher and an agent would add to this list the “banking” function: putting up the money in advance for the author to write the book. But I’d argue that is also fungible (there’s lots of money out there looking for investment opportunities) so the publisher’s opportunity to be that banker is also dependent on the publisher’s ability to put books on retail shelves.
So, whether they know it or not (and, at the highest levels of the biggest publishing houses, they certainly do know it) the competitive advantage of the trade publisher is inextricably dependent on the survival of brick-and-mortar shelf space for books, which is distinct from total sales of books or even total sales of print books. You don’t need an organization of the scale and capabilities of a major publisher to reach customers through online channels. And, in fact, because the biggest trade publishers are horizontal in their subject matter, their size is more of a handicap than an advantage in competing for markets online.
We consume a lot of industry bandwidth considering whether the Nook and Kindle will survive the iPad and other tablets. I’d argue that it doesn’t really matter much to us. What’s important is that more and more people are reading on screens, that those who do reduce their purchases of books on paper (a fact recently documented in the BISG-Bowker study of ebook consumption), and that the digital book business is transacted online with very little potential role for a brick-and-mortar player (notwithstanding a wonderful 4-year old French fantasy video and a burst of naive optimism from an ABA executive at a BEA roundtable.)
(Digression graf: a much more realistic view of what ebooks and online shopping mean for independent bookstores today is a pessimistic one from the blog of one of the country’s leading independents, Northshire Bookstore in Manchester Center, Vermont. We know Google harbors the hope that they can provide meaningful inclusion for independents in the ebook marketplace. But even if Google’s efforts are successful, they don’t support the independent store, they support the store owner. There is a difference.)
So the race between single-function e-ink and more full-function tablets accelerates the movement from print to digital book consumption; and the move from print to digital book consumption accelerates the shift from store-based purchasing to online purchasing; and the shift to online book purchasing, whether print or digital, accelerates the reduction of brick-and-mortar shelf space.
And the reduction of brick-and-mortar shelf space increasingly challenges the core proposition of all of today’s largest book publishers.
A panel of publishing CEOs in June suggested a consensus view that 40 to 50 percent of book sales five years from now will be ebooks. Last week, another leading publishing executive, Gina Centrello of Random House, made the same prediction. I think, if anything, these predictions are conservative, but if we accept them as made, the implications are profound.
Half of sales being digital means that half is transacted online. That begs the next question, which is how much of the other half is online and how much is brick-and-mortar? The answer to that depends on two variables: the purchasing preferences of consumers and the ability of retailers to keep stores open in the face of declining sales. The two variables are connected: the further away from you is the closest decent store, the more likely you are to increase your purchasing online. And the more you purchase online, the more likely the store nearest to you is to close.
It is a conservative guess that 20% of print book sales today are made online and that ebooks are about 5-to-8% of total sales. That means that consensus estimates are that the ebook share will grow from 5-to-10 times over the next five years. That’s not unreasonable since ebook sales have more than doubled annually in recent years and 10 times would be somewhere between 2-1/2 and just over 3 doublings in five years. (Centrello said they went from 3% to 10% in the past year and, without knowing precisely what dates are meant by “the past year”, we can certainly expect more of an iPad effect in whatever is the “next” year.”)
That kind of ebook sales growth suggests an increasingly digitally-ept and digitally-comfortable reading public. That makes them more likely to buy print online too. So what’s a conservative estimate of the online share of print in five years. It can’t go up 5-to-10 times and leave any sales at brick-and-mortar at all. So let’s say (I’d say very conservatively), that print sales in 2015 are half online and that enough shelf space has survived to deliver half of print sales through brick-and-mortar. (I have to say as I write this that I have trouble believing it, but most people would have even more trouble believing me if I went with my gut on this!)
That math leaves print sales through stores at 25% of the total book sales. Today, if the stores’ share is 80% of print and we assume print is 90% of total book sales (using Centrello’s 10% number as a baseline in an attempt to be more conservative for this particular calculation), then we’re talking about a brick-and-mortar decline from 72% of the market today to 25% in 5 years! That’s a loss of about two-thirds from today’s sales levels! And that’s across all stores: chain bookstores, independent bookstores, and mass merchants.
I am not hearing anything in the statements of publishing or bookstore executives to suggest that anybody’s preparing for change that drastic. And I don’t see anything in the trend lines that suggest that we can avoid it.
Tell the truth. If I had headlined this piece, “Industry executives predictions mean sales of books through brick-and-mortar will decline by 65% over the next five years”, wouldn’t you have started out reading it assuming I was nuts?
I did a post three months ago called Why Are You For Killing Bookstores? which was on a similar topic, focusing on the see-saw relationship between ebook growth and bookstore survival. (When one goes up, the other goes down.) It was one of the most commented-upon posts in 17 months I’ve been writing the blog. I think that was a result of what could be a corrollary to Sinclair’s maxim which would go something like this: “it is very hard to get somebody to understand something when understanding it would highlight the conflict between two propositions that appeal to them.”