Friday, October 23, 2009

Big and Small.

Assailed from all sides.

Sometimes it seems like retail gets hit from all sides.

I had a young fellow in yesterday who had owned a comic/game store in Boises. He'd sold out to his partner, but was thinking of giving it another try. I found myself saying, "You're young. Why would you buy into such a small industry? One whose future is in such doubt?"

Before I go any further, I want to say that both our stores, both Linda and mine, are doing extraordinarily well. My store, probably because my experience has finally kicked in at a useful level, and because I've found a mix of product that seems to work. A mix that can be adjusted with the changing times. Linda's store is doing well because of the location, because our policies worked, because -- if I do say so myself -- it's a nice store, and most of all because of Linda, who is a friendly face to all the customers.

But change is happening fast.

The American Booksellers Association has gone to the Department of Justice to make a complaint about the plans of Amazon, Target and Walmart to sell books for 8.99.

Booksellers Go to Dept. of Justice
Over Online Book Price War
Published: 10/22/2009,

he American Booksellers Association, the trade organization of independent booksellers, has asked the department of justice to investigate Amazon, Walmart, and Target, charging that the three companies are engaging in “illegal predatory pricing” of books, which it says is “damaging to the book industry and harmful to consumers.”

The booksellers’ organization is reacting to the online book price war between the three companies, in which all three companies are selling advance order hardcovers with $25 to $35 MSRPs at $8.98 to $9.00 (see “Target Joins Online Book Price War”). Since publishers have confirmed that they are not selling to these retailers at special prices, the companies are losing money on every sale, as much as $7.50 per sale on a $35 book.

“By selling each of these titles below the cost these retailers pay to the publishers, and at the same price as each other,…, Warlmart, and Target are devaluaing the very concept of the book,” the association argues. “Authors and publishers, and ultimately consumers, stand to lose a great deal if this practice continues and/or grows.”

The association notes that the pricing of digital editions at $9.99 by Amazon, also below the companies cost, precipitated the price war.

It also argues that for the retailers involved in the price war, books are being used as loss leaders for other merchandise, but that “the entire book industry is in danger of becoming collateral damage in this war.” The ultimate result would be the concentration of purchasing power in a handful of trade buyers, along with the ability to raise prices unchecked by competition.

I suppose they have to try, but I have my doubts this is going to be effective. Plus, it makes the independents look like a bunch of whiners trying to keep customers from saving money.

Still, a legal challenge could ultimately be more effective than an appeal to the consumer to think about the consequences. Consumers don't think about consequences. They see cheap. They want cheap. Cheap. Is. What. They. Want.

Other stormfronts?


The rising cost of comics, the inability to break out of the ghetto, no matter how many big movies get made of comic properties.

Then there is Kindle, or as it looks now perhaps even more dangerous, the new NOOK, from Barnes and Nobles. There is an article in today's Slate:

The Nook of Doom
Barnes & Noble’s new e-reader could kill its business.
By Marion Maneker
Posted Thursday, October 22, 2009 - 5:18pm

Barnes & Noble (BKS) held a slick press event earlier this week to announce its new Nook digital reader. William Lynch, president of online business, was justifiably pleased as he stood cradling the cute arrival. But even though the Nook offers improvements that trounce the Kindle, it is hard not to see the device as a doomsday machine that could destroy B&N’s beleaguered business.

The focus of this story is how the Nook could ironically end up killing of the brick and mortar B & N's; but it could be argued it will have an even more devastating effect on independent bookstores.

I will presume to give my bookstore brethren a bit of advice. Don't underestimate the impact of new technology. It's coming. There isn't much you can do about it.

So what ya gonna do? You can't stop progress, right?

If I was a stagecoach stop, this is where I'd think about adding some gas pumps for these newfangled horseless carriages. I'm not sure what the equivalent of that would be nowadays, and I'm betting the changes are going to work out in favor of the big boys, just as it's nearly impossible to compete on new retail in DVD's or CD's or Video Games.

I'm betting I can keep finding the niches. (Notice how I keep using the word "betting?") I'll need to be quick and flexible and adept. Either that or stubborn, persistent and durable.

Meanwhile, I'm betting that though the brick and mortar presence in books and games and toys and so on will continue to shrink, that there will be a lucky few that will find a way to attract the browsers.

Being in a busy downtown, for instance, or situated on a busy corner. Finding ways to attract the impulse buyer, having stuff no one else has, and making the experience of shopping a social and physical pleasure.

But like I said to the kid above; if I was much younger, I'd be thinking about whether I wanted to commit my career to such a hugely uncertain future.


RDC said...

Nook has some advantages over Kindle. One of which is that supposedly it supports EPUB which is an open e-books format.

If you look at the Nook forums the one thing that pops up as a frequent point of discussion is the issue with previous purchases in ebook formats that are not compatable with other readers. The people that have been using e-books for a while are rapidily recognizing just how big of a problem this is, the recent adopters generally do not yet.

Jeff said...

In international trade there are laws against "dumping" of products, that is, selling them for less than cost in order to gain a foothold in a foreign country market.

Perhaps there are similar laws against dumping in the domestic marketplace?

RDC said...

If it were then the concept of a loss leader would be illegal.

I suspect that the only law would be if there was collusion in which the companies were cooperating. In this case they are clearly competing.

blackdog said...

"I will presume to give my bookstore brethren a bit of advice. Don't underestimate the impact of new technology. It's coming. There isn't much you can do about it."

When I first got into the newspaper business 40 years ago everybody told me the newspaper was going extinct and I was foolish to make a career in a dying industry. It looks like newspapers eventually might go extinct, but it took a hell of a long time for them to do it.

About 10 years ago I was at a party at which a member of the county library staff assured me the printed book was going extinct. Hasn't happened yet and I don't think it will for a long time. Publishers DO need to find a way to bring down prices, however.

I wouldn't lose sleep worrying that Kindle, Nook et al. will put you out of business. The printed book may go extinct, but if it happens it probably will be long after you're pushing up daisies.

blackdog said...

"In international trade there are laws against "dumping" of products, that is, selling them for less than cost in order to gain a foothold in a foreign country market. Perhaps there are similar laws against dumping in the domestic marketplace?"

It's called "predatory pricing" on the domestic front, and can open a company to charges of violating anti-trust laws -- although it rarely goes that far.

The difference between using loss leaders and practicing predatory pricing is that a loss leader is a single product sold at a loss temporarily (say for a week, or maybe only a day) to attract buyers into the store. In the case we're discussing, a whole class of products -- books -- is being sold at a loss indefinitely in what looks like a clear attempt to kill off the competition.

Duncan McGeary said...

It's not so much that books will become extinct as that it's yet another bite into the independent bookstores.

If e-books take 'only' 15% marketshare, that is a significant hit.

Enough bites out of the apple and it becomes impossible to hold together.

Say another 10% hit because of the 'permanent' 9.00 book.

On top of -- let's say -- a 10% hit from Amazon.

On top of -- say -- a 20% from the Megachains and Costgo.

On top of a recession.

Sure there will be survivors, who are the exceptions, but it won't be a middle class lifestyle for very many folk anymore.

tim said...

Hasn't the bookstore business always been dicey? Always a bunch of vanity stores pulling down margins because so many bibliophiles see opening a bookstore as a glamorous move.

Duncan McGeary said...

True, but as little as about 7 years ago, there were something like 7500 indy bookstores, and there are now something like 3000.

Roughly speaking.

Think I'll go google that, and report back.

Duncan McGeary said...

Wow. The info is pretty unreliable.

I found this quote:

"Independent bookstores have been squeezed over the past 15 years by a combination of this new competition and rising rents. The number of independent booksellers nationwide has fallen from about 4,000 in 1990 to less than 2,000 today."

Written in 2007.

Meanwhile, there are the chains, and there are the college bookstores, and there are stores with accounts to buy books....

Another quote I found was the "historically," bookstores have the highest failure rate of all businesses.

I'd always heard restaurants.

Anyway, I THINK that 7800 figure was one I came across quite a bit, as is the one of less than 3000.

Duncan McGeary said...

Another article from 2007:

"But at the ABA, membership dropped from 4,057 in 1996 to 1,625 members last year."

Of course, not all members of the ABA are probably full bookstores, nor are all full bookstores in the ABA.

RDC said...

As I understand it most of the laws on Predatory pricing tend to be state laws and the laws at the Federal level tend to be pretty difficult to bring a case under. As I recall they tend to be cases where there is a single dominant company that is using the pricing power to kill off the rest ofthe competition. When you look at the market share for books it would be difficult to really make that case since clearly there are other substantial competition in that space Amazon, Walmart, B&N, ....

My understanding is that the class of online book sellers (not just Amazon) is only around 30%. Makes it awfully hard to make the dominant player using preditory pricing arguement.

"Predatory pricing is generally defined as sales below cost by a dominant firm over a long enough period of time for the purpose of driving a competitor from the market; the predator firm then raises prices to supracompetitive levels to recoup its losses and render the practice profitable."

"Today there is a consensus led by the U.S. Supreme Court that instances of predatory pricing are very rare and that courts ought not intervene absent proof of sales below an economically informed measure of costs and evidence of probable recoupment"

RDC said...

I would suspect that all that the companies would have to do is to show that from a business sense that discounting of best sellers (a relatively small number of books released in year) generates enought business in non-bestsellers to be a profitable strategy and that they will not have to, not do they have the power to raise prices above normal levels to recoup losses.

The reality is it that even if every small book seller was out of the market there are enough large companies such as Walmart that a company would not be able to raise their prices above list at some point in the future.

If Amazon had 70% of the market then you might be able to make a case but at current market share it is quite a stretch.

"Predatory prices are an investment in a future monopoly, a sacrifice of today’s profits for tomorrow’s. The investment must be recouped. If a monopoly price later is impossible, then the sequence is unprofitable and we may infer that the low price now is not predatory. More importantly, if there can be no “later” in which recoupment could occur, then the consumer is an unambiguous beneficiary even if the current price is less than the cost of production. Price less than cost today, followed by the competitive price tomorrow, bestows a gift on consumers. Because antitrust laws are designed for the benefit of consumers, not competitors…, a gift of this kind is not actionable"

Now my understanding is that some state laws are less stringent and that cases might be more successful in individual states.

blackdog said...

"Because antitrust laws are designed for the benefit of consumers, not competitors…, a gift of this kind is not actionable"

But in the long run consumers benefit from competition, and business practices designed to kill off competition are thus NOT ultimately beneficial to consumers. That's the whole premise of anti-trust laws.

RDC said...

It is only a negative to consumers if sufficient competition is killed off to allow prices to be raised higher then they would have been.

In this case I don't think anyone will be able to successfully argue that the actions will result with books being sold for more than publishers list. Therefore the consumers are not damaged and as indicated by the view of the court that the low prices constitute a gift to consumers.