Tuesday, May 18, 2010

More than we need?

Writing about how many bookstores we have in Central Oregon got me thinking about whether it's a good thing or a bad thing to have too much capacity.

I've wavered about this for years. At first, it seemed very clear to me that one strong store was better than two or three weak stores. But did that necessarily follow? Was I just letting my competitive instinct get the better of me? Did I want it all to myself?

Given enough time and distance, I could half buy into the notion of 'the more the merrier'. That competition was good; and made all the stores better. That there might be a 'synergy' to more stores doing the same thing; a cross-fertilization if you will.

Almost every business article I've read on the subject comes down on the side of "more is better."

Sorry, I don't buy it.

Of course, much depends on the quality of the stores. But -- assuming all the stores are equal (either bad or good) -- I don't believe that splitting the market is healthy.

This proposition has been tested over and over. I've got enough history of watching stores come and go, and watching what my sales do each time, to realize that I almost always benefit from less competition.

It may not be gracious to say. It may not be politically correct. But I believe it's true.

Ironically, I've always been able to do a much, much better job when I had -- if you will -- a monopoly in a certain product. I would carry more, I would do more, I would be cheaper because of the pure volume. Competition, more often than not, makes me pare down my selection, to watch the bottom line on how much time and space I devote, and stick much more closely to full price. (Not the mention all the intangibles -- the motivation to learn everything I can about a subject, for instance. To create a place for the 'true believer's' to gather, and so on.)

This is, I believe, the opposite of the common wisdom. Monopolies bad, competition good.

At least on a micro level, and assuming altruistic impulses on the part of the store owner, a single store doing a full-service job, is better for the consumer than several cut-throat stores competing.

I compare it to Plato's thought that the best form of government is 'benign dictatorship."

But much like you can't count on the dictatorship staying 'benign" you can't count on a monopoly staying altruistic.

So I accept that everyone should have a chance at the brass ring. Everyone should have a chance to out-compete the other guy.

Whether I like it or not, that is the way of capitalism. This being so, it behooves me to 'pretend' if you will, the 'More the Merrier,' even if I don't secretly believe it. It is much better for me to be gracious and to let my customers know that there is choice in the local marketplace, and move on....

"That which I can't change..."

It has also helped that I decided not to be the PRIMARY supplier of most of my product; books, games, toys, cards etc. I can't be surprised if many customers prefer to go to my competitors who specialize in only one thing. It's O.K. because that's how I've designed my business.

Comics and graphic novels are the one category where I do try to be the primary supplier, and I don't honestly believe that a second store would be helpful. Not that I could stop it.

Ideally, an equilibrium would be reached by a 'free market'. The appropriate number of stores for the appropriate number of people.

The reality is much more messy; in fact, I don't think equilibrium is actually every reached....ever.

There are always too many or too little.

23 comments:

RDC said...

In the case of books you have a situation where you have a pretty opaque market.

The following is quoted from an article written by Science Ficton writer Eric Flint:

What do I mean by an "opaque" market? The concept is simple, and is closely related to the concept of information asymmetries as used by some economists. A lot of economic theory is based upon the presumption—the preposterous and absurd presumption—that the market is completely visible to consumers. To put it another way, applied to this topic, when Customer Joe or Jane sets out to buy a book, they know already all the books available on the subject they are interested in. Their choice between Books A, B and C therefore comes down to an informed choice based partly on price, partly on their preference in format (electronic or paper; and, if paper, hardcover or paperback), and partly on their own assessment of the relative talents and skills of the various authors who have produced books on the subject.

It's enough to state the proposition for anyone to see how ridiculous it is. In the real world, the situation is almost diametrically the opposite.

According to R.R. Bowker, the company that compiles the Books in Print database in the USA, in the year 2003 there were approximately 175,000 new titles published in the United States. That's one new book coming out about every twenty seconds. The figures for the UK are smaller but comparable—the best estimates are that more than one hundred thousand books are produced in Great Britain every year, in recent years.

That's at least a quarter of a million new titles in the English language, published every year. And in case you were wondering—given the endless yapping about "the decline of reading"—the number is increasing, not decreasing. Over the past half century, since the advent of television—which many doomsayers insisted would destroy reading—the production of books has increased four-fold. That increase is faster than the population increase, by the way. World-wide, we've gone from about a quarter of a million books produced every year to a million, which translates into an increase from one hundred new books for every million people to one hundred and sixty-seven new books per million people.

To put this yet another way, if you read one book a day, you would be neglecting to read several thousand other books.

continued

RDC said...

So if you believe that Eric has a valid view and I certainly do then
you have a better potential for increasing overall book sales by having different stores present different views and different recommendations. People will tend to have their favorite store, but no one store will present an all encompassing view into the world of books.

The key for books in the future is more a matter of building demand (getting people interested in reading for enjoyment) then in competition for each reader. If it falls into the later category then competition will result in shrinking focus and fewer readers over time.

RDC said...

By the way for anyone interested in the enitre article by Eric is can be found at http://baens-universe.com/articles/salvos7

The article was written about why DRM is a bad idea for e-books from an authors point of view.

Leitmotiv said...

I heard a similar piece on NPR. It was about a Chess store in New York. One day, one of the employees quit, only to turn around and reopen ANOTHER chess store right across the street. What happened? It increased foot traffic to both stores. Created a bigger draw.

They then drew parallels to jewelers. There's a market in New York full of Jewelers and people come because of the density and variety, thereby increasing sales. When the jewelers were asked how they make it when put against so much competition, they said you have to find your own spin on things to get that sale. Get creative.

I think it's a good thing your wife opened up a store right across from The Open Book. More draw. More sales. A person can hop from to the other. One person may just have what the other does not. Hell, I think that same section could have a third used book store! The density of the book stores would draw more traffic and make it popular.

The trick then would be to differentiate your store from the others. Have something that they do not to encourage sales.

It's also similar to garage sales. If you can group a bunch of garage sales on one street (Street Sale), you pull in a LOT of customers. Whereas, when I recently had my garage sale on the west side, all by it's lonesome... I had probably less than 15 customers! One customer even asked if there were other garage sales nearby... sorry ma'am!

Duncan McGeary said...

Leitmotiv,

That's the theory and it makes sense, except...

Each and every time I have sales record before competition opens, during the competition, and after the competition closes, I've seen the same pattern.

Games sales, for instance. I've seen several game stores come and go over the years:

Game store opens, my sales drop.
Game store closes, my sales rise.
Game store opens, my sales drop.
Game store closes, my sales rise.

Duncan McGeary said...

A good general rule of thumb is that new competition will take between 10 to 20% of your business in that category.

A competitor closing will add about the same amount. What happens to the other 90%? No one knows. It's a mystery.

When a new competitor opens, you may lose, say 10%, but after a year or two you may get back to previous levels.

Somehow, having more stores adds to the OVERALL numbers of sales, but not for my store specifically.

Should I care?

There was a lot of talk in the comic biz about there not being "ENOUGH" comic stores, and that's why comic sales overall were suffering.

I'm not sure I agreed. Enough? The marketplace decides...

But I know that a second comic store in Bend would not be healthy for me (or for that matter, the competitor) due to the simple math of how many people buy comics.

But you survive! everyone says. Yes, and I'm like the fighter who's been through a series of 9 rounders -- I may win the fight, but I'm battered and cauliflowered and punch drunk.

RDC said...

Duncan,

Games are not books. In most cases game stores tend to focus on the same games (usually what the fad of the day is). Consequently you are competing for a set of customers that usually have a pretty good idea of what games exist. Consequently you end up with a competition over price.

You have some possiblity for expanding the market (You probably do more expansion/introduction then a true game store does).

However, in the case of books even the most avid reader has read only a subsection of the authors, even in their favorite genre.

Let me put it this way. What has your wifes store shown in books sales as other stores have opened and closed?

Duncan McGeary said...

Linda's store has seen a steady increase from the month she opened, which has continued even through the slowdown.

Based on how many people still don't seem to know she's there, or who mention walking in, that it's their first time, I think she still has growth to come.

But....well, I think it didn't hurt us when the Paperback Exchange closed. Dudley's (and my store, for that matter) are more walk-by, and tourist oriented and probably have had less effect.

I like the Open Book. I really do. I like their selection and often shop there myself. So -- I'm hoping they have a very long and prosperous career. And I really mean that. They seem to be doing very well, and I'm happy for them because we're also doing very well and Bend is lucky to have two such stores.

But assume they weren't there...how could our sales NOT increase? In fact, though, that would be more than a little scary and I devotedly hope it doesn't happen because we'd have a hard time dealing with the possible influx...

Those two stores would NOT seem to be overcapacity.

blackdog said...

"They then drew parallels to jewelers. There's a market in New York full of Jewelers and people come because of the density and variety, thereby increasing sales."

And auto dealerships see a similar synergistic effect from clustering together. Of course, they're all offering different variations (makes and models of cars) on the same general product (cars), just as the NY jewelers offer different types and styles of jewelry.

If all the jewelers sold the exact same kind of jewelry and all the car dealers on Auto Row sold Chevys, then, as RDC notes, they'd be competing only on price and most would not survive.

Leitmotiv said...

I think it depends on what you are selling. Comics are very niche and there aren't enough readers to support two stores. One store could carry all that is popular, and most of what is second tier.

Books on the other hand reach a broader market. There are also so many different kinds of books over the span of years that the end result of what kind of store you want is up to you.

What theme is your bookstore? Antiquity, recreational, local, fiction, non-fiction, art, romance, coffee and lounging, meeting place, author appearances, volume, prices, mixed used and new, good trade benefits, etc...

blackdog said...

"The key for books in the future is more a matter of building demand (getting people interested in reading for enjoyment)"

Absolutely -- but HOW??? People have so little spare time these days, and there's so much competition for it from so many entertainment media, that reading for pleasure seems likely to become a quaint pastime indulged in by an eccentric few, like building model ships in bottles.

RDC said...

Duncan,

Do you view the public library as an asset or as competition?

After all it is free and people can access books there at no cost.

Duncan McGeary said...

The library has always been there, so it's factored in.

They started carrying a lot more graphic novels in the last few years, and I haven't decided yet if it hurts or helps. Overall? I think it's helped -- but they aren't competing in the selling of take home product.

Leitmotiv said...

I think the one big thing the Open Book and the Bookmark could do to make it more appealing is to move to the same side of the street! Right next to each other so customers could park in one place and then walk to both.

The Open Book could do this easier because they have a smaller floor plan.

As it is, it's hard to drive your vehicle across 3rd street and that divider is in the way.

With a third book store, you could advertise the whole place as Book Store Strip. It would be the one place to go for tourists! All three stores could pitch in on advertising in the papers and abroad. Now that would be cool novel idea.

Duncan McGeary said...

I want to make it clear I'm not wishing ill upon my competition. I think that is a karmically soul destroying activity.

Like all good business practices, (honesty, backing up your product, etc.) the little bit of money you might gain by being ruthless is NOT worth the psychic costs.

I have to remember too, that almost all of us started as that 'other guy.'

In an ideal world, the competition would retire fat and happy and leave you the field....

Duncan McGeary said...

When we first moved in, we tried to engender that idea. We mentioned it in all the news stories, and tried to make is so...

But I suspect the Paperback Exchange didn't feel that way.

Nor, at first, I suspect did the Open Book.

In theory, that could work....

RDC said...

Blackdog,

By lowering the hurdles of entry. If I was a publisher, I would be making copies of my backlist, available to schools and school libraries at no cost. The reality is that publishers make very little money off of a book once it reaches a certain age (figure after the 2nd paperback printing) so make it easy for someone to find your authors and make it easy for someone to discover reading for entertainment.

blackdog said...

RDC: Sounds like a good idea to make the backlisted books available cheap, but if nobody wants a product it won't sell no matter how cheap it is. You literally can't even give it away.

I think the main reason more people don't read for recreation is not cost, but the fact that reading takes some effort. (Especially if you can barely read to begin with, as is increasingly the case.) Americans today, especially the younger ones, expect -- indeed, demand -- to be entertained with little or no effort on their part.

BENDBUST said...

I have talked about this before, and I would like you fellow bibliophiles to respond.

I myself own 10's of thousands of books, and today they ain't worth shit. Even Powell's in the recent years refuses to BUY 90%. Years ago they BOUGHT 90%.

If the wholesalers ain't buying, ...

I think personally a lot of books are going to get DUMPED on the market. Hell I own virtually every classic, long ago I collected my own personal library.

I think we all read books less these days, I certainly do, because ever since I got this damn laptop ( mac ) about 4 years ago its been addictive, being a person using computer since the 1950's I had refused to get a laptop up until about 2007.

Now given I'm on the laptop 4 hours a day wheeling & dealing and banking, .. and fucking off with you twits, ...

The issue is we have SO much information, its simply easier to google than open a book. Even though the book is within reach.

My opinion is a TON of shit from us baby-boomers 1940-1950's is going to get DUMPED on the market, we bought a lot of books, ...

The price of used books has now collapsed, in all cases the book is worth LESS than the shipping cost 4th class. So its virtually impossible to sell.

With regards to new titles whatever, .. there was time when we all wanted to have the classics within our reach.

Kids? Who the fuck knows, but I think games which I hate has a big part of the problem. I think before books people conversed, story-telling, then there was books, and now we're back to story telling via VIDEO. What's hot now is UTUBE ... kids teach other shit and make videos and post on YOUTUBE ( not porntube hbm )

So the issue I think is we have made full circle as a culture we have gone back to story-telling, ... its easier for kids, why the fuck read a book, its not social, and its not cool.

In the meantime us geeezers dump all our books, which makes the book biz, essentially worthless.

Every town will have a few used book stores, but what the fuck, I have enough myself to open a store, but I know better.

BENDBUST said...

Let's be honest, too many of anything is too many.

Having traveled all my life, let me just say that I really like what they do in Tuscany. It's commie if you didn't know.

In Italy each town only has ONE, been this way for 400 years, ... and each family has that niche, maybe it stamps or cigarettes, .. the idea is a small town or village needs to have employment of the family throughout generations, so there is always ONE.

Once you allow infinite, then there is always the inevitable boom&bust, where there are 100 books stores and then NONE. Like in Bend where we now have 100 furniture stores and probably in the future NONE, cuz the last guy in town owning them all is over is head, and the whole thing collapses.

Its bad for the whole village. So lets say there a small village, and one bakery, and that's where folks get their bread. Life is good, the kids are taught to make good bread. The family is 'comfortable'.

If you allow an infinite number of bakers, everybody cuts each others throat, and pretty soon all the familys starve, the kids move to the big city.

I'll take one step farther, I see the trend all over the world with our modernization, and globalization, kids leaving to the urban, we talked about this with Greece last week. Certainly in Bend no kids with ambition stays.

It's impossible with USA capitalism to have 'stability' that said, I'm just reminding everyone that it really does exist. There really are towns in the world that have one bookstore, ... and everybody is happy.

BENDBUST said...

One last comment.

Yes, I agree with you dunc. I think you hit it on the nail, that one good is better than 1/2 a dozen 1/2 ass.

Your long term dunc, and so is linda.

But your children will never run the bookstore, ... Its not really a family biz,

The problem with our BEND is as its always been an overnight get rich quick ghost town, and now an exhausted resource colony, with no more resources ( trees, or water ).

Bend ain't real, never was, and probably never will be, but certainly we can all dream of the perfect MAYBERRY (town), and the perfect biz, and community, but honestly I think this kind of talk is like making a silk purse from sows ear. Bend will never ever have what it never had, its an exhausted gold-rush town, and now the boom is geriatric retirees. This of course is the ultimate FAD with NO possible longterm outcome. As USA retirement is a total joke, and the door has already closed.

RDC said...

Blackdog,

Check out www.baen.com, the web site for Baen Books (a Sci Fi Publisher). A few years ago they were an early adopter of e-books. The difference in how they adopted is that they do not DRM anything. They also have a free library, which includes a some books from pretty much all of their authors.

There E-book sales started to exceed their Canadian total sales a couple of year back. Eric Flint is one of their authors.

What I was talking about was not dropping price on their back list, but instead giving some books from their backlist away, free, in ebook form, to schools and libraries.

kids today are used to electronics being their primary method for getting information. Might as well get used to it and make it easy for them to read there as well.

RDC said...

Just as a followup note. Baen's experiment now includes 108 different books from 46 different authors.