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More thoughts about the future of bookstores

1 February 2013

From veteran publishing consultant Mike Shatzkin:

On Monday, the Wall Street Journal published a story by Jeffrey Trachtenberg quoting Barnes & Noble’s retail group CEO Mitch Klipper on the company’s plans for shrinking its store footprint over the next decade. Klipper suggested only a gentle acceleration of what has been the pace of contraction for the past couple of years far into the future.

Klipper was quoted as saying that “in 10 years”, the chain would have “450 to 500 stores”. Trachtenberg reports that the chain had 689 locations operating as of January 23.

In addition, the chain operates 674 college stores. The college stores are, along with the NOOK device, BN.com, and the ebook business, part of “NOOK Media” which took recent investment stakes from Microsoft and Pearson.

. . . .

On Tuesday, I got a call from a reporter who started out by asking me, in effect, “how will publishers manage with 200 fewer B&N stores in 10 years?”

That question jumps past what I think are the first two questions the WSJ story begs.

The first one is to please tell me how much shelf space for books will diminish, not just how many stores will be closed. The piece reports that B&N peaked with 726 stores in 2008, which means a net reduction of 37 stores in the past five years. That’s a five percent reduction in locations. But publishers know that shelf space at B&N has contracted considerably more than that, as space in the stores that used to be devoted to books now merchandises NOOK devices and a variety of non-book items.

Trachtenberg reports that sales of print books (as reported by BookScan) have declined 22% since 2008. Anecdata and intuition suggest that sales of print in stores have fallen more than that. Every time a store closes, online purchasing becomes the more convenient option left for some of its customers.

. . . .

Among the developments of the last five years has been the shuttering of Borders. That took something like 400 big competitor locations out of the market. There is no comparable subtraction of competition available in the future.

. . . .

It is clear that bookstores have an uphill battle in front of them even if we don’t know the steepness of the slope or how big the boulders rolling down on them will be. The questions that all publishers should be asking themselves now are “what are the bookstores really worth to us” and “what, if anything, can we do to bolster them financially”.

Link to the rest at The Shatzkin Files

Bookstores, Mike Shatzkin

17 Comments to “More thoughts about the future of bookstores”

  1. Want a financial boost? Get rid of the toys and junk. Stock more books. That’ll be $2.50. Thank you.

    • The problem is that toy and junk shops have higher sales per square foot than bookshops. B&N’s management think this is something they can cash in on, just by devoting space to toys and junk instead of books. They don’t follow it to its logical conclusion, which is that the highest sales per square foot in all of retail are found at Apple and Tiffany’s, so they should sell nothing but iPads, iPhones, and designer jewellery.

      The trouble with that conclusion, of course, is that Apple and Tiffany’s don’t occupy the same retail environment as B&N. They aren’t running big warehouse stores, and they aren’t trying to put one in every town on the map. (Apple has 250 stores in the U.S.; Tiffany’s, a few years ago, had 64 — I don’t have current figures for them.) Not even Apple could make $3,000 a square foot by operating a big-box store in Twin Falls, Idaho.

      In reality, I should expect to find that a large bookshop has the potential to make more sales in total, more sales per employee, and possibly more sales per square foot than a small one, because its larger selection will act as a magnet for customers. This worked well for both Borders and B&N as long as there was no online competition. It doesn’t work so well when they have Amazon to compete with. But even with competition from Amazon, a big store can be expected to do better than a small one.

      B&N’s error, I should say, has been to put small bookshops into their big buildings, and fill the rest of the space with weakly related products. People looking for knickknacks and teddy bears can find them at stores that do a better job than B&N of selling knickknacks and teddy bears; the fact that B&N also sells books doesn’t draw the average knickknack buyer. On the other hand, when people want to buy books, they generally aren’t interested in knickknacks. Instead of a bookshop chain with a clearly focused product line, B&N has become a department store with a weirdly assorted selection of departments. And we have seen what’s happened to department stores in recent years.

      No matter what happens next, the outlook for B&N is not bright. But they have done themselves no favours by branching out of their core business into lines that are pretty much unrelated. It’s a classic case of what Peter Lynch calls ‘diworsification’.

      • “Small bookshop in a big building” is a very good way to put it.
        The other issue that is tripping them up is buyer psychology: the big book warehouse “temple of literature” business model of Borders and B&N relies on people going out of their way to go to the store. Which works for avid readers who are always in search of content and for whom a trip to the bookstore can easily hit $100.
        The older, smaller model of Walden and B.Dalton (among others) relied on “Walk-by” sales: people went to the mall and once there they might do a stop by the bookstore. Just to see what’s new. In the process, they captured a nice chunk of casual readers.

        This last point is going to be critical, now that a significant portion of the avid readers are moving to ebooks and online ordering and of the remainder a measurable portion are concerned with the fate of indie bookstores or annoyed by the non-book merchandise.

        I’m starting to think the fate of (non-amazon) general book vendors, both e- and p- is going to depend on their ability to capture casual reader sales. And in that scenario, Gamestop-level ubiquity (4500+ storefronts) and instant gratification would be more effective than 450 warehouses widely scattered, even if the warehouses were filled to the brim with mid-list/backlist titles. Which, increasingly, they aren’t.

        It comes down to which customer’s business they’re going after. Indies that focus on genre/specialty and/or local-interest sales seem to be doing reasonably well so those potential B&M customers are well-served there. The high-volume value shoppers are best served by Amazon, which leaves B&M casual pbook readers for B&N to appeal to.

        I don’t think that is the kind of customer base–which requires very high traffic of low-volume sale–is quite what those warehouses were intended for.

        Customer focus is indeed the issue: Which customer is the focus?

        • Agreed with both of you, and I think the key is for booksellers to build a brand and niche for themselves. You cannot compete with online retailers in terms of selection, so you have to beat them with a better focus. You can’t offer more selection than Amazon, so you offer a filtered selection. One bricks-and-mortar store that best serves every possible reader is no longer possible.

  2. How can bookstores better serve readers?
    Or is that a stupid question?
    Disclaimer: I did not attend Wharton Business School to come up with that.

    • And it’s quite obvious that you didn’t, because that is not the question a Wharton grad would ask in the meetings where business actually gets done. (It IS one he would ask, quite piously, at the annual shareholder’s meeting.)

      The question for the Wharton grad is, “How can we get more money out of each customer that comes into the store?” The answer is “Higher margin products.” Namely, tsotchkes. However, that assumes that reducing the volume of lower margin products (namely, books) will not reduce the number of people who come into the store.

      It certainly has me: I am the effing Demographic Brass Ring of bookstore clientele. I love browsing, I will buy any damn thing that gets my attention enough, I have a reasonable amount of disposable income.

      However, when it comes to tsotchkes, not so much. I don’t like them. I actively want to diminish their presence in my life. And every bookshelf that went away for a tsotchke rack is one less opportunity for me to browse and buy a book which is why I came into the bleeding store in the first place.

      The Wharton grad, though, thinks of me as a sort of fixed asset – a “person who likes bookstores.” Well, the less like a bookstore your facility becomes, the less likely I am to go in. No joke, I used to go to Borders’ EVERY WEEKEND. I didn’t always buy something, but I usually did. Now I go to B&N once every two months and am usually disappointed. If they don’t want my money, I won’t give it to them. Never let it be said I went where I wasn’t wanted.

    • All the Barnes and Nobles around me, and before they closed, the Borders, eliminated most of their chairs and tables. I used to go there, hang out, buy coffee, and end up buying books. I did this at least twice a month, maybe more. Now, when I want to get out of the house, Barnes and Noble is pretty much the last place I think about going, unless I want a hardback, which happens maybe twice a year. I buy all the rest of my books from Amazon now, both in Kindle and paperback.

      So, while counting customers that come through the door compared to sales footage space may be a good way to look at it, it’s missing all the customers who stopped going. True, many buy online now, but that’s not the only reason they stopped going to the physical bookstore.

    • I’ve been thinking the exact same question, & I came up with a few business models, none of which depend on big publishers subsidizing bookstores. (Well, if they want to do that, that would be yet another.)

      1) The bookstore as an antique shop. The point of this model is that the bookseller understands there is a market for books as objects: people prefer to examine a book before they buy them. This model requires a bookstore to also trade in used books; from what I read, used books offer a high profit margin, which will replace the steady income stream that selling bestsellers is said to provide.

      Of course, this model assumes that current publishers follow the typical path of moving upwards in quality, a path which other manufactures have followed in the past. In other words, publish books which tend to have high resale value: not only “quality” contents, but quality appearance, layout, binding, etc. Hardback editions of prize-winning fiction, non-fiction that are proven classics.

      I describe this as the “antique store” model, because antique stores deal in, to put it bluntly, used items. Based on the few antique stores I’ve visited most of their inventory is junk, yet they attract customers hoping to discover treasures in that junk. And AFAIK most antiques are sold in person, not over the Internet, because the buyer wants to inspect the object before buying it.

      2) The tourist shop. This model takes many forms, but in essence it is based on the fact there are people who go on vacation, disconnect from the Internet, & find they need something to read. They can’t get an ebook, so they turn to physical books — in a local store.

      In many beach towns I’ve visited while on vacation, there have been small used bookstores selling paperbacks cheaply, which shows this model is viable to some degree. (I don’t know if this is still the case broadly, but a sharp eye will uncover locations where this should work.)

      3) The art gallery. This is the model for the expensive, illustrated books, items which buyers will most likely want to see first hand before spending money. This model might work far better for books than for art objects because it seems to me that it is far easier to make a sales quota by selling more copies of different books priced $100-$250 than a few paintings/drawings/etchings priced at $5,000+: more sales of less expensive items leads to a far more steady income stream.

      Note how all of these models work by doing something that an online seller — like Amazon — can’t do. None of these models guarantee success, but I think we can all agree that competing directly against Amazon is a guaranteed failure.

      • #2 is going to become very hard, though, as smartphones become more and more common. I think your #1 is a good bet, though I wonder if they can maintain the image of finery they have and still be a used book store.

        • Powell’s seems to do pretty well combining new and used books. As for B&N, ‘image of finery’ is not a phrase I would readily think of applying to them. They have more cachet than Walmart or dollar stores; that’s about all. If they think their image would be terribly hurt by the stigma of carrying used books, well, I can only say that it’s a pretty weak image that is so easily damaged.

  3. I find this whole conversation about Barnes & Noble shutting a few stores over the next decade kinda funny. It’s a fiction of the highest order. In case no one noticed, its not just the fact that they had a lousy holiday season. Print book sales are declining at a sizable rate that, in my opinion, will only accelerate over the next few years. On top of that, their Nook device sales have cratered so badly they’ve even fallen behind Microsoft’s new entry, which has been widely accepted as a disappointing if not disastrous failure. B&N is toast. They’ll be lucky if they still exist in two years, let alone 10. I’ve opined in the past that when B&N shuts its doors, it’ll kick off a steeper decline in the print segment. But now I’m wondering if they’ll even be relevant enough to have that kind of impact by that point. As things are heading, I’m inclined to say probably not.

    • I’ve been thinking the same thing.
      Yes, B&N still stocks an assortment of midlist/backlist titles among their reduced in-store catalog. But I wonder just how much those sales matter. To B&N and to the publisher. Those are likely easily replaceable by Amazon and Rakuten and the indies.
      The bulk of their sales revenue is still bestseller fodder, no? Meaning everybody carries those.
      They may very well be just as missed as Borders. ;)

    • Dean Wesley Smith told me confidently that B&N will be around for some time. He’s examined their recent decisions, their finances, etc, and thinks it all looks good.

      I don’t agree with him on some things, and I don’t know that I agree on this either, but I thought it was worth mentioning. DWS understands far more about how publishers operate than those of us who are mainly writers. ONLY because of his opinion do I hesitate to agree that B&N is toast.

      • Dean Wesley Smith has also recently expressed the opinion that he was wrong to believe ebook sales would top out at 30 percent of publishing industry revenue. He now believes it will be more like 20 percent. He bases this belief on figures for one month (September), from major trade publishers only; and as one of his commenters quickly pointed out, it was a month in which several publishers offered fire-sale prices on the ebook editions of their current bestsellers — an event resulting ultimately from the DoJ settlement and most unlikely to be repeated. Other commenters pointed out other flaws in his reasoning; he responded with either ridicule or silence.

        A few days after Mr. Smith made this pronunciamento, Amazon announced that year-over-year ebook sales were up 70 percent, and print sales were flat.

        If September’s numbers (not including self-publishers, many small presses, or any Amazon imprints) are indicative of the actual trend, Mr. Smith may be right. If Amazon’s numbers for the year as a whole (which include the whole gamut of trade, small-press, and self publishers) are indicative, then B&N is in a world of trouble. I’m betting rather heavily on the latter.

  4. Decent article, he looks facts squarly in the face.

    His solution – which I think is to have Publishers buy B&N – has some possiblities. But I think the bottom line is that bookstores sell a technology that is soon to be outdated. I honestly don’t see them surviving except as specialty items, no matter who owns them.

    However, if I were a Trad. Pub. I might think it was worth a shot.

    • It won’t work for publishers to buy B&N: publishers already own it. (Through the vendor-financing nightmare that is the returns system.) If it worked out that they demanded sufficient return on their investment to make it worth the actual *legal* ownership, the other investors/creditors would shut the place down.

  5. “The questions that all publishers should be asking themselves now are “what are the bookstores really worth to us” and “what, if anything, can we do to bolster them financially”.”

    Notice how the second question assumes a very specific answer to the first one… meaning he isn’t actually asking himself the first question.

    I’ll answer them both, though!

    1. They are worth the amount of profit and stability they bring you. If someone else *coughAmazoncough* makes you more money, then they are worth more than B&N. SO STOP HATING AMAZON.

    2. What part of your relationship with bookstores do you not understand? B&N isn’t your customer. If they vanish, you still have the same people wanting to buy books. B&N is a marketplace. If it becomes a low-earning market, you cut it, you don’t start pumping money back into it just to keep it afloat.

    What’s with this whole “we have to make sure the current system never ever changes ever” attitude? Ebooks are offering you a chance to make record profits, and in fact are dragging you there against your wills. You can sell more products more cheaply at higher profits, and you resent the change?

    I’ll regret the day that newspapers are replaced by tablets. I can’t hit people with a rolled-up tablet (yet).

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