The challenges of book retail

By Jon Page, bookseller at Pages & Pages and President, Australian Booksellers Association

If you’ve been listening or reading the news over the last two years you could be forgiven for thinking that the bookshop is at death’s door. The media perception since the collapse of the Red Group, which owned the Borders and Angus & Robertson chains, has been that the digital age of books will spell the end of the bookshop. This couldn’t be further from the truth.

The fact is that Australia has one of the healthiest book industries in the world. More people buy books per capita in Australia than any other English language market. There has been a decline in book sales over the last two years but this hasn’t been because of the rise of ebooks. Retail in general in Australia is hurting. It doesn’t matter if you sell books, music, socks or underwear – the whole retail landscape has changed since the global finanical crisis.

The volatility of world markets has changed the way people spend. They have grown more cautious and less carefree. Added to this has been the overvalued Australian dollar, which has been above parity with the US dollar for 18 months thanks largely to the US’s strategy of devaluing their currency through ‘fiscal easing’ (more commonly known as printing money). This has meant that people can get more value for their money buying online. This has put tremendous pressure on local pricing. Consumers now exist in a global marketplace, which also means that economies of scale between a population of 20 million and 200 million mean nothing despite the fact that for a local industry they mean everything …

The catalyst for the myth of the death of the bookshop was the collapse of RedGroup in 2011. Many commentators tried to pin the collapse on ebooks, when in fact RedGroup led the book retail industry in Australia on ebooks with their partnership with Kobo. The truth was that the RedGroup business model did not work for books. Firstly, they purchased the Borders chain in Australasia after the US company offloaded the business because it was performing badly. They then brought in people  who tried to run the business like a supermarket. And, finally, they were owned by a private equity company which in the end would not give them any more money to stay afloat — the same story that happened to the Colorado Group and, more recently, the Nine Network. What wasn’t reported was how well the Angus & Robertson stores were performing. The company-owned stores had problems but the franchise stores were all performing well. These stores continue to trade now as independents. Sadly the Angus & Robertson name has been lost.

But there are positives. As well as having a hungry book-buying population. Australia is blessed with a lot of great book shops. Thirty per cent of books are sold through chain bookstores such as Dymocks and Collins. Collins itself is a great success story. Collins went into administration 7 years ago before it was bought back by its franchise members. It is now a chain run by the members rather than a head office and it has been steadily growing over the last two years. Independent bookshops in Australia also account for 30 per cent of book sales. In the US independents only account for 9 per cent of book sales and in the UK it is less than 4 per cent. The bookshop market is therefore relatively healthy here in Australia.

But there are many challenges ahead. The biggest, of course, is ebooks. The tipping point for ebooks was the launch of the Kindle by Amazon in 2010. Ebooks have been around for 10 years but it was that device and Amazon’s strategy that saw exponential growth occur in ebook sales.

Amazon is the dominant player in the eBook market here, followed by Kobo, which has partnered with Collins; Apple is third, followed by Google. ReadCloud and have partnered with various independents but have very low market share at the moment.

The ebook market in Australia is currently estimated to be 10 per cent of book sales overall. However, this figure varies when you drill down into specific book categories. Within genre fiction like romance, paranormal and crime, ebooks can make up to 50 per cent of the market, but with non-fiction and children’s, sales are almost nonexistent.

The US market is about two years ahead of Australia. There they have been experiencing exponential growth in the ebook market until this year, when the market appears to have plateaued  at between 25 to 30% of the total book market. However, it remains to be seen if this is where the ebook market will settle. Growth has been so rapid that this may be a resting point and we could see further growth. My feeling is that this is the high-water mark.

Thirty per cent is a significant portion of the market, the majority of which will be cannibalised from the print market. Butit is also important to remember that most readers are not reading digital only but a combination of print and e, depending on what suits them and what they are reading – which is why it is important that their bookshop can offer all possible formats.

The ebook market both here and in the US and UK is dominated by Amazon. They have 65 per cent market share in the US, over 90 per cent in the UK and around 75 per cent here. They have done this through aggressive, predatory pricing and their device, the Kindle. The Kindle is a great device. It is easy to use, easy to download books and easy to read them. It also comes with inbuilt free wifi and also free 3G, which make the device so simple anyone and everyone can use it. However, it is also a walled garden. Every other ebook device uses the industry-standard epub format. Epub files can be read on Sony Readers, Kobo Readers, iPads, iPhones, Android tablets and phones, PCs, Macs – you name it – except the Kindle. The Kindle uses Amazon’s own format knows as mobi. This means a Kindle owner is forced to purchase ebooks from Amazon and nobody else. which means once a customer buys a Kindle they are locked into Amazon. And with 75 per cent of ereaders in Australia being Kindles, Amazon holds a huge advantage over its competitiors.

It is critical that bookshops sell ebooks. The ebook is just another format that sits alongside the hardback, paperback and the audio book. Readers will not read e-only or print-only but a combination. If a bookshop is to remain relevant to readers it needs to offer all possible formats. Unfortunately the ebook market is still evolving and Amazon is currently exploiting and manipulating the market for its own gain, which is not good news for bookshops, nor is it good news for authors and publishers in the future.

I also don’t believe ebooks will replace print books. The book has been around for 500 years and is the best receptacle for our stories. Unlike music and DVDs, the digital equivalent of the book doesn’t make the experience of reading better. It makes it more convenient but doesn’t improve anything. Also, you can’t digitise your existing library like you can with music and video (well, you can if you want to scan everything).

Online retail is not a challenge to bookshops. Shopping online is a great way to find what you are looking for but browsing a bookshop is a great way to find what you’re not looking for. Bookshops in Australia have been selling online and competing against Amazon in print books for over a decade. Currently overseas retailers hold all the advantages. They are GST free, which means no money for Australian schools, hospitals and roads. There is an inequity in international freight which sees a book being posted to Australia cost 89 per cent less than shipping the same book back. Australia Post, under international agreements, must also deliver these parcels at their own cost which is passed back onto their customers (local bookshops!). In effect, Australian retailers subsidise their overseas competitors’ freight costs. But the key factor with online shopping is the Australian dollar. Once our dollar is back to its proper worth, which is about 80 US cents, things should level out, although new behaviours maybe entrenched.

The real challenge to bookshops is probably age. Who will be the next generation of bookshop owners? Most young people today can barely afford a mortgage on a house, let alone own a business. Most bookshops will close in the future because of this reason than any other factor.

Bookselling has been a very tough profession over the last 18 months but economics are cyclic and there are many positive signs that we are entering the turn around phase. There will continue to be challenges and the good bookshops will continue to not only meet them but embrace them. But remember: the Australian book industry is only as strong as all of its parts and that includes local retailers. As a bookseller and reader, I do not believe that Amazon is good for anyone in the Australian book industry, so next time you buy a book, buy it locally.