[DMcCunney]

Originally Posted by fjtorres

Don't think this merits a different thread, so here goes:

In checking out the various reports out this week some numbers have popped up that suggest just how disfunctional consumer book retailing as a whole has become.

1- B&N and Borders combined are supposed to account for 49% of all books sold in the US. Amazon adds 28%. Number four Books-a-million is supposed to chip in with 9% or so. That means that four retailers account for 90% of the sales? Add in walmart and Target and that means regional and independent bookstores barely register.

Correct, but that's been the case for some time. Retail consolidation has been steadily progressing, and not just in book retailing. Competition is largely on price, and everyone wants market share and economies of scale, to lower costs, get bigger discounts, and offer lower prices.

2- Neither B&N nor Borders seems to be making money off the consumer book operations. Borders is bleeding to death and B&N is hanging on off the growing ebook and college bookstore business. Factor in Walmart and Target and it's clear that over half the books are sold at a loss. I'm not familiar enough with B-A-M to know how their sales and financials are structured or how they're sited (or how much they rely on BPH bestsellers) but it seems at first glance that they (and the niche bookstores like Powells) are the only ones making money in B&M consumer book sales.

Other people are still making money in consumer book sales, but I think the ones who are have a specialist focus. There's an indie Juvenile/YA bookseller in my area that seems to be doing okay. Another is a specialist photography bookseller.

3- Added up, it seems like nobody makes money retailing bestsellers (except, maybe, online); just the publishers and big-name authors.

Depends on the best seller. Standard trade discount is 40%. Big outfits like B&N probably get 50%. Amazon appears to get 55%. There's margin to play with to reduce the price the consumer pays and still make money on the sale. Really popular titles might be offered as "loss leaders", sold at a loss to attract traffic that will (hopefully) buy other things once they are on premises. The Harry Potter books had that happen, simply because they were so popular and everybody bought them.

The HC best sellers have the highest prices and margin, and having best selllers may mean the difference between a profit and a loss on the year for the publisher.

Maybe Borders *is* right to ask the BPHs for relief.
Maybe Borders problems aren't all about bad management.
It's taken a lot of short-sighted decision making in a lot of places to get here.

From Border's perspective it is. They want to survive.

But the underlying problem is an extension of one publishers have been struggling with for years. There are too many books chasing too few readers, and too many bookstores chasing too few customers.

Publishing has gone through wrenching rounds of consolidation and trimming of lines to adjust supply to demand. Retailing is doing likewise. The available market can support a B&N or a Borders, but probably can't support both.

4- I vaguely remember B&N sales being sized at 32% of the market, which leaves Borders at about 17%. Factoring in the quote about B&N capturing at most 19% of Borders' volume (3.2% of the total) in a Borders liquidation, the next question is what happens to the other 14%. Does it go away totally, as some analysts are saying? Does it go to the dept stores? Does it go online? To ebooks?

I doubt it simply goes away. That would imply a fair sized number of folks simply not buying books any more, which I don't see happening. Online is one alternative. eBooks are another.

5- In their crowing press release B&N brags that they see the dept stores and "other" competitors leaving the book retailing business as the industry consolidates and that they intend to prosper as the consolidator. But a business where 90% of the volume is controlled by just 4 players is already consolidated more than common sense suggests is sensible. Cut it down to three and it's going to start looking like a dying business or a monopoly in the making. Neither is good.

It might not be good, but it likely is inevitable. In any industry, as it matures, some players become bigger and some fail. In a mature industry, you are likely to see two or three big guys dominating the market, with an assortment of specialty niche players addressing holes in what the big guys offer.

But I don't see department stores and other competitors leaving book retailing entirely. The issue from the publisher's and buyers perspective will be selection. I was in a BJ's warehouse store a few weeks ago. They sold books, but the selection was mostly current best sellers like the new Tom Clancy novel and Keith Richard's autobiography. Outfits like that buy and expect to sell in volume, and if they don't think it will move in volume, they aren't likely to order it. Similar comments apply to places like Target and Walmart.

5- Factor in ebooks. Factor in that the most prolific book buyers seem to be transition to ebooks and/or online retailing. Factor in that the most successful reader platforms, so far, are tied to walled-garden ebookstores. Factor in that Borders does *not* have one of those walled gardens as an escape hatch. Neither does B-A-M, btw; they've outsourced that to B&N.

I don't think B-A-M is big enough for the "walled garden" ebookstore to do them a lot of good. Outsourcing to B&N isn't necessarily a fail. It saves them development and infrastructure costs. The question is what sort of revenue and profit they make on the connection.

I'm sorry but I don't see Chapter 11 working for Borders.
Unless the BPHs or some other samaritan throws a lifeline to Borders in the name of channel diversity, what I see ahead is Chapter 7.
Anything else will simply be preserving a zombie operation.

I don't see Chapter 11 either. Borders might want to go that way, but such a deal has to be approved by creditors and the courts. The creditors will want a deal that pays them off, and I suspect the publishers who are owed money by Borders aren't first in line - lenders propping up Borders, like GE Capital, will have a prior claim.

Things aren't as bad as they seem; they're worse.

Edit: BTW, if anybody has better numbers, please link the sources; I'd like to see a ray of hope somewhere.

You can find some numbers from the publishing perspective at the Association of American Publisher's Industry Statistics pages, here: http://www.publishers.org/main/Indus...ndStats_01.htm
(Most recent stats are as of October 2010. Full year 2010 stats aren't out yet.)

I don't have numbers handy for book retailing.
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Dennis