Monday, January 28, 2013

How will shrinking shelf space impact publishing?



This week Barnes and Noble boldly stated that they envisaged a store reduction of around a third over the next decade. Some however might raise the question of whether they will be in the market at the end of that period. We also expect Waterstones in the UK to cut their cloth and shrink in the near future.

What would you predict for the sales of your next best seller that you will publish in say 12 to 18 months? What will be the initial print run and costs to get it to first base? How reactive can you be to ramp up or shut down? Will merely cutting back the list resolve the issue? If the likes of Barnes and Noble close a third of shelf space, can you be confident that the internet will take up that slack on your title, or will the internet find its own best sellers through the myriad of new ‘discovery’ facilities that spring up each month?

We read about shrinking bookshelf space on the High Street, library closure and the constant re-examination of both channels. The traditional physical market space is reducing, as are the sales from it. The internet has taken up much of the slack, but the vast majority of that has gone into one channel – Amazon. The ebook market has also converted and increasing number of pbook sales to ebook ones and again the vast majority of these have gone into one channel – Amazon.

The reality is that we have declining physical book sales in the traditional physical channels and the increasing dominance one player in the replacement channels and new ebook market. There are, as in any sweeping prognosis, many exceptions to the rule, with some industrious and innovative booksellers bucking the trends, but we have to balance these against the increasing market share of others such as supermarkets that carry a limited range.

However, the shelf space is shrinking.

It is hard to see these lost shelves being replaced by others and therefore the volume of print itself may have to shrink further. Some believe that a direct marketing  approach will replace the High Street and to a degree it is true, but unfortunately the biggest direct marketer today is Amazon. The one that knows more about your book buying habits, tastes, dislikes and your disposable income is only one click away. Many direct marketers merely only handle the marketing and throw the fulfilment over to – yes, Amazon.

So what is the potential impact of shrinking and highly consolidated trade market? Do we honestly think it is a case of substitution sales and that the underlying commercials and value chain will remain unscathed?

We have already seen the obvious, revaluation of books. Today we expect heavy discounting and have seen it move from a selective model to everyday low pricing and the control move to the consumer end. It will not move back up the value chain in the foreseeable future.

We have seen the emergence of the aggregator controlled marketplace which feeds off the need of many to associate with the main player in town. Amazon have been very clever in how they have developed this potential, created a lock in and have even enabled the players to fight amongst themselves to be cheapest in town and sometimes even cheaper than Amazon.

The average volume of sales needed to top the charts has dropped. The market has widened and deepened and despite the consolidation, or because of it, the internet aggregator now offers a greater range than those physical shelves could ever stock. This results in sales are now being shared against a wider range of titles – sales are spread wider and deeper.

The traditional marketplace is still dominated by the ‘sale or return’ model, which works well in a front list dominated market with a constant queue of ‘guaranteed’ best sellers every thirteen weeks. Being able to pay; to be at front of store, in the seasonal catalogue, at a gondola-end, were all the things we took for granted and fed the High Street and chain model. You spend your marketing dollar, get the visibility and be rewarded with sales. But does that same discovery model work in shrinking shelf environment?

What will the unpredictability of some titles mean to print runs, marketing budgets, inventory placement, sales and returns? Can we predict, or forecast the winners and does this change the ‘bets’ we may well place across the value chain. Like music, we may well see fewer but bigger hits but also see an overall a drop in the ‘also rans’ who simple don’t get that same exposure the old model afforded. Can you spread bet in a highly volatile market?

We have seen the erosion of the market differential between traditional and bargain markets, between full price and value pricing. The lack of price points, which appeared logical before, could now be viewed as having acted against the market and enabled the free fall off prices we have today. When consumers don’t know the price it’s relatively easy to maintain them, once consumers expect a 99p book, that becomes the norm and itself vulnerable. It’s like death by a thousand cuts or price cuts. This has now even dangerously knocked on the door of the one market that it should have not impacted – digital.

The challenge is that the physical channel does not have the deep pockets to survive and operate at such low margins and so it shrinks further.

How do you manage the inventory disposal of that failure when you have taken out the bargain value statement?

What happens when consolidation goes sub optimal and the cost of shipping inventory back and forward starts to creates it own friction? What happens when the likes of Amazon demand their own inventory print buy in, logistics costing and refuse to cross subsidise others? What happens when you see more erratic sales with some titles selling very well in limited and smaller locations? 

2 comments:

Anonymous said...

B&N and Borders created their own problems. When Amazon was still a tiny company they had the chance to step in and become the big names in online book purchasing. They didn't, because they didn't think "this Internet thing" would take off. The conservative, risk-averse nature of traditional publishing is what is killing them.

Book stores won't go away anytime soon, though. Th generation that grew up with print books will still want them.

Just as B&N and Borders killed small independent bookstores, so they are being killed by the Internet. There will still be people who want print versions of books, though, and like to be able to get them the same day the urge to read something hits them. Used book stores are filling this gap right now.

A really smart new book retailer could find value-added extras that attract customers to their brick-and-mortar location. You won't see nearly as much cash flowing through the brick-and-mortar environment as in the past, but there will still be room for some people to profit from it.

Bezos is a very, very smart man who had to fight extremely hard to get his business where it is now. I remember when he first started Amazon, and was basically drop-shipping directly from publishers. He "won" because he worked very hard, took risks, and rethought all the basic assumptions. There are not many brick-and-mortar bookstore owners out there who do all that - most work hard, but don't take many risks and don't rethink their operations from the ground up.

This is more of a nightmare for publishers and bookstore owners than it is for readers and writers. Readers can still go to used bookstores, and Amazon provides them with a way to find a much larger variety of books and pay less for them. Writers have realistic opportunities to make money from their writing by self-publishing on Amazon. They can also advertise their books more heavily on their own than publishers ever would for them (unless they are best-seller authors).

The real losers here are the publishers and the bookstores, who brought all this upon themselves. I feel bad for the people who work at those places and are losing their jobs, but not for the people at the top who have been making bad decisions for 15 years due to their hardnosed conservative "we have always done it this way" attitude.

Charles Harvey said...

Well let's hope Amazon isn't the only game in town. Even in the digital world, there should be room for special marketers who can handle niche books as there was in the physical book world. What's to stop digital African-American Bookstores, digital textbook stores, digital gay/lesbian bookstores, or a host of others?