Shades of Grey...shades of gloom

for book-stores.

Nielsen Bookscan, which measures the book market, recently reported that the best-selling trilogy, Fifty Shades of Grey, by E. L. James sold more than 10.6 million copies in the U.K.  Regardless of what you think of the literary merit of the books, at first sight you would think this was good news for book-stores as it generated £47.3 million in sales.  Think again, as those two numbers indicate, there was some serious price discounting going on, divide the two numbers and one gets an average selling price of £4.43.  The list price of the paperback is £7.99  but Amazon is selling a copy at a 52% discount for £3.85 with free delivery if you are prepared to wait a couple of days, or an e- book at £2.69, so profit margins on this best-seller are wafer thin  for book-stores.  Apparently copies of the Shades of Grey trilogy made up 5% of all book sales in the U.K. last year.  And it’s still selling well - some readers I know bought their discounted copies from supermarkets There was always a greater risk involved in being the publisher of a printed book than being the book-store that stocked the book.  Unsold books eventually get returned to the publisher so any book-store ending up with a surplus of Shades of Grey will eventually be able to return the unsold copies.  But the digital environment has totally transformed the situation: unlike physical books, e- books don’t have to be stocked and returned.  I was reminded of this as Barnes & Noble, the huge American retail book chain, has just announced results that are so poor they have been forced to change their direction.  Barnes & Noble has 677 book-stores in the US so it is in a similar position to the U.K. book chain Waterstones which is struggling to maintain its smaller market share of 285 bookshops.  Both companies have been suffering significant financial losses and those losses are even greater now.  Most analysts are blaming the move to digital publishing and Amazon's aggressive price cutting.  What nobody seems to be considering is that people may actually be reading less.  A combination of more TV viewing, more online streaming of movies, and an increase in YouTube watching, coupled with the growth in popularity of electronic games and the hours and hours of   time spent on social networks, must mean there is far less time available for a reflective pursuit like reading.  So, is reading declining?  The majority of wholesalers supply established retailers on a sale or return basis, apart from those supplying fresh and time-sensitive foods, and bookshops have become used to the luxury of simply returning unsold stock to the publishers and getting their money back.  The publishers then sell in bulk at a discounted rate to discount bookshops or supermarkets or, if all else fails, they pulp the books.  So, despite the fact that we are in the middle of the mother of all depressions, book-stores, in theory at least, should be doing much better than they actually are.  So what is going on?  In Waterstones' case their strategy has been to stock far fewer books, so the stores will only return £3 million worth of books this year whereas they returned £23 million last year.  As well as stocking fewer books, Waterstones has been re-vamping its stores to try to increase sales - however that plan doesn’t seem to be working very well.  On their latest results pre-tax losses grew to £37.3m from £28.7m the previous year, with like-for-like sales down 11.1 per cent.  Some analysts think the riskiest part of Waterstones’ strategy is in the longer term because Waterstones have decided to major on print and totally downplay e-books yet sell Amazon Kindles in their stores.  Truly supping with the Devil!  Other analysts consider Waterstones’ biggest problem to be a lack of digital focus in an increasingly digital world.  Should analysts be so concerned about Waterstones’ poor digital offer and their conceding of e-books to Amazon?  On the evidence I would say no. Barnes & Noble’s digital strategy was the opposite of Waterstones - they set up their Nook Media division and invested heavily in Nook, their own digital reader, as well as content.  Last year their chief executive explained the logic behind this move: “Had we not launched devices and spent the money we invested in the Nook, investors and analysts would have said, ‘Barnes & Noble is crazy, and they’re going to go away.’”  Right up to the end of 2012 Barnes & Noble were promoting the Nook as the future of the company.  Their results are now in for the Xmas 2012 sales quarter and we can see that much of the investment in Nook Media, including a cash injection of $600 million from Microsoft in May, and a $60 million investment  for a 5%  stake in December last year by British publisher Pearson, has been wasted.  How much exactly we will never know as Barnes & Noble does not make these figures public.  All we are sure of is that Barnes & Noble has reported a 26% decline over the Xmas quarter for their Nook business.  In any event the full loss has been enough of a shock to trigger a total change of strategy for the company – devices will be downplayed and digital partnerships are to be emphasised in the future. This is the context behind this month’s chart and I naturally turned to examine the human behaviour behind these figures.  The PowerPoint uses recent data from Pew Internet Research, which, courtesy of funding from Bill & Melinda Gates, has been looking into what form libraries should take in the future.  As a popular activity reading books seems to be holding up, as a 5% decline in reading printed books has been balanced by a 7% increase in reading e-books.  Of course what we cannot currently predict is how big the decline in the sales of printed books is eventually going to be.  Your guess is as good as mine.  Five years ago the smart money was on the idea that all books would shortly be digital.  Well, if that is going to be the case the transition is certainly happening at a slower pace than many digital evangelists first thought.  I suspect I’m fairly typical: although I read e-books, I still read much more in print.  For me an e-book is a convenient reading- snack for travelling and a printed book is for a longer reading session in the comfort of an armchair.  As the example of Shades of Grey indicates, e-books are generally cheaper than printed books and, in my case, usually free because my choices favour the classics that are long out of copyright.  What I am certain about is that however good the design of Barnes & Noble’s Nook device, it was not the direction for a book retailer to go - however big the operation.  E-book readers, even like the Amazon’s Kindle, are interim devices.  For a comparatively small extra sum, a fully-fledged tablet like Google’s Nexus 7 is a similar size but it is multi-functional device.  It’s a GPS; a map; a calendar; a calculator; a notebook; a pile of magazines and newspapers; a bus timetable; a dictionary; an illustrated explanation of the night sky; an up-to-date weather forecaster; a translator; an email device; and a BBC Radio & TV iPlayer as well as a selected library of e-books.  Your choice of applications may well be different from mine - nevertheless a small tablet is a multi- purpose computing device, whereas an e-reader is only a book collection, nothing more.  How many devices do you want to carry? If reading isn’t declining very much then books, in whatever form they are available, are being bought from somewhere.  As the sales results from Barnes & Noble and Waterstones indicate, this isn’t happening nearly so frequently from book-stores.  Waterstones’ strategy is one of going for more coffee shops and better in-store ambience, yet Barnes & Noble have had Starbucks inside their stores for some years.  I’ve never had a problem with either book chain for ambiance, staff helpfulness or, if I’ve wanted one, getting a coffee.  If the book store didn’t have a coffee shop, I could always go around the corner and soon find one.  The quality of the buying experience hasn’t stopped me buying books in a retail store – but the price difference and the sheer convenience of buying from Amazon means that I mainly buy my books online.  In fact I can’t remember when I last bought a book from a retail store because the chances are that they won’t have my desired book in stock and, if they do, it will certainly cost me more.  My advice for both bookshop chains would be to quickly find out just how many of their customers are coffee drinkers and whether they are prepared to pay a premium for a pleasant ambiance and a limited selection of books.  They should then rapidly scale their businesses to match the demand to avoid further losses.  I’m afraid that Barnes & Noble and Waterstones will be surprised at how great that contraction needs to be.  Even though we can see monopolistic danger ahead, Amazon has successfully primed all of us enthusiastic readers to associate buying a printed book, or an e- book, with getting a discount.  As the chart so clearly demonstrates reading as an activity is fairly constant but, as the experience of Shades of Grey confirms, when buying any kind of book, a discount is the new norm. March 2013  
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2013
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Shades of Grey...shades

of gloom for book-stores:

Nielsen Bookscan, which measures the book market, recently reported that the best-selling trilogy, Fifty Shades of Grey, by E. L. James sold more than 10.6 million copies in the U.K.  Regardless of what you think of the literary merit of the books, at first sight you would think this was good news for book-stores as it generated £47.3 million in sales.  Think again, as those two numbers indicate, there was some serious price discounting going on, divide the two numbers and one gets an average selling price of £4.43.  The list price of the paperback is £7.99  but Amazon is selling a copy at a 52% discount for £3.85 with free delivery if you are prepared to wait a couple of days, or an e-book at £2.69, so profit margins on this best-seller are wafer thin  for book-stores.  Apparently copies of the Shades of Grey trilogy made up 5% of all book sales in the U.K. last year.  And it’s still selling well - some readers I know bought their discounted copies from supermarkets There was always a greater risk involved in being the publisher of a printed book than being the book-store that stocked the book.  Unsold books eventually get returned to the publisher so any book- store ending up with a surplus of Shades of Grey will eventually be able to return the unsold copies.  But the digital environment has totally transformed the situation: unlike physical books, e-books don’t have to be stocked and returned.  I was reminded of this as Barnes & Noble, the huge American retail book chain, has just announced results that are so poor they have been forced to change their direction.  Barnes & Noble has 677 book-stores in the US so it is in a similar position to the U.K. book chain Waterstones which is struggling to maintain its smaller market share of 285 bookshops.  Both companies have been suffering significant financial losses and those losses are even greater now.  Most analysts are blaming the move to digital publishing and Amazon's aggressive price cutting.  What nobody seems to be considering is that people may actually be reading less.  A combination of more TV viewing, more online streaming of movies, and an increase in YouTube watching, coupled with the growth in popularity of electronic games and the hours and hours of   time spent on social networks, must mean there is far less time available for a reflective pursuit like reading.  So, is reading declining?  The majority of wholesalers supply established retailers on a sale or return basis, apart from those supplying fresh and time-sensitive foods, and bookshops have become used to the luxury of simply returning unsold stock to the publishers and getting their money back.  The publishers then sell in bulk at a discounted rate to discount bookshops or supermarkets or, if all else fails, they pulp the books.  So, despite the fact that we are in the middle of the mother of all depressions, book-stores, in theory at least, should be doing much better than they actually are.  So what is going on?  In Waterstones' case their strategy has been to stock far fewer books, so the stores will only return £3 million worth of books this year whereas they returned £23 million last year.  As well as stocking fewer books, Waterstones has been re-vamping its stores to try to increase sales - however that plan doesn’t seem to be working very well.  On their latest results pre-tax losses grew to £37.3m from £28.7m the previous year, with like-for-like sales down 11.1 per cent.  Some analysts think the riskiest part of Waterstones’ strategy is in the longer term because Waterstones have decided to major on print and totally downplay e-books yet sell Amazon Kindles in their stores.  Truly supping with the Devil!  Other analysts consider Waterstones’ biggest problem to be a lack of digital focus in an increasingly digital world.  Should analysts be so concerned about Waterstones’ poor digital offer and their conceding of e-books to Amazon?  On the evidence I would say no. Barnes & Noble’s digital strategy was the opposite of Waterstones - they set up their Nook Media division and invested heavily in Nook, their own digital reader, as well as content.  Last year their chief executive explained the logic behind this move: “Had we not launched devices and spent the money we invested in the Nook, investors and analysts would have said, ‘Barnes & Noble is crazy, and they’re going to go away.’”  Right up to the end of 2012 Barnes & Noble were promoting the Nook as the future of the company.  Their results are now in for the Xmas 2012 sales quarter and we can see that much of the investment in Nook Media, including a cash injection of $600 million from Microsoft in May, and a $60 million investment  for a 5%  stake in December last year by British publisher Pearson, has been wasted.  How much exactly we will never know as Barnes & Noble does not make these figures public.  All we are sure of is that Barnes & Noble has reported a 26% decline over the Xmas quarter for their Nook business.  In any event the full loss has been enough of a shock to trigger a total change of strategy for the company – devices will be downplayed and digital partnerships are to be emphasised in the future. This is the context behind this month’s chart and I naturally turned to examine the human behaviour behind these figures.  The PowerPoint uses recent data from Pew Internet Research, which, courtesy of funding from Bill & Melinda Gates, has been looking into what form libraries should take in the future.  As a popular activity reading books seems to be holding up, as a 5% decline in reading printed books has been balanced by a 7% increase in reading e- books.  Of course what we cannot currently predict is how big the decline in the sales of printed books is eventually going to be.  Your guess is as good as mine.  Five years ago the smart money was on the idea that all books would shortly be digital.  Well, if that is going to be the case the transition is certainly happening at a slower pace than many digital evangelists first thought.  I suspect I’m fairly typical: although I read e-books, I still read much more in print.  For me an e-book is a convenient reading-snack for travelling and a printed book is for a longer reading session in the comfort of an armchair.  As the example of Shades of Grey indicates, e-books are generally cheaper than printed books and, in my case, usually free because my choices favour the classics that are long out of copyright.  What I am certain about is that however good the design of Barnes & Noble’s Nook device, it was not the direction for a book retailer to go - however big the operation.  E-book readers, even like the Amazon’s Kindle, are interim devices.  For a comparatively small extra sum, a fully-fledged tablet like Google’s Nexus 7 is a similar size but it is multi-functional device.  It’s a GPS; a map; a calendar; a calculator; a notebook; a pile of magazines and newspapers; a bus timetable; a dictionary; an illustrated explanation of the night sky; an up-to-date weather forecaster; a translator; an email device; and a BBC Radio & TV iPlayer as well as a selected library of e-books.  Your choice of applications may well be different from mine - nevertheless a small tablet is a multi-purpose computing device, whereas an e-reader is only a book collection, nothing more.  How many devices do you want to carry? If reading isn’t declining very much then books, in whatever form they are available, are being bought from somewhere.  As the sales results from Barnes & Noble and Waterstones indicate, this isn’t happening nearly so frequently from book-stores.  Waterstones’ strategy is one of going for more coffee shops and better in-store ambience, yet Barnes & Noble have had Starbucks inside their stores for some years.  I’ve never had a problem with either book chain for ambiance, staff helpfulness or, if I’ve wanted one, getting a coffee.  If the book store didn’t have a coffee shop, I could always go around the corner and soon find one.  The quality of the buying experience hasn’t stopped me buying books in a retail store – but the price difference and the sheer convenience of buying from Amazon means that I mainly buy my books online.  In fact I can’t remember when I last bought a book from a retail store because the chances are that they won’t have my desired book in stock and, if they do, it will certainly cost me more.  My advice for both bookshop chains would be to quickly find out just how many of their customers are coffee drinkers and whether they are prepared to pay a premium for a pleasant ambiance and a limited selection of books.  They should then rapidly scale their businesses to match the demand to avoid further losses.  I’m afraid that Barnes & Noble and Waterstones will be surprised at how great that contraction needs to be.  Even though we can see monopolistic danger ahead, Amazon has successfully primed all of us enthusiastic readers to associate buying a printed book, or an e-book, with getting a discount.  As the chart so clearly demonstrates reading as an activity is fairly constant but, as the experience of Shades of Grey confirms, when buying any kind of book, a discount is the new norm. March 2013  
Click here to download the PowerPoint chart: Click here to download the PowerPoint chart: