As an online book retailer myself and a lover of books, I was disheartened to see the demise of yet another Australian bookstore chain last week. Adelaide-based specialist university textbook retailer Unibooks, which has been in business for 80 years, will close its doors in 2016, with up to 100 employees set to lose their jobs. Are we witnessing the death of bookstores?
Unlike other book chains that have descended unceremoniously into liquidation, the Adelaide University Union-run Unibooks is pre-empting its own demise, reporting in a press release that ‘both the business and the textbook market are in decline’. The Union has made a hard decision and has chosen to reinvest Unibook’s cash reserves of $2 million in other profit-generating ventures. As a result, students at Adelaide Uni, Uni of SA and Flinders Uni will no longer have an on-campus bookstore.
Competition in the bookselling industry is rampant. In Australia, there has been considerable change in the industry in recent years with the arrival and departure of the mega bookstore Borders; the collapse of Australian retail chain Angus and Robertson; the growing predominance of big international online bookstores Amazon and The Book Depository; and the virtual extinction of the small independent bookstore (the closure of Adelaide’s oldest bookseller, Mary Martin Bookshop, in Rundle Street is a local example).
Making money in the textbooks segment is harder again. Textbooks are sold at razor-thin margins and publishers are increasingly selling their product directly to students, and increasingly in electronic form. Let’s face it, who wants to lug around a 300-page text book that costs north of $150 and will be out of date by year-end, when the electronic version costs less than half that?
The death of bookstores? A quick Porter’s Five Forces Analysis
Recently, as part of my uni studies, I did a quick Porter’s Five Forces analysis of the plight of the bookstore in the current competitive landscape. Here are some notes:
- Rivalry amongst existing competitors. There is strong rivalry amongst existing competitors in the bookselling industry. Internationally, local bookstores must compete with US retail behemoth Amazon, and the Amazon-owned, UK-based The Book Depository. These businesses have achieved economies of scale; they have well-honed mass distribution fulfilment models; and they place significant pressure on their suppliers to obtain favourable wholesale costs and terms of trade. Accordingly they almost always sell their products at significantly cheaper prices than their competitors. Additionally, Amazon and The Book Depository enjoy further benefits in this market: they are permitted to supply their products into Australia GST-free (not for long!); they are not subject to Australian parallel importation laws that compel local retailers to source their product locally, often at uncompetitive prices; and they enjoy cheap international postage contracts that permit free shipping to Australia in a lot of instances. Quite simply, it is impossible to compete with these companies on ‘price’ alone. Domestically, the competitive landscape is made up of online bookstores (namely Booktopia, Bookworld, Fishpond, Dymocks and Boomerang Books); bricks-and-mortar book chains (Dymocks, Collins, QBD); the discount department stores (Target, Big W, K-Mart) and the supermarket chains (Coles, Woolworths) which are increasingly stocking bestseller books. The bottom line: it’s bloody hard to compete.
- Threat of new entrants. The threat of new entrants in the bookselling industry is not of significant concern, as the market is highly commoditised and already dominated by highly-entrenched international online bookstores. For prospective new entrants, the barriers to entry are formidable; there is great uncertainty about the industry’s longevity due to advances in e-reading technology; and the recent poor financial performance of booksellers and publishers serves to dissuade companies from entering the market. The long and the short of it: you’d be up against it if you chose to launch a new bookstore in the current economic climate.
- Bargaining power of suppliers. The relative power of book publishers and distributors is greatly bolstered by outdated Australian legislation that forbids local booksellers from sourcing products from foreign suppliers in situations where the same product is available locally. Ostensibly to protect the interests of authors, these laws result in uncompetitive pricing and permit non-Australian retailers to undercut the prices of their Australian counterparts. Most Australian booksellers support a free market and the removal of parallel importation laws that effectively gives local suppliers a monopoly on book supply.
- Bargaining power of customers. The internet has provided ultimate power to the consumer, particularly when shopping for commodity products such as books. If the consumer is not satisfied with the offer at hand, a competitor’s website is only a click away (or a bar scan away for those who practice ‘showrooming’ at bricks-and-mortar retailers; the practice of ‘showrooming’ was popularised by Amazon’s bar scanning app). In most cases, the decision to buy a book elsewhere boils down to just one factor – price. The challenge for Australian booksellers is to differentiate its offering and shift the conversation away from price as the sole determinant for buyers. Easier said that done – a book is a book is a book.
- Threat of substitute products. The threat of substitute products, particularly as a result of swift technological change, represents a significant risk for booksellers. In recent years, the delivery of books via electronic means (the eBook) has become mainstream, largely on the back of Amazon’s Kindle eReader device. These devices make physical books largely redundant – they are light and easy to carry; they hold entire libraries of books; and books can be purchased wirelessly and accessed instantaneously. Although recent reports suggest that the eBook market has stalled, it is likely that eReading technology will improve further and, in time, this will serve to further cannibalise the market for physical books. More widely, booksellers compete with providers of other forms of media and entertainment, all of which are capturing a greater share of the consumer’s leisure time: free-to-air television, pay TV, cinema, digital content (including the relatively new streaming services Stan and Netflix), spectator sports and gaming are examples of modern-day activities that conspire against the traditional pastime of reading a book.
Who’d be a bookseller? Me.