Retail Week, The Grocer, The Bookseller and others have all reviewed Kantar Worldpanel‘s latest analysis of the UK entertainment market, which focuses on the 12 weeks through to mid-June.
Despite all this coverage, there is a some vagueness as to what is and isn’t included in their definition of entertainment. As far as I can tell, however, we are looking at:
– CDs (and other recorded music)
– DVDs (and other video content)
– console and PC games
It looks as “downloads” includes ebooks, but the sector definition as a whole doesn’t include pbooks.
It’s unclear how broadly downloads are defined – all apps, or just those that have some kinship to traditional formats? If so, that would be a “yes” to Angry Birds, but a “no” to business apps.
It’s also unclear whether all subsidiaries are properly accounted for – so, for instance, are LoveFilm downloads included in Amazon total?
Still, whatever the definition, it all makes for a good story. The changes in percentage point share are pretty predictable – Amazon up, HMV down, Game Group – with multiple store closures following administration – well down.
But I am interested in the scale of some of the gains. Of course, the overall size of the market fluctuates, but for iTunes to move from 6.0% to 8.8% represents an increase in penetration of nearly 50%. And, LoveFilm or not, Amazon’s growth continues powerfully, with no reason to assume it will slow down in the foreseeable future.
Tesco’s tribulations and Sainsbury’s progress are both graphically illustrated here – indeed, if these numbers are a microcosm of current trading at Tesco, that would be a concern.
Meanwhile, Play.com sees its share slide, as it loses consumer visibility. Amazon isn’t just taking sales from bricks and mortar retailers…
That the “Others” are growing their share suggests diversity in the market. I wonder who they might be?
Front of Store has been a little quiet through April – a pleasant week in the Brecon Beacons (and a trawl of Hay bookshops), combined with a variety of other activities has kept me away from the keyboard.
One area of focus has been the presentation I shall be giving at the World e-Reading Congress, which takes place in London at the Jumeirah Carlton Tower on 15th-16th May. I’m on at 1:30pm on Weds 16th (the popular “pay attention after lunch” spot), and my theme is: “The future of retail is another planet”.
This isn’t the most grammatically correct presentation title anyone has ever had, but I only have myself to blame, as it quotes my Frankfurt punchline: “the past is another country, but the future is another planet”.
It is startling to go back to Frankfurt (October last year) and reflect on the number of changes that have taken place across publishing and bookselling in that short time. The most interesting is, of course, the DOJ case which Apple, Pearson and Macmillan are defending. Tens of thousands of words have been written on the subject, but this recent piece from the Guardian is a pretty good account of the impact that Amazon and other tech giants are having on the consumer’s best interests.
In my presentation next month, I shall be reflecting on where Amazon’s domination leaves everybody else who is trying to sell books and content, and putting up one or two pointers for the future. Let me know if you’re going to be there – I promise to provide some energising food for thought for everyone.
There is, sadly, little sense of surprise in the news that Game Group has finally called in the administrators, as the chain’s poor Christmas was followed by the reluctance of the banks to prop up a struggling enterprise, and then the progressive withdrawal of support from its suppliers. However, what does shock is the speed at which a plc can go from success to failure, once the storm starts to rage. In 2009, Game Group posted pre-tax profits of £119m, up 75% in two years – here was a company that was beating the consumer recession – although this proved to be the last of the good news, as the absence of new platforms, lower pricing from online competitors, and the growth in downloaded content progressively reduced profitability and investor confidence.
Game themselves – slick and capable operators who’d innovated in many ways (eg by mainstreaming the second-hand market) – now had a brand that was too anodyne for the hardcore gamer. They should have repositioned their primary brand to better serve that market, rather than chasing the more family-friendly (and fickle) Wii market. Instead they sought to serve the hardcore through the rougher and readier Gamestation brand, having committed the Retail Deadly Sin of acquiring a parallel business in 2007 and then having to post-rationalise it (see Clintons/Birthdays, Mothercare/ELC, WH Smith/Waterstone’s and many more down the ages).
Their second Deadly Sin was to focus on international expansion at the expense of the home business, when they should have been replicating their physical dominance (a one-third market share at peak) in the online sphere. That’s a tough, going-on-impossible trick to pull off when the competition includes retailers like Amazon and developers like Zynga and Rovio, but it was where the market was going and it’s where Game should have gone, in a fair and equal world.
However, this world ain’t fair nor equal, and a retailer – any retailer – committed to decades-long leases in prime pitch locations at the most expensive malls is naturally going to be focused on how maximise those stores’ sustainable profitability, how to turn them around – in short, how to protect the legacy/millstone that they’ve inherited.
It’s this lack of flexibility than can kill even market leaders in the current consumer climate; their lease commitments are so onerous that they have to focus on hauling those locations back towards profitability, even though there are precious few examples of gone-bad retail locations miraculouly coming good again.
Game Group’s collapse is the worst, in terms of potential job losses, since Woolworth at the end of 2008, and it is to be fervently hoped that some jobs, stores and the brand can be saved. However, it once again throws the plight of the middle market into sharp relief, as a profitable core of Game stores won’t prosper unless the online/download/value challenges I instanced above can be resolved. (And any good news that all of this represents for HMV will be short-lived too.)
Meanwhile, the less attractive or affluent high streets and shopping centres are being hollowed-out by store closures. The Portas Review rightly promotes the conversion of retail premises to other uses, but what strategies, one wonders, are the shopping centre landlords contemplating? The biggest and best – the Westfields, the Meadowhalls – can thrive, but all those poky, low-ceilinged 80s developments with their shallow shop units, the natural home of Game and many other 2011-12 retail casualties – how will they be repurposed? Which major landlord is going to break ranks and announce a new strategic approach to asset management that isn’t built on the old assumption that everything will remain largely the same as it was before?
In February 2012, 10.7% of all UK retail sales – including food – were executed online. In February 2011, the figure stood at 8.3%. That’s a lift of £140m in a dull month, when overall retail sales were flattish at the very best. Factor in Christmas, and you’re looking at the thick end of £2 billion transferring from bricks and mortar to online over the course of 2012.
Despite all of this, I personally remain convinced that physical retail has a strong future but – as my headline suggests – bricks and mortar is trapped in a losing war at the moment. That war will end – a truce will be called, and a new equilibrium established – and it will be consumers en masse who end hostilities, once a new balance of online purchasing (for value and convenience) and physical retail (for the experience of the product, the face-to-face benefits, the “localness”) has been established.
Of course, online and physical will blur, as they already have for successful, robust businesses like John Lewis or Apple (this hoarding is just two doors down from Game in Kingston’s Bentall Centre). It’s proved to be very much easier for customers to evolve into multi-channel operators than it is for the retailers that serve them.
But the biggest and the best will survive and thrive, as will the smaller operators, who know their market, understand their customers and can move swiftly without too much legacy encumbrance. The mass, the middle market? That’s proving to be much more difficult.
Author’s note: My alma mater, Borders Group, of course committed more than a few Deadly Sins in its time; but the concession agreement we had with Game in the UK was highly successful for both brands during its all-too-brief existence.
* * * * * * *
My eBook, A Year at Front of Store, is available in these Amazon Kindle territories –
I’m just back from New York, and the very stimulating, content-packed Tools of Change conference hosted by O’Reilly Media. On Tuesday morning I gave a short talk on a couple of my current thoughts.
Regular readers of the Front of Store blog will be familiar with some of this, but (a) we’re bringing on new readers all the time, and (b) there’s new stuff here, as well as new thoughts on older stuff.
Marriott organisation scored a little less than 10/10 for our session, so our panel had to canter through their presentations with minimal time for questions. So this post consists of my presentation, fleshed out and extrapolated, with slides where appropriate. Here we go, with a cheerful message that echoes much post-Portas thinking, including Justin King’s speech last night.
First up, it was important to remind a “book world” audience that, although the book sector is undergoing revolutionary change at the moment, all retail categories and locations are being affected by consumers switching from physical stores to online shopping. As I noted, the growth in online selling is changing the entire complexion of the retail industry – not just bookselling. Whole swathes of real estate will become redundant. And in the UK, we are leading the world in online retail penetration.
Around 60% of all adults shop online in the UK and, as this blog noted last month, approaching 10% of all UK retail spending is now online, including about 7% of all food and groceries. Bain’s comparison between Britain and other developed countries underlines how far ahead we are in the UK; in United States, France, Germany, Sweden, only about 30% of adults are shopping online. Of course, China is joining the race from a standing start, and will quickly build their online share.
Again, these statistics and projections have already made one appearance at Front of Store, but they serve to emphasise that sales in many UK retail categories have already been hugely diminished by eCommerce. As far as books are concerned, Amazon and the supermarkets sell around 50% of all printed books, but of course total unit sales of pBooks, whatever the channel, are now being diminished again by the Kindle.
The most vigorous illustration of the impact of channel shifting came from Tesco, the UK’s biggest supermarket chain, where CEO Phil Clarke has indicated that Tesco will be shrinking future store sizes, and reducing their instore non-food commitment.
So, in terms of book sales, it isn’t just these guys who are getting hammered by the internet:
It’s these guys too:
This is a pretty quick shift for supermarkets, from “voracious baddie” to “another victim”, but it has fundamental ramifications for publishers. Supermarkets account for around 20% of all UK book sales. Sales of physical books will fall in supermarkets, so the commitment of Tesco and its competitors to books will be reduced appropriately.
Given the pace of growth in ebook readership – and the crossover between the most effective ebook content (narrative works, eg fiction, biography etc), and supermarkets’ key adult categories (narrative works), supermarket to books will be reduced. The impact of this on the publishing industry will be more fundamental than the loss of a specialist chain. The supermarkets sell the mass-market stuff that pays for the literary stuff. Are publishers planning appropriately for this very significant shift?
However, physical retail still matters, and will continue to matter even as the number of specialist booksellers falls, and the commitment of the supermarkets wanes. A considerable number of consumers will still want to buy print books from physical stores – and, by-the-bye, I’m going to guess that the average publishing conglomerate would prefer a situation where orphan sales didn’t automatically default to Amazon.
A couple of weeks ago, I sat on the judging panel for a book marketing award. Despite these major channel changes, only one of the entries, out of a field of about 30, placed its physical books anywhere other than in traditional outlets – bookshops, supermarkets and the like. Publishers must consider alternative retail channel strategies.
There will still be bookshops in the future. But the democratisation of reading and access is going into reverse (at the same time as the library sector is under fundamental threat).
In the future, great little bookstores will serve communities of real book lovers – educated, affluent, intellectual people. They’ll run events, sell online and offer click-and-collect, home delivery and all sorts of customer-first offers. They’ll support their sales of books with gifts, toys, stationery and coffee, catering to a wide area… they’ll be just like little superstores. Critically, they must be integrated into the ebook food-chain, because the recommendation of a good bookseller cannot be replicated through any online “search-and-browse” mechanic.
Deliberately provocative, I noted that there’ll be plenty of these bookstores in the sort of places that people like me and the conference delegates live and work – London, Oxford or Edinburgh, New York, Boston or San Francisco.
But the economics won’t work in smaller, poorer or less well-educated communities. I don’t believe – and I’m not sure if anyone believes it – that there will be room in the near future for 300 Waterstones or 700 Barnes & Noble stores. The two-century long surge in long-form book reading driven by 19th century serialisation and rail travel, and by 20th century drug stores, book clubs, mall stores, superstores, air travel and fancy vacations, is coming to an end.
But we’re also seeing the first signs of Ebook sales flattening, as new technology diminishes the importance and visibility of the book, and provides device users with many viable alternatives to books. School kids and commuters aren’t carrying paperbacks like they used to – they’re playing games on their iPhones.
We – the whole of the book trade, not just Amazon – needs to format and sell books and content, to maintain pertinence for the mass-market. This isn’t about existing heavy readers transferring to eReaders, as most of those interested in the US and UK have already made the switch. Instead, it’s about the next generation of uncommitted potential readers.
Long-form reading isn’t going to die, bookshops won’t disappear, and great writing will persist. But there’s a risk that the audience for all of these things will diminish significantly – and, as I noted above, the withdrawal of physical books from everyday retail locations will cause a large proportion of the customer base simply to stop buying books.
We saw this when Borders closed in the UK – around half of Borders’ total sales just disappeared from the market, instead of transferring to other retailers – and this was nine months before the Kindle arrived in Britain. So while people living in nice places will still have great bookshops, the places in between won’t be as well served. The industry will then have to persuade people to start reading long-form again, buying physical books or content online. Whatever the format, it’s a fundamental challenge for the industry.
Thus far, I’ve just been discussing the big English language markets. However, change is afoot in continental Europe.
I’ve just described scenarios in Britain and America. But suddenly, the protected European markets are looking vulnerable. Countries like Germany, France and Spain have significant market and cultural controls in place, which have ensured historically that printed books are sold at the same price (or, in France, with no more than a 5% dicount) – the publisher’s RRP – whatever the outlet. Specialist bookshops, supermarkets, Amazon have all had to abide by the law.
In the past few months, everything has changed. Kindle and Kobo have started to take off in these key territories, and of course – as Rudiger Wischenbart demonstrated at TOC in Frankfurt – the selling prices (the RRP) of ebooks can be 20%, 30%, 40% lower than pBooks in those territories. This means that consumers in France, Germany and elsewhere are seeing seriously discounted book prices for the first time ever.
No amount of cultural legislation can create price parity between very different formats.
The Fnac expansion story and the stability of Thalia in Germany both start to look suspect in the new market conditions, where economic squeeze and technological change look as though they will finally upset those stable, mature European markets. Managing massive change – which was recently an operational problem only in English-speaking territories – has rapidly gone global.
To conclude, we can see what is happening, but we don’t understand how the consumer market for books will settle; I believe that publishers need to be driving that future much more pro-actively. As my final slide notes:
So, there are a lot of unknowns, and a great deal to think about, to plan and deliver. I very much hope – indeed, I’m pretty certain – that among the Tools of Change delegates were those who can and will fashion the future, rather than being buffeted by economics, technology and Our Friends In Seattle. This market is big enough for more than one player, so whether you’re a legacy player or a new start-up, you need to make yourselves some good luck, and create a future publishing/bookselling industry that you want.
* * * * * * *
A scintillating day yesterday at the FutureBook Conference at the QEII Conference Centre in the heart of Westminster.
2011 has been the Year of Change, with digital content and eReading becoming established across the sector, thanks to the explosive success of the Kindle and (to a lesser extent) the iPad. The potential of smarter and more versatile devices, allied to social networking in the very broadest sense, has got people like Stephen Page rethinking the whole publishing paradigm – and it was great to see experienced but independent leading publishers like Page, Rebecca Smart and Kate Wilson being recognised for picking up the old business models and giving them a damned good shake. It was also refreshing to see more young and/or independent delegates, who will reshape the face of publishing over the next 5-10 years.
Dominique Raccah, CEO of Chicago-based Sourcebooks, kicked off:
Ereader users believe they are purchasing more titles. The evidence suggests, yes; but the industry still lacks a reliable eBook “chart” in the UK and the US, and Amazon/Apple are notoriously tight-fisted when it comes to sharing their data.
Ereader users believe their overall spend on books has risen. As overall spend (eBooks + pBooks) has fallen, this is hard to prove.
Ereader users believe they’re reading more. Again, ths is unproven, though there may be a link to “dual screen” use, whereby the user browses a device (most typically, an iPAd) at the same time as they’re watching TV.
A snapshot of the Top 85 Kindle charts in the US: 66% of titles were published by “traditional” publishers; 18% were self-published; and 16% came from “non-traditional” (ie digital) publishers. nb for the traditionalists, this compares to about 95% (my guess!) trad publishers in the average print bookshop.
Evan Schnittman of Bloomsbury divided the audience with his “hardcover + eBook” proposal (he’d charge a 25% premium for the bundle, which presumably would include a VAT element). Personally, I’m gung-ho for this idea, particularly as Evan reminded us of the difference between “books” (objects that deliver permanence and permit display), and “reading” (which is all about content).
I sometimes chuckle at the “convenience” argument around eBooks. Is it really a whole lot more convenient to carry an eReader than a single book? (Do you remember, in the dim, dark days before Kindle, when you used to say “I’d love to read more, but carrying a book is so inconvenient“?) It’s the enhanced convenience of carrying lots of books, and being able to purchase when you wish. These are great qualities, though perhaps they encourage the grasshopper mentality of the dual-screener? (Research suggests that 26% of Kindle users do this.)
Meanwhile, while the take-off trajectory of eReaders has been, and will continue to be, spectacular; though bear in mind that 76% of book-buyers have yet to buy any kind of eBook and – according to BML research – over 50% of those aged 35 or over don’t at present intend to do so.
Finally – I think this was an AT Kearney stat – European eBook sales currently break down as follows: 52% of all eBook purchases take place in the UK. Germany – where Thalia’s Oyo is making the running – delivers 28%. After that, France is at 7%, Italy 3%, and the rest of the continent 10%.
This brief run-down of stats doesn’t give the reader any real flavour of the optimism, enthusiasm and boundary-breaking that characterised great ideas and discussion from William Higham, Valla Vakili, Charlie Redmayne, John Mitchinson and many, many more. But we need to press on…
OK, let’s talk about bookshops
It fell to me to wave my accustomed bucket of cold water around the Fleming Room, and to remind the Conference that this once-in-300-years reshaping of the industry is taking place during the worst consumer downturn, and the worst set of economic forecasts, for many, many years. New devices, formats and ideas are being launched into the teeth of last Wednesday’s Autumn Statement, which promised austerity beyond the next election, and a return to 2001 living standards in – 2017? 2020? Providing the Euro doesn’t implode, of course – then things will be much worse.
So, book people need to be thinking not just about how to reshape their industry in such a way as to preserve copyright, encourage new talent and stop Our Friends in Seattle (or, more broadly, the “GAFA” group*) from dominating commerce and innovation; they need to embed that change at the same time as Joe Public is devoting his dwindling income to candles and tinned food.
I was chairing a discussion panel that brought together Kobo vendor relations manager Cameron Drew, Hive development manager Julie Howkins, Middle East bookseller/publisher Jeremy Brinton, Retail Week Knowledge Bank director Robert Clark, and Leo Burnett marketing strategist Dr Alan Treadgold. Here are some of our key points:
The UK pBook market has consoidated to one specialist (Waterstone’s), one generalist (WH Smith) and one website, which between them meet most of the needs of committed book-buyers. (Of course, there are also three participating supermarket chains, though they aren’t specialist by any definition.) This represents a real narrowing of the market – but perhaps that market will now start to broaden again, driven by feisty and more self-confident indies, the arrival of eReader alternatives to the Kindle (specifically Kobo), and an expanding reach (devices, channels, formats) from the Stephen Page-defined world of broad publishing.
However, no one has yet resolved the “showroom” conundrum: once its sales have fallen by around 20%, a physical bookshop becomes untenable, and has to close. Bookshops can move to cheaper premises, can sell a broader range of products (toys, coffee etc), but unless they are actively participating in eBook sales, their market share will be eroded beyond recovery. This will leave those 50% aged 35+ who don’t intend to buy an eReader for Amazon to scoop up into their search-excellent, browse-lousy world.
The panel recommended some solutions to this problem:
Ereader manufacturers that partner with retailers can encourage consumers into a bookshop relationship without committing them to a non-transferable, Amazon-type scenario. Hive-affiliated bookshops (currently about one-third of serious indies?) can sell eBooks in multiple formats, and share in the revenue they generate, as well as creating local incentives for their customers. And Kobo’s retailer partnership model (WHS, Fnac, Indigo etc) clearly has legs.
Physical bookshops must use their websites to drive store footfall. One of the UK’s most consistently successful retailers, Richer Sounds, has a strong eCommerce site, which nevertheless acts primarily as a driver to get customers into personality-saturated stores, where they can test the product and take advice from trained staff. There’s a bookshop model here.
Click-and-Collect is growing swiftly as a preferred distribution channel for many customers. 26% of Argos’s business is Click & Collect, and M&S, John Lewis and Sainsbury’s are among the retailers investing heavily in this service. Click & Collect allows the customer to pick up their goods at a time convenient to them – and of course exposes them to personal service, and many more buying opportunities.
Social networking through eReaders (Kobo Vox) can bring reading communities together, and could be curated by bookshops who currently support reading groups. Events and literary festivals not only bring together readers with shared interests, but underline a bookshop’s specialisms. (And deliver healthy book sales to boot.) In short, community runs through good bookselling like the words in a stick of rock, and good staff matter more in bookselling than perhaps any other retail sector.
Everyone in the world of books – publishers, authors, retailers, analysts – needs to be focusing more on their end customer: the person who buys the book. Historically (ie until a few months ago) publishers tended to view retailers as their customers, with (as John Makinson has noted) a B2B mindset at odds with the creation, marketing and selling of consumer products. Book trade people need to be aware of retailing best practice, and to understand how consumers and retailers are behaving in sectors far away from their own. We cannot integrate ourselves into 21st century lives while still behaving at one remove from our readers.
Finally, there is a common retail trend running through all sectors – fashion, homewares, electrical etc – and that’s a trend for fewer, better shops. We certainly have fewer bookshops than we had five years ago, and it seems likely that the number will continue to fall. Those that are left must be digitally integrated, and committed to a programme of continual improvement.
*GAFA: Google/Apple/Facebook/Amazon. Each is developing a vertically integrated suite of services and functions, as follows:
The walls around each of their gardens vary in height.
Couple of Guardian stories over the past couple of weeks:
Today, we learnt details of a National Literary Trust survey, which tells us that websites are of more interest to children than comics. No surpise there – in the 1950s, the Beano had a weekly circulation of over 2,000,000 copies per week; today, it sells under 50,000.
Turning the Guardian’s numbers to the good, 87% of children had read at least one book in the previous month, over 80% have been given books as presents, and over 90% have visited a library at some point. Given all we read about dumbed-down exams and feral kids, you could be forgiven for expecting much worse.
What’s important is that children are reading and communicating; absorbing information and ideas, and developing their own world-view. There is plenty to improve upon in England’s state education system, and little to support complacency, but literacy appears to be thriving among most school-children.
Last week, it was reported that the New Musical Express now has a circulation under 30,000 a week. This compares to 300,000 in its mid-70s heyday; it’s now the only rock weekly, whereas 35 years ago it competed head-on with Melody Maker, Sounds and Record Mirror. In the 70s, rock music achieved its broadest social impact; record sales were vast, and the thoughts of Bob Dylan, Neil Young, David Bowie and John Lydon pored over by milions. Pop has moved on, and whether you believe that’s for the better or not is irrelevant; it’s changed, and that’s that. I was talking to my teenage daughter at the height of the London riots, and had to explain the idea of a protest song – there is no new Joe Strummer, and pop now sits in the politics-free celebrity bubble.
Hardly surprising, therefore, that few young people buy the music press any more (whereas those that grew up with it consume Mojo, Uncut, The Word etc, in the same way as adults who had experienced the comics heyday used to buy Viz).
Sometimes I sound like a grumpy old bear, mourning the loss of bookshops and the slow death of the media I grew up with. But every generation has experienced some version of this, at least since the mid-19th century. I’ve written about the decline of music halls, silent movies, super-cinemas and super-bookstores, and I could write more about pirate radio, three-channel TV or sport before Sky, if I felt so minded.
But change is a constant, and if the past has taught us anything, it’s that what works today may not work tomorrow, and will not work forever. What’s exciting about today’s explosion of change in communication, art and technology is the potential move from established, understood long-form content (novels, TV series, music albums) to new and uncodified forms. Anybody participating in the creation and exploitation of these new art-forms is going to have a stimulating life. There may not be a John Lennon, and there may be little interest in Dennis the Menace, but there will be new voices and new channels.
The Beano: uk.ebid.net; NME: blogs.edgehill.ac.uk
Looks as though I’m not the only person thinking in these terms:
In this context, worrying about Amazon acquiring the Book Depository starts to feel like counting small change in the path of a hurricane. It does, however, beg an uncomfortable question about the level of power that individual corporations enjoy, when they not only do what they do, very well, but they also own the technology, and deliver a full service relationship to the consumer.
It’s good news for the customer, who likes the total offer – at least until the competition has all disappeared, and the cost of entry becomes too high for anyone else.
To put this another way, Wal-Mart and Tesco are huge because they provide the best offer for the customer. However, they are the current iteration of a model that goes back through Safeway and J Sainsbury to Piggly-Wiggly and the International Stores. Anyone could open a supermarket, and focus on points of difference; however, if your business is virtual, you can eliminate all of the location/service elements that enable physical stores to distinguish themselves, and lock your customers into an absolute relationship.
Amazon (and Apple) could dominate to a far greater extent than Wal-Mart ever dreamt of. Imagine the Ford Motor Company building cars that only ran on FoMoCo roads, using FoMoCo gasoline. Oh, and they had bought out the oil companies, and GM, VW and Toyota, at the Book Depository stage of their development…..