Tools of Change: the Front of Store New York presentation

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.

Here’s why:

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.

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My eBook, A Year at Front of Store, is available in all Amazon Kindle territories – United StatesUnited KingdomGermanyFranceItaly and Spain.  

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How to sell an eReader – Barnes & Noble vs WH Smith

My monthly column in The Bookseller is now available online.  This time around, I contrast the American multi-platform strategy of Barnes & Noble (stores, bn.com, Nook) with the less three-dimensional approach to eBooks that WH Smith/Kobo are pursuing in the UK.


Key points from Frankfurt

I flitted in and out of a busy Frankfurt last week.  For anyone who hasn’t been to the Messegelände, the scale is spectacular – vast hall after vast hall, interconnected with numerous escalators, corridors and security checks.  A dead whale full of Audis and antiquarians was parked in the centre of the complex, and wifi support (notwithstanding the BlackBerry Crumble) was lousy.  Earls Court is being demolished next year, but if it ever saw Frankfurt, it would die of shame.

From the perspective of this blog, the big buzz was eBooks, and the point at which their penetration of English-speaking markets will extend to the rest of the world.  Kobo’s new partnership with Fnac (as well as their new relationship with WHS as a UK-exclusive partner) suggests both that Europe will start to feel the eBook hurricane through 2012, and that there may be some alternatives to the Amazon hegemony starting to emerge.

My presentation at Tools of Change has been extensively (and sometimes sensationally) reported, though my determination to rouse my audience with touches of revivalist preaching meant that I got what I deserved – anyway, I thought it would be useful to reprise my key points, then we can move on to the next chapter of this brave new world.

1. Bookshops cannot survive as economic entities

UK bookshop chains, a few years back:

UK bookshop chains, 2010s:

Progressively, most of the businesses on the first slide disappeared over the past ten years – they were acquired and subsumed, or they failed and closed down.  In a more benign economic environment (less price competition, less online competition, less severe banking crisis) more of them might have survived; of course, some were more robustly structured or better managed than others.

These bookshops (and the hundreds of indies that have also folded) didn’t disappear because no one wanted to buy from them any more; however, in a world of upward-only rent reviews, rising utilities costs, and very tight net margins, bookshops can only survive losing, say, 20% of sales before they become uneconomic, and plugs get pulled.

This leaves the remaining 80% of their customers unhappy and disenfranchised; it speeds the drift to Amazon and supermarkets (and in due course Kindle), or it causes those customers to stop buying books altogether.

The “eBook Revolution” (one for the cliché file) will accelerate this process.  I’ve never prophesied the death of the physical book (or pBook, as the eBook-people prefer), but publishers need strategies for a bookshop-free world, and I’m not yet convinced they’ve found them.  One strategy might be to support bookshops with more equable terms, of course, but retailers and publishers would have to be very honest with each other about outcomes, so that publishers’ profits weren’t ploughed into supporting failing enterprises, or bookshops given a false sense of their own robustness.  Interesting to read Hachette Livre Chief Executive Arnaud Nourry’s views on these matters.

2.  Retailer diversity matters

Regular blog readers will have seen my “Amazon takes over everything” sketches before.  Click here for the Fantastic Dystopia.  I used these old sketches to illustrate the peculiarly British phenomenon, whereby Amazon has emerged as the sole credible online bookshop, and the sole credible eBook seller, in the UK.  I’m concerned that the publishing community hasn’t done enough – collectively? – to ensure that there are alternatives to this level of domination.

There is a limit to the amount of business you can do with a “frenemy”.  John Ingram, whose family owns the dominant American book wholesaler (and much more) defined his company’s relationship with Amazon – on a Tools of Change panel discussion – something like this:

Amazon will make use of our services and expertise for as long as it makes sense for them.  But as soon as they can do it themselves, they’ll shoot us in the head.

I had something of a Damascene conversion over the summer, shopping for books in the regulated French market, where book discounting is limited by law to 5%.  I saw a greater choice of books in mass market stores, and a greater choice of interesting bookshops.  It started to look as though price protection might be assisting plurality, and helping to keep good bookshops in business.  Consumers may pay more for their books – but (beyond academia) no one has to buy books.  More realistic pricing would be a benefit to everybody.

Here’s a table of pricing that Rüdiger Wischenbart presented at the TOC wrap-up.  Rüdiger calculated the average RRP and discounted price of six major nations’ top ten fiction books, and benchmarked them against their eBook equivalents.  The results confirm that we get cheap books in the UK – though we have got ourselves into a “high RRP, big discount” mentality that favours the most powerful merchants, and disadvantages the small specialist.

3.  Keep books special:

I’m worried about books being subsumed into “the seduction of colour, movement and noise” represented by tablet devices.  My slide showing all the things you can stuff into an iPad looked like this:

Of course, the tablet environment is ideal for many non-narrative formats, but I fear for the distinctiveness of long-form narrative if it is left to fight all of this miscellaneous (and often more seductive) content.  I believe that standalone eReaders are important – indeed, I’d like to see the focus move away from what is a fairly basic and straightforward piece of technology, to a point at which the eReaders are free of charge, and the content – the stuff that really matters – is ascribed the value it merits.

4.  A couple of contentious observations:

a)  Publishers need to promote more, younger firebrands to positions of real responsibility.  My generation grew up with paper (and telephones, vinyl, 35mm film and all the rest), and we are inevitably “translating back” – subconsciously – much of the time.  The bigger the publishing house, the more disruptive new media will be to their established business model, and thus the more disruptive the people they should be hiring to ensure they prosper.  We’re saying goodbye to our bookshops; professional publishing is economically and culturally essential.

b)  It’s great coming to Frankfurt, and talking books, books, books, to all and sundry.  But most book buyers (the actual customers that publishers need to get much closer to) don’t eat, sleep and breath books.  They have other things to worry about.  Publishers will have to fight for their attention, so they need to ensure the public still value what books give us, and their fundamental role in a strong society – the ideas, the knowledge and the power that they ultimately confer on us all.

If you want to talk to me directly about any of these matters, you can contact me at philip@frontofstore.co.uk.

Afterword: Apologies to the long-established and very fine booksellers John Smith & Sons, whose name should have appeared on both of the “bookstore” slides above.


Kingston University blog link

My friends at Kingston University, where I am a member of the Publishers’ Advisory Board (Publishing MA) have very kindly splashed me on their blog, following yesterday’s rhetorical burst the the Tools of Change Conference here at the Frankfurt Book Fair.

You can read their comments, with links to The Bookseller, here.