Wednesday, January 05, 2011

The Weakest Book Chain Link?

The demise of the current book chain channel is probably far more predictable than the demise of the independent bookstore. These retail giants now find their economic model being threatened and undermined and we have to ask if one chain is even one chain too many?

Interestingly the two who have both moved to the media centre ground Borders in the US and HMV /Waterstones UK are experiencing the most problems.

Borders now themselves in a world full of giant new entrants, who are redefining ‘big’ and making Borders and also Barnes and Noble look small. They now have internet competitors who have superior logistics and pricing and operate with less fixed overheads. Finally, they also find themselves threatened by supermarkets and low cost outlets who simply select better tighter ranges and do it cheaper. Some would say that chains must change if they are to avoid the fate of the old styled bookclub and others suggest that their model is beyond fixing.

Forget the poor Christmas trading period, miss mash of a digital strategy, web site crash these are just symptoms of a company that has lost its course in an ever changing market. Borders can refinance till the cows come home, but unless there is radical change it is in danger of just being another casualty of change.

As US publishers prepare to meet with Borders over the retailer's cash crisis, they carry the threat of them potentially putting the bookseller on stop. They also do so without their top attorney, Thomas Carney and SVP CIO Scott Laverty who both stepped down this week and it is also rumoured that these aren’t the only top casualties as boardroom knives get sharpened.

It would appear that it is in every publisher and distributor interests that Borders survives but if this becomes a slow death then some will not want to be left exposed. Credit insurance may protects some, but it doesn’t instil confidence and a retailer without sufficient positive cash flow to pay their way, either faces serious cut backs, or more often is a retailer on death row.

In the UK the HMV Group face; shares falling by some 24%, Christmas sales down 10%, weak profits and challenges over the servicing of a bank loan. On top of this gloom, this year it plans 60 store closures and also cut costs by a further £10 Million. They claim that the demand for CDs, DVDs and games was weaker than expected and that Waterstone's bookstores has performed and delivered unchanged results during the Christmas period.

It is fairly obvious that DVD, music and games are moving online and that others such as supermarkets are selling increasing numbers on a narrow range of titles. The days of high street video and music have gone, so chains who sought comfort in consolidating media space are now suffering.

However we now need to ask ‘who needs who?’ Is it better today to have a wounded Borders than a dead one, or a lop-sided HMV than a Waterstones damaged by friendly fire?

Can the US market take out the number two bookstore and some 676 stores and not feel the fallout? What would happen in the UK if Waterstones was forced to shrink and Waterstones become a media store in order to protect the HMV Group? Any reduction in book shelfspace in either market will be significant and the fallout may not benefit others in the High Street but further strengthen Amazon’s appeal to consumers and power over publishers.

All chains are only as strong as their weakest link.

Finally, we are entering a era where there will be even more books competing for eyeballs, dollars and shrinking shelfspace. Sale or return works if one has a balance of hits, also rans and misses but if that balance becomes unstable then publishers’ models will increasingly become challenged.

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