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Aug 11, 2010

Closing the book on retailing? Publishers nervous at giant's health

Redgroup Retail -- owner of Borders and Angus & Robertson -- has been forced to jack up prices, increase returns and extend trading terms with its suppliers, leaving publishers anxious about the industry's health.

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Australia’s largest book retailer is mired in debt and slashing its range, leaving publishers anxious about the industry’s health.

Redgroup Retail, parent of the Borders and Angus & Robertson chains, has been forced to jack up prices, increase returns and extend trading terms with its suppliers, according to industry sources. The company told the New Zealand Stock Exchange in July it was likely to breach two of its banking covenants at the end of the month, with debts believed to be in the order of $50-75 million.

“A whole lot of publishers aren’t doing business with them at the moment,” a senior book publishing source told Crikey. “They are asking for payment terms to be extended to as far as 120 days, which nobody is prepared to give them. In response publishers are cutting their print runs by 30% in the run up to Christmas.” Another source told Crikey that Redgroup was looking to reduce stock on shelves, up recommended retail prices and increase return credits with publishers.

The retailer — which accounts for more than a quarter of Australia’s $1.5 billion book industry — is suffering a bleak period. According to industry figures, book sales were down 4% across the market in the first six months of 2010. Redgroup told the NZSX in July it was on track to deliver earnings of just $25 million for the year to August.

Gabrielle Coyne, CEO of Penguin, told Crikey it had been a “bumpy year” with “flat” volumes. “The next six months are crucial, as ever, given how important the Christmas season and therefore the last quarter is to publishing and book retailing,” she said.

Malcolm Neil, a spokesperson for Redgroup, told Crikey the book industry was suffering a downward turn after bumper sales on the back of the economic stimulus and blockbuster titles such as Twilight, Harry Potter and the Dan Brown series.

“Retail across the board is really struggling. You’ve got to work harder for every dollar of sales than ever before,” Neil told Crikey. “However, there has been a lot of work back of house. The basics of retail are still as important as ever. ”

Angus & Robertson and Borders are now apparently ordering books in very small quantities — “one or two at a time” — and stock is being turned over much more often. A senior book publishing source says this is affecting the company’s brand, especially Borders.

“Borders was renowned for having a very strong range, however that has changed considerably. You’ve got three months for a book to survive, then you are dead and gone. It’s the publishers who pay for that,” they said.

Tim Coronel, publisher of Bookseller+Publisher magazine, said Redgroup had completed a “big return push” before the financial year, a move that “wasn’t a great sign” for the retailer’s future.

“The admission they made recently is telling, because they definitely have a big debt burden,” Coronel told Crikey. “Redgroup are playing it down, saying it may have been overplayed. But they’re definitely under pressure.”

Redgroup says retailers are trying to get the right mix of stock and that publishers always want their title on display for longer than book shops can afford. Says Neil: “Retail is tough. We’re a sale or return business. When you are in a tough market everyone has to share the pain.”

Coronel says that any bloodletting for Redgroup is likely to come from Angus & Robertson’s 183 store-strong network: “A lot of that pressure is because they have a large range of big stores, in places like Westfield shopping centres. The overheads of running those stores from things like rent are huge.

“There is a moderate to high chance that you will see the branch network shrink, when franchisees pull out. They may not be offered the support that they otherwise would be.”

Despite tanking book sales, Redgroup’s flagship Carlton store in Melbourne has gone through a recent extensive refit and the company has rebuilt its website while heavily promoting the Kobo e-reader.

“They’re spending, spending, spending, because they have to,” said Coronel. “And now maintaining their retail stores is becoming an issue.”

According to Neil, the Borders Carlton rebranding is part of the company’s aim to sell books that come with add-on products in order to “extend the range”. But, he says, “the story is still the book. There is that feeling that when you talk about selling other things, that you aren’t focusing on the book. But that only works when the book is right.”

Coyne told Crikey “all retailers” are important to Penguin, including independents, mass market retailers and chains like Redgroup. But one senior publisher says the stakes are higher: “It’s the mass marketing publishers that are going to face the real strain if they go under. They need Redgroup to be working.”

Correction: The original version of this story said Angus & Robertson operated a “183 store-strong franchise network”. Crikey would like to clarify that not all 183 stores are franchises.

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27 comments

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27 thoughts on “Closing the book on retailing? Publishers nervous at giant’s health

  1. Anth

    Surely the elephant in the room here is the parallel import duty and the impact of online retailers? I treat myself to a new book or three every payday. For a while I kept going into the retailers out of some sort of obscure sense of national duty, but in the end the dollars win out.

    I purchase books online from a UK online bookstore (www.bookdepository.co.uk), the purchase is transacted in Aussie bucks (no exchange rate issues or foreign currency transaction fees on my credit card), they charge me no postage, and the book arrives Royal Mail in about ten days. As a rule of thumb, they are half the price of books in Borders or Angus.

    Some of this prices differential would be rents etc, but much of it is surely the duty. How does it help new Australian authors to have retailers shutting down or minimising their number of titles?

  2. Cavitation

    While BookDepository in the UK is good, I prefer to use fishpond.com.au – a New Zealand based online store for books – which operates in Australian dollars. The cost of books is so much less online, that I can no longer afford to buy in Borders or A&R. The delivery cost is free (if you purchase over a certain amount – which you’ll do if you get more than a single book at a time) – I use the “wishlist” to save up and get a few books at a time.

    Borders sold out of their “Kobo” e-book reader, and there don’t seem to be any new supplies in the store yet… I planned to get one, but got tired of waiting, and instead go a new Android smart phone, which comes with the Aldiko e-book reader. I get all the other smart phone features, and the ebooks are easy to read on the phone. I’m very pleased with it. But Borders lost a Kobo sale…

  3. Anth

    Yep, I use Fishpond when it’s cheaper than book depository. I just prefer BD.

    I realised after posting that I do actually use the “hard copy” retailers – to go in and browse. If I spot something I like, I go home and add it to my BD wishlist!

  4. Gail

    My sympathies are not with these guys. Book publishers are the most recent King Canutes in a long line that stretches back to the invention of the printing press. In the last 2 or 3 years they have fought tooth and nail for the maintenance of a restricted and controlled market in Australia and they won the battle but stand to lose the war.

    There is a growing market in ebook retailing. Publishers and booksellers have stubbornly refused to take ebook publishing seriously and now find themselves in the same position the music industry was when cassette tape players became widespread (Remember the Sony Walkman). The release of the iPad has intensified this situation. The opportunity is there for them to embrace change or become buggy whip makers. Giving up buggy whip making doesn’t seemed to have harmed Amazon, Barnes and Noble or the Book Depository.

    Borders were absolutely swamped with customers for their Kobo ebook reader a couple of months ago but couldn’t supply because they seriously underestimated the demand and failed to grasp the opportunities in the Australian ebook market. Limited vision will give limited returns. Ebooks don’t need to be shelved, stored or returned once they are published.

    In the USA, Canada and Europe ebook readers, supported by ebook retailers, have been available for a long time now. Sony had an ereader available years ago although not easy to get in Australia. There are sales figures and information available on the ebook market. Amazon and Barnes and Noble have embraced ebooks but have geographical limitations in that not all readers are available in all markets and there are serious problems with the variety of ebook formats around that needs to be settled at some point the way music settled on the mp3 format. Specifically, Borders offer DRM riddled single format ebooks at a price similar price to that of a paperback deadtree book. They could choose to offer their entire range at prices more comparable with global prices which are easy to check.

    There’s room to move here in the Asia-Pacific and RedGroup have no excuse for being blind. Instead of putting some effort into developing a new and growing market, all the major publishers worldwide put their energies into trying to control and slow the growth of the ebook market. In Australia the privileged position of book publishers and sellers has been steadily eroded by globalisation. It’s easy for me to see that the Australian printed and ebook offerings are often more than twice the price of the same item from an overseas supplier.

    I’m only one consumer but I have bought 10-15 books, fiction and non-fiction, a month for over 30 years. I love bookshops and books. I will be sad to see some bite the dust but I can’t buy an ebook in a bookstore as they don’t sell them. They don’t even offer an ebook or digital version with the printed version. I’m the customer and I’m more than a little pissed off that the publishing industry entirely disregards my needs to support their limited business model.

    Years of music industry tantrums and politicking should be a lesson in how not to manage industry wide change not a project management plan for the book publishing industry.

  5. Bogong

    Redgroup recently bought Borders when the American parent group decided to bail out of Aust & NZ. If they already had cash flow and debt problems, why on earth did they buy Borders when they weren’t in a position to maintain it?

    Secondly, I’m not sure Kindle’s, iPad’s, ebooks, et. al. will ever take over from books. You can’t stick them in your pocket when you head out somewhere, you can’t read them in the bath and they are more awkward to read if you just want to slouch on the sofa. Then there’s the hassle of keeping them charged.

    I remember that my first real job in the early 1990’s as a spotty new graduate involved implementing a “paperless office” in a bureaucratic department. I was aware that I was a young kid, so I just did what I was told. But if anyone asked me what I privately thought, I said I didn’t think it would succeed because ‘people prefer paper’ and they would print off anything longer than half a a page rather than read it on screen. It turns out I was right then and I don’t think human nature has changed all that much in the intervening years.

  6. trash

    A quick search for a recent/current bestseller gives me the following choices:

    Go to angus & robertson and pay $12.95 (or order for another $6)
    Order from fishpond for $17.47
    Order from BD (US) for $7.92

    BD have in the past refunded for lost in transit and an abridged audio book when I thought I was getting unabridged! I can not fault them.

    In fact I have seen parcels from BD addressed to Mary Ryan’s at my local post office – I wonder if (a) they undercut staff discount or (b) when MR’s order in they do it from BD?

    I think Australian book shops are dead men walking.

  7. David Roberts

    My last experience in Borders was trying to find a title their system listed as in-stock. When it wasn’t on the shelf, the salesperson said it was received but not put on the shelf yet. I asked if I could order it in from their storeroom – told come back tomorrow…so bookdepository at half the price and 99% less effort (even takes paypal in A$) – after all I read reviews and generally find out about titles on-line, is the only way to buy. Everyone I’ve introduced to BD thinks our book pricing is robbery and are now too pissed-off to shop at the likes of A&R or Borders.

  8. Pdaddy

    “They’re spending, spending, spending, because they have to,” said Coronel.

    My god, what would barnaby Joyce and the Liberals think, dont you know if you are in trouble you must NOT spend and cherish every dollar..and perhaps have a little prayer.

    On a serious note, thanks for the online book tips I have been battling since moving back from the Uk where Amazon was a dream.

  9. trash

    PDADDY – try booko.com.au

  10. Meski

    CD’s went to mp3, videos went to bittorrent distribution, books are going to ebook, regrettably you have to fake out the ebook DRM system to make it think that you live in the USA, but that’s no big deal. The point in common is that end users will decide what they want, not publishers and retailers.

  11. msmith

    Agree with all the comments above. Am not surprised by this news at all.
    I love buying books in bookshops, and would happily pay a few $ extra for the pleasure of browsing through shelves packed with good books and taking something home. But a year ago it became clear that the local industry has no interest in promoting Australian readership. Local writers and publishers wanted protection from competition, ignoring the fact that it’s no longer possible. All they did was p*ss off local readers, who are now more likely to get their books from overseas, from sellers who are less likely to advertise or even stock Aussie authors. I guess we’ll still have literary awards to keep a few Aust authors going, as long as they don’t care if nobody’s actually reading them anymore. Writing books can become one of those lovely arts unrelated to and ignored by the rest of the culture – along the lines of the Aust Opera…
    I got all my family (all big readers) onto the UK Book Depository (half the store price, delivered in a week), people who prior to last year bought pretty much all of their books from bookshops. I treat myself each payday.
    I also got myself a Kobo. It’s great for reading on the train, but latest releases are still a little pricey and the selection of books is a bit slim. Now that the Kindle prices have come down, that seems to be a better buy (and again, using an amazon Kindle would mean shopping where Aust books are given very little coverage).

  12. Socratease

    So, this explains why Borders has gone to the dogs over the last few years.

    Time was when I could find just about any CD, DVD or book in their bigger stores so that’s where I always went first, and Borders’ CD sampling system was great. Their original in-store user accessible catalog was pretty good, too. (The replacement in-store system is crap.)

    As a consequence Dymocks lost out badly on my trade, even though I have a Dymocks loyalty card because being in stock was always a 50/50 bet with Dymocks.

    However, I have found myself going back to Dymocks as first port of call because Borders has gone way down hill.

    I will buy online if I have to, but I prefer to shop locally.

  13. ryan_2

    When a company first becomes successful it’s due to the reaction in the marketplace to their products. But what happens when the market shifts and they don’t? The Chicago Tribune and Barnes & Noble are prime examples of what happens when you try to stick to your Success Formula.
    http://bit.ly/bSvPl3

  14. KP

    Angus & Robertson have been jacking up their prices for years, long before they bought Borders. Their attitude is that publishers don’t charge enough for books, and that they should be allowed to sell books at whatever price they want. It’s been a long standing policy of theirs that unless the publishers RRP is printed on the cover of the book they can and will charge over the RRP. The fact that a few years ago they had the nerve to demand money from publishers and distributors to have their books on their shelves, is pretty indicative of the desperate measures RedGroup are taking to keep the bookstores afloat!

    But while I understand the power of the almighty dollar and hate having to save up for my books (I shop at Dymocks), I refuse to contribute to the killing off of the Australian book industry by shopping at Amazon or BD. Instead, if I want to shop online I shop at http://www.booktopia.com.au, where they have comparable prices and at least I’m supporting Australian jobs. All you need to do is look at the collapse of the UK and US book industries, and talk to some of the booksellers over there to know that Amazon is one of the biggest reasons why bookselling is dying, they have under-cut and under-cut until it’s almost impossible for an independant to compete, they de-value books, and they demand outrageous terms from publishers, effectively cutting the amount of money a book can make, and therefore cutting the amount of money the author ends up making.

    If you want to see Australian authors and publishing survive and even flourish then you need to support Australian bookshops (the good ones, not neccessarily A&R or Borders) because without Australian bookshops there is no-one to hand-sell and read these books. Harry Potter would not have been as popular as it is today without those dedicated booksellers who hand-sold and talked up this book. We need them doing the same thing for new and established Australian authors and if we continue to be sucked in by Amazon and BD then you may as well say goodbye to good quality Australian fiction writing.

  15. Meski

    @KP: Much as I like paper books, I think it’s a dying medium. The only paper books I’ve bought lately have been first print, limited edition ones. Ebooks make up the majority of my book spend these days. And books from second-hand book stores, which seem to have a lot better range than the chain-stores.

  16. Cavitation

    @Bogong – you should try out reading e-books on a smart phone. I just got an Android 2.1 smart phone with 4″ screen – and it comes with an e-book reader (Aldiko). I was skeptical at first, but quickly became enthusiastic about it. The screen is big enough – you can resize the font anytime. You can download other ebook readers from among thousands of Android apps on their store, if you want a different set of ebook features – many are free. There’s lots of e-books to choose from – Borders have a moderately useable e-book shop you can access from the phone, or from a computer.

    Everyone should install “Calibre” e-book management software on their computer – you can manage your library – up- and down-load ebooks onto smart phones, Kobo, Kindles etc, and interconvert e-book formats. And its free.

    But with an smart phone, like Android 2 or an iPhone, you can read in the bath. Its lighter than a book, and you can listen to music on it at the same time, and receive emails and sms’s… Bliss!

    Not are paper books becoming as redundant as horse-shoes, but dedicated e-book readers seem to be too. Smart phones will be the main access for books in the future, I suspect…

  17. Meski

    @Cavitation: Which Android is it?

  18. Stiofan

    With all due respect to the nerds, the dying of Borders has nothing to do with eBooks. It’s a combination of Amazon and cost-cutting. Even before it was bought up by private equity, Borders was shrinking its range of books. This was probably a response to two factors:

    * out in the ‘burbs, there’s not much call for book stores which have a large collection of modern art books, poetry, etc;

    * Amazon and co were undoubtedly making some inroads into the more specialised book markets.

    Add in the private equity factor, and it’s clear to see why Borders is now in a death spin.

    This doesn’t mean that quality book retailing is dead in Australia. Kinokuniya (or however it’s spelt) provides a far wider range that Borders ever did and appears to be doing well. Dymocks appears to be holding its own. And there’s always Collected Works in Melbourne (shameless plug).

  19. Meski

    Amazon is eBooks. Sure, they’re supporting legacy formats for the moment, but I don’t see that lasting.

  20. Cavitation

    @meski – my smart phone is a Samsung Galaxy S – only available from Optus at the moment, but the other networks are likely to stock it next month (Optus have exclusive access to it currently). I am very happy with it – but check out other reviews on Whirlpool – their Android forum is :- http://forums.whirlpool.net.au/forum/140

    @stiofan – Amazon is heavily into e-books (last month they sold/downloaded more e-books than hard-cover books). The tide is turning. But Borders have missed the opportunity to become the Amazon of Australia. http://www.fishpond.com.au have established a thriving online business selling normal books – a huge range, both from the UK and American publishers. It’s easy to move on from that to e-books. But Borders have such a poor online presence, and are clearly wedded to their retail shops (which can still thrive in an e-book world – but they will need to be re-jigged to do so), and paper books, that they aren’t likely to survive much longer.

    I called into Borders at Westfield Bondi Junction – their website ways their Kobo e-book reader is available, but there is none in their BJ store – so they are only selling them online, or else the shops are hiding their stocks in a back room… Poor retail practices abound there.

  21. Stiofan

    @cavitation – The AFR recently cautioned against getting carried away by Amazon’s claims about ebook sales. Offhand, I can’t remember the exact reasons, but, apart from anything else, the hard books figure is almost completely irrelevant. Amazon probably sold more ebooks than left handed screwdrivers as well, but that says nothing about how ebooks are doing against the real world competition, which is paperbacks. Amazon talks up its own (e)book to try to boost Kindle sales (think the sort of people who queued outside mobile phone shops recently to buy the new Apple gimmick). In short, the tide is not turning, and there’s a lot of life left in those “legacy formats” (lol) still. Borders’ decline (which is what the article is about) is absolutely nothing to do with ebooks.

  22. Meski

    The AFR’s online model doesn’t make them credible to comment on eBooks. (yes, there is a connection)

  23. Wintermute

    As a longtime Borders employee, I can say I’ve seen this coming for a while now. Back when Borders was still US owned, we had a great range of new and backlist titles, and even stuff that was hard to find elsewhere. But since the Red Group buyout, things have gone downhill. Our range of titles I would now call pathetic. There are gaping holes on the shelves, and yet we continue to receive pages and pages of returns. Part of the problem is that for some reason (which no one seems to know why) there is no automatic replenishment of stock. This never used to be a problem before, but now staff are instructed to fill out forms when they notice titles that we don’t have and should. Head office is then given the list and we might get one or two copies of those titles in a week or two.  In a smaller size bookstore, that’s not a problem. But in an average sized Borders there’s simply too many shelves and not enough staff, which means gaps on shelves and unsatisfied customers. 
    The price mark up thing is also a problem. To be honest, I don’t have a problem with Borders selling their books slightly above RRP. It is after all ‘recommended’ retail. But if you do that, you’ve got to balance it out and give something back to the customer. Better service? Nope. Most stores are now severely under-staffed and have been for sometime. Better range? Nope. See above. 
    And now it looks like Borders is cutting back it’s DVD range and will be selling them all at full price. That’s right, no more reduced prices for new releases. Of course, this all ties into Borders brilliant new idea to become a “gift” store, rather than a bookstore. So expect even less of a range books, movies and music. 
    I could go on, but should probably stop there. I’ve got a resume to type up, after all. 

  24. Socratease

    I see that REDgroup Retail is owned by Pacific Equity Partners. PEP is a private equity firm “focusing on buyouts and late stage expansion capital in Australia and New Zealand.”

    Private equity firms are interested in return on investment as priority number one, so for me that’s another explanation behind the change in Border’s customer service culture and loss of focus. Gift shop. Ha!

  25. Jamesxander

    Guys, as someone who works in the book industry here is my opinion. I think we will see a rapid decline in top end book stores (A&R, Borders & Dymocks). They make approx 70% of their sales from new book sales. They have been killed in recent times not only by the internet but also department stores which bulk buy new releases and sell them at near cost price.

    The book industry is not dead. There will always be an area for childrens books, reference books etc, and we are seeing this in the emergence of the ‘discount’ book store (QBD, Outlet books etc). Online book sales will continue to rocket, and department stores will continue to supply the public with cheap new releases. The real winner out of all this is the Australian book reading public.

  26. NaGromOne

    Customs makes it clear that whether you buy over the Internet. or otherwise import items, you start to pay Duty once the declared value exceeds $1000.

    So an individual can always import books cheaper than a retailer. If enough people order over the ‘net, then eventually that will be the only way to purchase books at all – if you have the facilities and know-how to manage it.

    Where will everyone else get books? Either they will turn to being entertained by other media, or use a library. The problem is the current crop of new librarians don’t want to keep the ancient, boring straitjacket of the traditional library – they are doing away with book collections in favour of being “community hubs” instead. Or did people think the Australian ABC-TV comedy series “The Librarians” was just fiction?

  27. Bogong

    Naromone. I worked in corporate libraries for a decade and even managed a couple of them, but not once in that time did I go near a council run library (as shown in that TV show) with their dysfunctional clientele and even more dysfunctional staff.

    The whole point of any corporate library is to provide fast, accurate and personalised information to help improve the productivity of people who work for a company. So if digital information is faster and more accurate, that is the way to go.

    But there will always be a place for books because of their more convenient format and punters consistently favour them if they have a choice of formats and a book is as up to date as the digital version.

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