REDgroup Retail — Australia’s largest book retailer under chains Borders and Angus & Robertson — is either a victim of foreign online retailers (and the federal government’s rejection of recommendations to open up the local market) or simply a bad business badly run. And probably both.
The private equity-backed group voluntarily went to the receivers yesterday, with debts of more than $130 million. REDgroup chairman Steven Cain blamed competition from foreign retailers like Amazon, who avoid charging Australian GST and duty taxes. Across the world the growing share of direct internet delivery is driving sales lower for high-cost physical retailers; the Borders Group in the US — no relation to the Australian company — also filed for Chapter 11 bankruptcy yesterday.
But many in the Australian market saw this coming. Crikey reported in August the company was slashing its range while jacking up prices as debts mounted. Industry insiders report today the company had a strained relationship with suppliers and stores over ordering bungles. It’s unclear how the franchise arrangements with 170-odd stores — employing some 2500 staff — will be impacted by the impending financial restructure. But publishers and even rival sellers are worried.
Crikey sought reaction from across the sector…
Bob Carr, former NSW premier and Dymocks board member (from his blog Thoughtlines with Bob Carr):
That’s protection for you: you shore up jobs in a clapped out factory that is doomed to close eventually, but you lose them in retail and service.
In the face of internet purchases and the arrival of e-books, the position of Australian bookshops and the jobs associated with them demand the opening up of the market, that is, competition at the wholesale level to give us cheaper books.
The silliest argument advanced for book industry protection is that it subsidises publishers so they can bring more Australian works into print. Bullshit. No publisher has ever been able to nominate a single work that has been printed on non-commercial grounds. And if there has been a flourishing of Australian literature as this protection has been enforced it has escaped me and most Australian readers.
Henry Rosenbloom, founder and publisher of Scribe Publications:
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The REDgroup story is indeed a cautionary tale, but not of the type Carr (or some others) think. This is not a territorial-copyright story. Nor is it an internet-takes-over bookselling story.
Borders/A&R in its REDgroup incarnation was a very badly-run business, for which the owners, PEP, are responsible. The managers were bovver boys who alienated all their inherited knowledgeable staff (who left), made appalling decisions about stock selection and presentation, and tried to treat books like potatoes. They never listened, so their business declined drastically, and they ended up trying to sell giftware instead of books. It’s a very good example of why bookselling is not a corporate business — it’s a hands-on, detail-intensive business, with low profit-margins. Only people who love it and know what they’re doing can make a success of it — internet or no internet.
It’s also a good example of how hopeless our business journalism is. Everybody and his dog in the industry knew for years that Borders/A&R were in trouble, even while they were trying to ready the business for a float. Yet no journo had the contacts or the wit to chase the story. If they had, yesterday’s announcement wouldn’t have been such a shock — and people wouldn’t be making wrong, knee-jerk pronouncements about what it means.
Scott White, Sales and Marketing Director of Murdoch Books:
It’s worrying from our perspective because it’s 170-odd outlets that sell books today that potentially may not be there somewhere in the future. And you can’t replace those sales. Of our Australian business they account for 18% of our business. So that’s absolutely material. You’d think you might be able to replace half of it somewhere else but you certainly wouldn’t be able to replace all of it.
If that business is at risk [we need to look at] what can we do to replace it domestically. In terms of our Australian business it’s probably 10% of our top line which could transfer to the same percentage of our bottom line. But it’s not a question we have the answer to yet.
Sophie Cunningham, author and former publisher:
I don’t see this is about parallel importation… I do think the market is shrinking, which means that the bookshops that do survive have to be really tight, really on top of things… I don’t think it’s the death knell for independents — they don’t have as many customers but their customers are more loyal, the independents have a stronger base to draw on, whereas a franchise customer base ebbs and flows.”
People purchasing their books online is eating into market, yes, and I suspect it’s particularly eating into chains… Of course there are examples of very well-run book stores within chains that inspire loyalty but customers still don’t feel as bad not shopping at Borders as they do about their local independent. Then there is the fact that the dollar is particularly strong.
I’m not suggesting that independents are immune to all of this, the little bookshop that’s been in Bondi forever is closing, for example, the market is shrinking and bookshops are going to get knocked off. [But] to talk about digitised books and their effect on book shops is premature. Buying books online is the issue currently rather than e-books.
Maree McCaskill, CEO of the Australian Publishers Association:
There were warning signals around in the marketplace before Christmas they were having problems. If you’d said to me that Dymocks, QBD, Angus & Robertson and Borders had all put themselves into administration then I would say yes, the book industry has a major problem. But it’s one chain, and I think ultimately, it’s not parallel imports. It’s essentially their business model, versus some of the others who are in similar tough times but managing through.
Consumer buying habits are changing, people want to shop online, more and more Australians are taking advatange of the dollar, comparing prices, can see they can get it much cheaper overseas, on the internet and provider, and that’s where they spend their dollar. They have no loyalty for Australian business, they have no care whether its here or overseas. I can’t blame them for that, but peculiarly, you see in Europe a much greater pride and concern about their own country’s businesses.
Ultimately if you look at the stats of the average shopping price, it’s cheaper to buy in Australia. Your question is, does everyone move online? The issue is that ultimately you will see the demise over time of the retail sector. People want the convenience of direct delivery shopping online and that will challenge all of the structures.
Mark Rubbo, Managing Director of independent bookseller chain Readings:
I don’t know what it means for independent booksellers. In a way it’s a shame for the whole industry because in the current climate books are very uncertain and I can’t see any big company picking it up, so they’re going to be closures. The independents and Dymocks will benefit to some extent, but probably a lot of the sales will be lost.
In a way it’s a shame, businesses like [Readings] we deal with middle-class professional demographics; Angus & Robertson sold out in the suburbs, and those people are not going to have access For the industry as a whole it is a great worry.
Fair Imports Alliance — a coalition of retailer and wholesaler associations — spokesperson Brad Kitschke:
There have been reports that the worth of retail sales made online in Australia make up only a small percentage of total retail sales, but these figures include grocery sales as well as money spent in cafes, restaurants and takeaways. To work out the real impact of online sales, you can’t compare someone buying milk and bread with someone buying books, a camera, shoes or clothing.
Some specific retail categories within the retail sector like books, music and toys are being hit even harder as consumers shift towards the world wide web to compare products, prices and make between 15-20% of these types of purchases online, with up to 40-60% of these sales going straight overseas.