Australia’s largest book retailer is on the verge of total collapse, with administrators likely to break up the Borders and Angus & Robertson chains to sell to other retailers.

Dymocks has confirmed to Crikey today it is in discussions with administrator Ferrier Hodgson to add to its nearly 100-strong network of stores across the Asia-Pacific region. Collins Booksellers is also understood to be in discussions as another possible lifeline for REDGroup stores and staff.

But Ferrier Hodgson has warned operations will close if a buyer does not emerge after failing to reach a deed of company arrangement that would have allowed it to keep trading while repaying part of its debt load.

Ferrier’s inability to find a suitable buyer raises questions about the health of Australia’s book industry, which has voiced concerns that the strong Australian dollar is luring shoppers online. Creditors include a subsidiary connected with REDgroup’s private-equity owner, publishers and landlords.

Don Grover, CEO of the Dymocks Group of Companies, told Crikey the company is “still interested in some of the assets”. It will talk to Ferrier Hodgson later this week.

“We’ve got some opportunity for some geographic expansion so we’d like to look at where they sit,” Grover said. “But only where it fits in with our strategy.”

Grover is confident his network will adapt to an age of online retail competition and e-books. “All retailers have been finding it a little tough recently,” he said. But he believes the days of large book stores are numbered.

“Book stores are always challenged by how many books you can carry. The cost of inventory and the low relative margins in Australia make it very difficult to carry large stock holdings. We continue to focus on back list book selling and our stores generally speaking … can carry 35,000 titles and that tends to satisfy those customers. Our expertise is in our relationship with customers.”

Collins Booksellers has previously expressed interest in REDGroup but chief Daniel Jordon declined to comment this morning to Crikey sister site Smart Company. The company has about 5% market share.

Some 17 Borders stores and 55 Angus & Robertson stores have been closed since Ferrier Hodgson was appointed to the debt-laden Pacific Equity Partners-owned business in February. Employee numbers have been whittled down from more than 2000 since Ferrier’s appointment; the most recent sackings came yesterday with the loss of 34 head office jobs.

Publishers are increasingly nervous. Scott White, sales and marketing director at Murdoch Books, explains the closure of REDGroup stores has already cut deep into turnover. “The news yesterday doesn’t give me a great deal of hope that even those stores [remaining] will trade forward,” he told Crikey.

Murdoch has already been “fairly brutal” in trimming its program of title releases. White is concerned quality books — which sell best at independent and dedicated book stores but are underpinned by the larger chains — won’t be viable to publish.

“The key thing we’re concerned about is making sure good books still find a market,” he said. “Regardless of how those business performed over the last few years the numbers that went into the REDgroup of titles we’ve published was the difference in terms of whether those books are successful or not.”

Crikey sought reaction from other industry players…

Emmett Stinson, co-founder and fiction editor of Wet Ink: The Magazine of New Writing, University of Melbourne lecturer, president of the Small Press Network and a panellist on the Australian Department of Innovation’s federal Book Industry Strategy Group:

Publishers I’ve spoken to have noted that their print runs are only 80% of what they were 18 months ago — they’ve decreased by 20%. This is anecdotal though. Book scan data from last year shows that the overall volume of book industry production actually increased by 4% in 2010 (but this was prior to RedGroup entering into administration).

E-book sales, while growing, are not strong enough to make up for those lost sales. We’re in between. But to be clear, e-books did not kill REDGroup, they are strong and growing fast but at the moment e-books only make up around 3-5% of the market.

We’re in an environment where less books are going to be sold. They are part of consumers’ discretionary spend; when their store closes, consumers don’t buy books, they buy something else…Publishers have to make content available in e-book form at prices that consumers are willing to pay. That’s the current challenge and something that they’re working on.

But the bigger issue here is physical book sales. The parallel import restrictions debate ultimately sided with publishers and not book sellers — we’re now seeing more and more the effects of that decision on booksellers and those effects ultimately get fed back to publishers. We’re witnessing death by a thousand cuts.

People are going to experience pain now but they are fairly adaptable institutions… But publishers need to embrace change and get readers excited about the digital environment.

Jon Page, owner of independent Sydney retailer Pages & Pages and president of the Australian Booksellers Association:

It has been very frustrating that much of the commentary about the collapse of the REDGroup has seemed to tar all booksellers with the same brush. There were many problems that contributed to the failure of RedGroup but these were exasperated by what I think should be referred to as a “retail recession”. Retail in general is very tough at the moment with a decline in consumer spending and the exchange rate attracting more consumers overseas via online retailers. The collapse of The Colorado Group is indicative of the slump retail is currently in as well as which retail business models are not working.

I feel particularly sorry for the many A&R franchises who have copped the brunt of the negative publicity around REDGroup’s demise. Many of these small businesses are doing much better than the head office stores were. It is very sad that an Australian bookshop chain that has been operating for over 125 years may be no more but it is exciting that new independent bookshops may emerge from the mess.

The independent bookselling scene in Australia is particularly strong with 20% market share compared to the US where it is 9% and the UK were it is around 4%.

I think the fact that the administrators haven’t been able to find a buyer is more a reflection on how much damage has been down to the A&R/Borders brand name. The other factor that would be keeping buyers away would be the exorbitant rents charged for retail spaces at the moment. Despite the economic conditions in retail, rents continue to rise and it is just not viable for many businesses to be located in these huge shopping malls and the Borders stores in particular took up a lot of floor space. I think the time of the big bookshop is over and the more community focused and specialised bookshops will be the future of bricks and mortar book selling.

There will be an impact from more stores closures as it will see a noticeable contraction in the size of the retail market which will impact upon publishers’ businesses. But the A&R franchises will continue on in one form or another and the strong independent bookselling market will continue to thrive and may even see some growth.

Sophie Cunningham, author and former publisher:

I think there are real difficulties with the book industry at the moment but it’s hard to extrapolate what they are amid the REDGroup collapse. Clearly trade is struggling. But REDGroup was a bad business. If I was in the market for a book seller I wouldn’t be looking at that business.

I think the industry is in a stage of extreme transition. There’s a tough few years ahead for the industry. And any author is concerned about how to make a buck.

It’s possibly a romantic view but I do think smaller businesses do okay in these times. It’s the bigger stores that really struggle; they have less personal touches and don’t adapt as well. Independent stores are more tightly run.

My hope is that all booksellers and publishers grapple more aggressive with the impact of the digital age. And I don’t just mean e-books but print books online that are vital to the future of the industry.

Tim Coronel, publisher of Bookseller+Publisher magazine:

It’s a relief that Whitcoulls in NZ has found a new owner and that the future of New Zealand’s most iconic bookstore brand seems to be secure (for now). It will be very sad if the Angus & Robertson name disappears from Australian bookselling: A&R has been a constant part of the book trade since the 1880s.

I hope that at least some stores will find new owners — I understand that other bookselling chains have made offers for some specific locations and/or parts of the REDgroup business. Over 50 A&R branches are independently-owned franchises, and half of them have already made a bid for “freedom” from A&R: if the franchises are well-run, sustainable stores they should be able to continue as independent booksellers.

Publishers and book distributors have already taken a hit from the initial losses incurred when REDGroup went into administration and with the loss of shelf-space in the A&R and Borders branch closures to date. If there are more store closures, publishers and book distributors — who are already experiencing some very tough market conditions throughout the book trade — will have lost an essential route to get their books in front of the reading public.

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