1 1 THE GROWTH OF THE RETAIL CHAINS
The dramatic transformation of the retail landscape has been one of the key factors shaping the evolution of the field of English-language trade publishing since the 1960s. Throughout the first half of the twentieth century, bookselling in the United States and Britain was handled primarily by a plethora of small independent bookstores that were spread across the country, on the one hand, and a variety of non-book retailers like drugstores, department stores, newsagents and news-stands, on the other.1 The bookstores tended to cater for an educated and cultivated clientele – the so-called ‘carriage trade’ – while the non-book retailers, who carried books along with many other commodities, tended to sell books to a wider range of the public. Department stores in the US began carrying books in the late nineteenth century. Macy’s of New York began selling books in 1869 and quickly became one of the largest booksellers in the country.2 By 1951 it was estimated that department stores accounted for between 40 and 60 per cent of all retail trade book sales in the US.3 Books were attractive for department stores to carry because they were regarded as prestigious, aspirational goods. They appealed to the cultivated tastes of well-to-do customers, adding an aura of seriousness and respectability to the store and attracting the kind of customer who had money to spend.
From mall stores to superstores
The traditional patterns of the retail book trade – small independent booksellers on the one hand, department stores and other non-book retailers on the other – began to change in the US with the rise of the mall stores in the early 1960s. This development was linked to a major demographic shift that was taking place in the United States at this time, as the middle classes moved out of city centres and into the suburbs that formed the expanding satellites of American cities.4 With the migration of the middle classes to the suburbs and the rise of the automobile as the primary means of transport, the suburban shopping mall became the new locus of the American retail trade. In 1962 the Walden Book Company, which for many years had operated a network of rental libraries on the East Coast, opened its first retail outlet in a shopping mall in Pittsburgh. Four years later the Dayton Hudson Corporation – a company formed by the merger of two department stores in the American Midwest – opened the first B. Dalton bookstore in a suburban shopping mall in Minneapolis. In 1969 the Corporation bought the Pickwick Bookshop in Hollywood, together with other Pickwick outlets, and in 1972 the two operations were merged to form B. Dalton Booksellers. By 1980 there were more than 450 B. Dalton stores located in shopping malls across the United States. Waldenbooks also expanded rapidly during the 1960s and 1970s; by 1981 Waldenbooks had 750 sites and claimed to be the first bookseller to operate bookstores in all 50 states.
As it turned out, the 1970s were the heyday of the mall-based bookstores; in the course of the 1980s they were gradually eclipsed by the rise of the so-called superstores, especially the chains of Barnes & Noble and Borders. Barnes & Noble was an old bookselling company whose origins dated back to the establishment of a second-hand book business by Charles Montgomery Barnes in Wheaton, Illinois, a suburb of Chicago, in 1873. Barnes’s son, William, moved to New York in 1917 and set up a wholesale book business with G. Clifford Noble, supplying textbooks to schools, colleges and libraries in New York. At the outset, Barnes & Noble was primarily a wholesale operation, selling to educational institutions rather than individual customers, but it gradually became increasingly involved in retail sales, leading to the opening of a large bookstore on Fifth Avenue and 18th Street in Manhattan, which was to become the company’s flagship. By the 1970s, however, Barnes & Noble had fallen on hard times. John Barnes, grandson of the founder, had died in 1969 and the business had been bought by Amtel, a conglomerate that manufactured toys, tools and other products; business declined and Amtel soon decided to divest themselves of their new acquisition. In 1971 Barnes & Noble was bought by Leonard Riggio, who had founded a successful student bookstore while he was a student at New York University in the 1960s and had set his sights on building up a bookselling business. Under Riggio’s management, Barnes & Noble expanded its operations in New York and Boston, opening more stores and acquiring a couple of local chains. In 1986 Barnes & Noble bought the B. Dalton bookstore chain from Dayton Hudson, and in 1989 they acquired Scribner’s Bookstores and Bookstop/Bookstar, a regional chain in southern and western United States. These acquisitions turned Barnes & Noble into a national retailer and one of the largest booksellers in America.
At the same time as Barnes & Noble was expanding its bookstore chain from its original base on the East Coast, Borders was building a national chain of bookstores from its base in the Midwest. In 1971 Tom and Louis Borders opened a small used bookstore in Ann Arbor, Michigan; they moved to larger premises in 1975, expanded the business and ran it successfully for many years. In 1985 they opened a second bookstore in Detroit to see whether they could replicate their success in a less academic setting. The success of the Detroit store encouraged them to expand into other locations in the Midwest and Northeast. In 1992 Borders was bought by the retail giant Kmart, which had acquired the mall-based bookstore chain Waldenbooks in 1984. Kmart merged Borders with Waldenbooks to form the Borders Group, which went public in 1995. By this stage, the Borders Group and Barnes & Noble had become the dominant book retail chains in the United States and their sales were five to ten times those of the other national chains, such as Crown and Books-A-Million.
In the course of the 1990s both Borders and Barnes & Noble expanded rapidly, seeking to extend their presence across the United States and to consolidate their positions as dominant players in the retail book trade. In both cases their expansion was based on the concept of the ‘book superstore’, which differed in certain key respects from both the mall stores and the independents. Often located in prime city locations, the book superstores were designed as attractive retail spaces that drew customers in and encouraged them to browse – they were clean, spacious, well-lit stores with sofas and coffee shops and areas to relax and read. The stores were open for up to a hundred hours a week, seven days a week; they emphasized customer service and attractive, eye-catching displays. The chains competed with one another and with other chains and independents by giving deep discounts (30–40 per cent) on frontlist5 bestsellers and modest discounts (10–20 per cent) on other hardcovers and by the range and depth of their stock. They centralized stock purchasing and inventory control, which gave them a great deal of leverage in their negotiations with suppliers and enabled them to realize substantial economies of scale. In many cases they stocked merchandise other than books, such as magazines, music CDs, computer games and videos. They sought to make the experience of buying books easy, unthreatening and enjoyable for individuals who were not accustomed to going into a traditional bookstore.
As the rivalry between Barnes & Noble and Borders intensified in the early 1990s, both companies closed many of the mall stores in their B. Dalton and Walden chains and opened more superstores instead. In the year from 1993 to 1994, for example, Barnes & Noble closed around 52 B. Dalton stores, the total number of which fell from about 750 in 1993 to 698 in 1994; at the same time, it increased the number of superstores from 200 to 268. During the same time period, Borders closed 57 Walden stores, the total number of which fell from 1,159 to 1,102, and it nearly doubled the number of superstores, from 44 to 85 (see table 1).6 The old mall-based bookstores were gradually giving way to the rise of the book superstores.
By 2006, Barnes & Noble was operating 723 bookstores across the United States, which included 695 superstores and 98 mall stores; its total sales were around $4.8 billion.7 The company had diversified into the video games and computer software retail business and was operating a large number of video game and entertainment software stores under various trade names including Babbage’s, Funco and Software Etc. It had also become involved in publishing, acquiring Sterling Publishing in 2003 – a non-fiction trade publisher with some 5,000 books in print – and publishing an extensive line of classics under the Barnes & Noble imprint. In 2009 Barnes & Noble entered the ebook market by launching its own ebook reader, the Nook, and selling ebooks from its own website.
Table 1 The expansion of Borders and Barnes & Noble, 1993–1994
The Borders Group, with total sales of around $4.1 billion in 2006, was the second largest book retail chain in the US at this time, operating around1,063 bookstores in the US, including 499 superstores under the Borders trade name and around 564 mall-based Waldenbooks stores. Borders had also expanded internationally, opening a number of Borders stores outside the US (mainly in the UK and the Pacific Rim) and acquiring Books Etc. in the UK in 1997. But in the early 2000s the Borders overseas operation began to run into difficulties. In 2007 the UK business – which by then comprised 42 superstores in the UK and Ireland and 28 branches of Books Etc. – was sold to a private equity group, Risk Capital Partners, for a modest initial sum of £10 million. It was bought out by the management in July 2009 and went into administration in November 2009. All 45 Borders stores in the UK were closed on 22 December 2009. Borders’ US business also went into decline; its last recorded profit was in 2006 and from then on its annual sales fell and its losses grew. In February 2011 Borders announced that it had filed for Chapter 11 bankruptcy protection and by September all remaining Borders stores had been closed down.
The bankruptcy of Borders marked the end of an era, in the sense that the long-running rivalry between Barnes & Noble and Borders, which saw the two book retail giants rolling out their superstores across America, was now over. But the profound changes currently taking place in the retail marketplace will pose major challenges for Barnes & Noble and the smaller retail chains that remain. Bricks-and-mortar bookstores have long faced serious competition from online retailers like Amazon and from mass merchandisers (more below); now they face the real threat that a growing proportion of book sales will be realized as ebooks that bypass the physical bookstores altogether. Total revenues from the Barnes & Noble bookstores have been declining since 2007. Barnes & Noble is a significant player in the ebook marketplace but well behind Amazon in terms of market share, and it’s not clear whether the growth of its ebook revenues will be sufficient to offset the decline of bookstore sales. While Barnes & Noble will pick up some of the sales that would previously have been credited to Borders, it is likely that the overall proportion of retail sales accounted for by the superstore and mall bookstore chains – which was probably about 45 per cent in 20068 – will decline significantly in the coming years.
There is no doubt that the rolling out of the nationwide book chains in the 1990s and the intense competition that developed between them greatly increased the availability of books to millions of ordinary Americans. People living in parts of the country that had, until then, been poorly served by bookstores suddenly found that there were now two or more large bookstores within driving distance, carrying a range of stock that had simply not been available before in a bricks-and-mortar store. But this dramatic transformation of the retail landscape had its costs and consequences too.
The most visible consequence – one that has been much commented upon and much lamented – was the precipitous decline of the independent booksellers. While this decline predates the rise of the superstores, it was undoubtedly hastened by it. In 1958, one-store independent booksellers were selling 72 per cent of trade books in the US; by 1980 this had fallen to less than 40 per cent of trade sales.9 As the chains opened new superstores in the metropolitan areas across America in the 1990s, more and more independents closed down, forced out of business by the two-pronged pressure of rising overheads (and especially the rising costs of real estate) and declining revenues. The American Booksellers Association, which represents many independent booksellers, lost more than half its members in the 1990s and early 2000s: its membership fell from 5,100 in 1991 to 1,900 in 2004. Whether ABA membership figures are an accurate reflection of the actual number of independent booksellers in the US is debatable,10 but no one disputes the fact that the number of independent booksellers has fallen significantly and that their market share has declined. In 1993, the chains accounted for around 23 per cent of retail sales in the US; by the end of the decade, this had risen to over 50 per cent. During the same period, the market share of independent booksellers fell from 24 per cent to around 16 per cent. This decline continued into the 2000s, so that by 2006 independent bookstores probably accounted for only about 13 per cent of retail sales in the US.11
There can be no doubt that the decline of the independents was partly the outcome of predatory expansionist activity by the chains – this was not the only factor, to be sure, but it would be ingenuous to suppose that it played no role. The chains explicitly targeted those metropolitan districts or zip codes where the demographics were favourable to the sale of books, and these tended to be the same districts where independent booksellers were already located. Once the superstore opened, with its extensive stock range and aggressive discounting, it was very difficult for the small independent down the street to compete. On the other hand, many of the independents that closed down were poorly run businesses that didn’t serve their customers well. Their stores were disorganized, their stock-holding erratic, their accounts non-existent and they did little to make book-buying a pleasurable and rewarding experience for the consumer. ‘Did the independents go out of business because Barnes & Noble and Borders expanded and were predatory? Absolutely,’ said one former employee of a chain who was responsible for identifying sites for new superstores in the early 1990s. ‘The other side of the story is that they went out of business because you can’t be an amateur in this business anymore. Because bookselling was a noble profession, there seemed to be a fence between us and the rest of the economy; suddenly people woke up to the fact that you have to know what you’re doing.’ The independents that survived tended to be those that were well run and that built strong links with their local communities by hosting events of various kinds; it also helped if they owned their own real estate, or if they were protected by zoning regulations that restricted the activities of the chains. By 2007 there were probably only 400 independent booksellers left that were of real importance for trade publishers in the US. But by this time the decline of the independents appeared to have levelled off, as those that remained had succeeded in finding a strategy that would enable them to survive in the face of intense competition from the chains and other outlets. And for certain kinds of books, their role was and remains greater than their number and size – judged purely in terms of their revenue and their share of retail sales – would suggest.
The long decade of struggle between the chains and the independents ended unquestionably in victory for the chains, but there were skirmishes along the way that resulted in important gains for independent booksellers. The most important of these was undoubtedly the series of legal challenges brought against the chains and the large publishing houses by independent booksellers associations which alleged that the publishers were giving preferential terms and discounts to the chains in contravention of federal antitrust law. In mounting their case against the publishers and the chains, the independent booksellers appealed to a piece of federal legislation called the Robinson-Patman Act, which was passed in 1936 to curb what were seen as anticompetitive practices by producers who allowed chain stores to purchase goods at lower prices than other retailers. The Act prohibits price discrimination on the sale of goods to equally situated retailers when the effect is to reduce competition. Following a legal challenge brought by the Northern California Booksellers Association against the paperback publishers Avon and Bantam in 1982 and the launch of a Federal Trade Commission investigation in 1988, the American Booksellers Association announced a lawsuit in 1994 against five publishers for discriminatory practices that favoured the chains.12 By the autumn of 1996 all of the publishers had settled out of court, admitting no wrongdoing but agreeing to abide by rules ensuring non-discrimination in pricing, credit and returns.13 In March 1998 the ABA filed another lawsuit, this time against the two major chains, Barnes & Noble and Borders, alleging that they had violated the Robinson-Patman Act and California unfair trade practices laws (the suit was filed in the US District Court for Northern California). Again, the case was settled out of court; neither Barnes & Noble nor Borders admitted any wrongdoing, and they agreed only to pay the ABA a sum less the cost of its legal fees. This was something of a defeat for the independents, who agreed to destroy all documents obtained during the case and to refrain from any further litigation for three years.14 But the upshot of this prolonged legal battle was the emergence of a much clearer and more transparent system for discounting and co-op advertising,15 as well as an acute sensitivity to the risks involved in tampering with this system. The publishing houses make their discount schedules and co-op arrangements explicit so that all retailers know what they are when they are buying books and formulating promotion plans. In principle this creates a level playing field, as the large chains should not be able to use their size to force publishers to offer higher discounts, although in practice the issues are not always so clear-cut, as we shall see.
A second consequence of the rise of the retail chains was a gradual shift in the ways that books were stocked and sold. This shift began with the mall stores in the late 1960s and early 1970s, and it went hand in hand with the application to bookselling of the methods of selling and stock management that were being used in other retail sectors. Situated in the high-traffic retail space of the shopping mall, B. Dalton and Waldenbooks had to organize their stores in ways that would maximize stock turnover. Table displays and dump bins were used to stimulate impulse buying and multiple purchases. Computerized systems of stock management were introduced to monitor stock levels and stock turn, so that fast-selling titles could be promptly reordered and stock that was not selling could be returned. These retail practices were incorporated into the operating principles of the new superstores that were opened in the 1990s. The sheer size of the superstores gave Barnes & Noble and Borders more leeway in terms of the range and depth of stock. They could stock more specialized books and more slow-moving backlist titles than the mall stores, with their much smaller floor area, could afford to keep on the shelves, and this became an important part of their value proposition. Nevertheless, the superstores continued to place a great deal of emphasis on maximizing stock turnover in the highly visible space at the front of the store, where new books and bestsellers were stacked on tables and in dump bins and where publishers were charged for display space. As the national roll-out of the superstores began to grind to a halt around 2000 and the superstore chains began to look more carefully at the relations between investment in stock, overheads and revenues and became more concerned about cash flow, their book-buying decisions became more cautious and they became more proactive about returning slow-moving stock. The chains had succeeded in bringing bookstores into the shopping malls and city centres where Americans did the rest of their shopping, had made books more available than ever before and had turned book-buying into a consumer experience like any other. But the more books were treated like any other commodity and subjected to the same principles of retailing, the more the chains would be forced to focus on fast-selling titles by brand-name authors at the expense of those titles that would add depth and range to the store but that would have much slower stock turns.
This inevitable shift was largely the consequence of the cost of real estate. Maintaining large bookstores in the shopping malls and city centres where there is high consumer traffic, and therefore competition for retail space, is a very costly business, and it is difficult to cover these costs and generate profits in a low-margin activity like bookselling. The pressure to reduce your investment in slow-moving stock, to focus more attention on fast-moving bestsellers and to look for other ways of improving margin – such as charging publishers more for display space and stocking non-book goods like chocolate and stationery where margins are higher – is difficult to resist. Epstein puts the point well: ‘In bookselling as in any retail business, inventory and rent are a trade-off. The more you pay for one, the less you can spend on the other.’16 Hence the growing dominance of the retail book chains, from the mall stores to the superstore chains, tended over time to accentuate the importance within the industry of fast-selling frontlist titles by authors with a good track record and a degree of name recognition. The chains were more likely to stock these books in substantial quantities and more likely to display them in prominent front-of-store positions, thereby increasing their chances of selling well. Books by less well-known authors were not ignored – on the contrary, the central buyers in the chains were always eager to find new authors and new titles that might appeal to their customers. But decisions about which books to buy, in what quantities, how to promote and display them and how long to keep stock on the shelves were being taken in contexts that were shaped by the increasingly stringent financial demands of running large retail businesses in expensive real estate. These were contexts that tended, over time, to reduce the levels of tolerance for slow-moving stock.
The rise of the retail chains had a third consequence which has been less appreciated but which was enormously important for the evolution of the publishing industry: it created a new market for what could be described as the ‘mass-market hardback’. Much has been written about the paperback revolution started by Allen Lane in Britain, with his launch of the Penguin imprint in the 1930s, and by the rise of Pocket Books, Bantam, Dell, Fawcett, the New American Library and other paperback houses in the US in the period after the Second World War. From the 1940s on, the sales of mass-market paperbacks grew enormously; paperbacks were being sold in news agents, drugstores, supermarkets, airports, bus terminals and railway stations as well as in more conventional bookstores. Mass-market paperback sales became the financial driving force of the industry, and the sale of paperback rights became a principal source of revenue for the hardcover houses. By the 1960s the industry itself had bifurcated into two separate businesses – hardcover publishing, on the one hand, and paperback publishing, on the other. ‘The perception was that the only similarity between the two is that we both published books,’ explained one senior executive who had entered the paperback side of the business in the late 1960s. ‘The hardcover side was snobby, literary, prestigious, tweedy – all the things you would expect in that era. And the paperback business was sort of second class – we got the books a year later, we got no credit for the words, we were all about marketing, packaging, distributing and selling books. So you had these two universes coexisting, neither respecting the other very much but one totally dependent on the other for product.’ While the paperback business depended on the hardcover business for product, the hardcover houses depended heavily on royalty income from paperback sales to run their businesses.
The rise of the mall-store chains in the late 1960s and 1970s stimulated the sales of paperbacks and strengthened further the position of the paperback houses, as the mall stores embraced the paperback and made it available in a bookstore environment that was much more inviting and less intimidating for consumers than the traditional bookstore. By the mid-1970s, some of those working in the paperback houses began to realize that their business model – which made them dependent on the hardcover houses even though they, the paperback houses, were generating the real volume sales – was not a terribly good one. There were even cases where the publisher at a paperback house who had came up with the idea for a book was obliged to find a hardcover house to publish the initial hardcover edition, so that they could then license the paperback edition from them. ‘It would be like me coming to you and saying “look, I don’t have any editors here, edit this book for me, publish it in hardcover, I’ll give you the book to do that and then I will pay you some portion of the success I have after you do that,”’ explained a publisher who had started his career as an editor at a paperback house. Some of the employees at the paperback houses – usually the younger ones who were less wedded to the traditional model and less worried about offending the hardcover houses who were their traditional source of product – saw the need to start publishing books on their own. So in the 1970s the paperback houses began to originate their own titles, initially publishing them as paperback originals and then, by the late 1970s, publishing their own hardcover books. Crucially, they applied to hardcover publishing some of the techniques they had developed in the world of mass-market paperback publishing, such as using more attractive packaging and extending distribution to non-traditional outlets, and they were able in this way to achieve hardcover sales that were unprecedented in volume. This was the origin of the ‘hardcover revolution’.
The hardcover revolution
As the mall-store chains evolved into the chains of superstores that were being rolled out across the country, the hardcover revolution gained momentum. The application of mass-market publishing strategies to hardcover books dovetailed nicely with the non-traditional merchandising methods of the chains, including the use of discounting and dump bins; and the fact that the chains were opening large superstores across the country and developing more efficient systems for supplying their stores meant that the volume of books that could be put out into the marketplace on publication was much greater than it had ever been. In the 1970s, a book that sold 500,000 copies in hardcover would have been a huge success, practically unheard of in the industry. Thirty years later, an equivalent success would be in the region of 8–10 million copies – that is, around 20 times greater. In the early 2000s, hardcover sales in excess of a million copies were not unusual, and new books by brand-name authors often sold more than this. Dan Brown’s The Da Vinci Code, first published in 2003, had sold more than 18 million copies in hardcover in the US alone by 2006 – albeit exceptional, hardcover sales figures of this magnitude were simply unimaginable in earlier decades. As the sales of hardcovers increased, the old relationship between hardcover and paperback publishing was gradually inverted: whereas in the 1950s and 1960s, paperback publishing was the financial driving force of the trade publishing business, in the 1980s and 1990s hardcover publishing was increasingly becoming the financial foundation of the industry.
There were three other aspects of this hardcover revolution that were particularly important. First, as paperback publishers realized the value of publishing their own books, they began to use their growing financial strength to acquire hardback houses. This enabled them not only to expand their publishing programmes but also to secure their supply chains, so that they became less dependent on buying books from hardcover houses which were commanding higher and higher advances for paperback rights. This was a principal driver of the so-called ‘vertical integration’ of the publishing business, which became an integral part of the conglomeratization of publishing houses that characterized the period from the 1960s to the 1990s.
A second aspect of the hardcover revolution is that it diffused the principles of the mass marketing of books throughout the industry as a whole. Prior to this revolution, mass-marketing techniques were restricted largely to the province of mass-market paperback publishers, who were commonly looked down upon by many who worked on the hardcover side of the business. But as the hardcover revolution gained momentum in the 1980s, practices that had originally been developed for the mass marketing of paperbacks became increasingly commonplace throughout the industry. Partly this was because, with the growing vertical integration of the industry, the bifurcation into hardback and paperback publishing, which had been such a pervasive feature of the industry in the 1970s and before, was beginning to break down. Partly it was also because many of the managers who rose to positions of power in the new publishing corporations that were taking shape in the 1980s were people who had honed their skills in the world of mass-market paperback publishing and were now able to introduce – even impose if necessary – more market-oriented values and practices into those sectors of the industry that had hitherto remained rather aloof.
Cover design is a good example that illustrates how, in the day-to-day activities of a large publishing corporation in the late 1980s, the market-oriented values of mass-market paperback publishing began to prevail over the values and practices of the traditional hardcover business. A senior executive who had come out of mass-market paperback publishing and joined one of the large corporations in the 1980s recounted how, at the time, those who worked in the hardcover division were very resistant to changing the covers on their books in response to what sales reps might say:
I remember going into a planning meeting one day in the hardcover division and I brought the sales reps in. They’d been to these meetings before but never with a voice. Most of the books had no jackets but one book did – it was a major title and the sales reps were whispering to me that the cover was terrible. One put his hand up and said ‘I think I’m going to have trouble selling that book with that cover.’ Well, I can’t remember who attacked him first – it was either the art director, the publisher, the editor or all three. It was like ‘Who the hell are you to be telling us whether or not we’ve got it right?’ And I shook my head – it was a pivotal moment for us because I went back in afterwards and said, ‘You know what, stick with that approach and you’re absolutely going to fail. These sales guys have to go in and sell your book to the person who’s going to sell your book, and if you can’t sell to them they can’t sell your book – you’ve got to wake up to it.’ Some got it faster than others but I would say that over the course of the next couple of years we turned over almost all of those people. Some just never got it.
For many editors and publishers who had learned their trade in the world of traditional hardcover publishing, this confrontation with the values and practices of mass-market paperback publishing was a rude awakening. For many it was a question of either adapting to the new way of doing things or getting out. Some adapted and even thrived, going on to forge very successful careers as hardcover publishers who embraced the principles derived from mass-market paperback publishing and put them into practice in developing their hardcover lists, becoming legendary figures in their own right. But many of the old-school hardcover publishers of this time – the late 1980s – simply disappeared, forced out by the cultural revolution taking place at the heart of the firm.
A third consequence of this transformation is that it led, slowly but ineluctably, to the withering of the market from which the revolution had originally sprung – that of the mass-market paperback. This was due partly to the very success of the hardback revolution of the 1980s and early 1990s, and to the capacity of the new systems of distribution created by the book retailing chains to get large numbers of hardcover books into the marketplace very quickly. It was also due in part to the increased use of discounting by the chains and by other retailers who were selling books, a practice that greatly reduced the price differential between hardcover and paperback books. In the 1970s and before, the price differential was commonly around 10:1 – a mass-market paperback might cost a tenth of the price of the original hardcover edition. By the 1990s and early 2000s, when some retailers were selling new hardcovers at 40 per cent off the retail price, the price differential could be as little as 3:1. Moreover, as the baby-boomer generation which had driven the paperback revolution of the 1960s and 1970s began to age, they became more affluent and their needs began to change. The difference between $5 and $15 for a new book mattered less to them than the ability to get it quickly – why wait for another year until the paperback edition was available? – and to read it in a format that was kinder to ageing eyesight than the small typeface of the mass-market paperback. Hence, as the sales of hardcovers increased in the course of the 1990s and early 2000s, the market for mass-market paperbacks began to shrink. Publishers responded to this trend by making more use of the trade paperback format, which had been pioneered by Jason Epstein in the early 1950s when, as a young trainee editor at Doubleday, he came up with the idea of reprinting quality books in a sturdy paperback format, larger than the mass-market paperback, more expensive and on better-quality paper – the idea that underpinned Doubleday’s Anchor Books and the many imprints at other houses that were soon modelled on it.17 The shrinking of the market for mass-market paperbacks in the 1990s and early 2000s went hand in hand with the expansion of the market for trade paperbacks, as more and more hardcover books were put into trade paperback format rather than being repackaged as mass-market paperbacks. But the expansion of the market for trade paperbacks should not obscure the fact that the real revolution which transformed the industry in the 1980s and early 1990s was the massive growth in hardcover sales, stemming from the highly successful application to hardcover publishing of a set of values and practices that had been first developed in the world of the mass-market paperback.
The rise of Amazon
As Barnes & Noble and Borders were rolling out their national chains of superstores, a new mode of bookselling was beginning to emerge that would add another dimension to the reshaping of the retail landscape that was taking place in the 1990s: online bookselling. The key player here was, of course, Amazon. The brainchild of Jeff Bezos, a Princeton computer science graduate, Amazon.com opened for business from a suburban garage in Seattle in July 1995; by the end of 1998 it had become the third largest bookseller in the US.18 Amazon’s sales grew at a phenomenal rate throughout the late 1990s, increasing from $15.75 million in 1996 to $610 million in 1998, but so too did its losses: by 1998, Amazon was reporting losses of $124.5 million, which was more than 20 per cent of its turnover. By 2000, Amazon’s cumulative losses were a staggering $1.2 billion. Achieving profitability became an increasingly urgent corporate goal. In 2003 Amazon reported its first net annual profit of $35 million on net sales of $5.2 billion. By 2007 it was reporting net income of $476 million on net sales of $14.8 billion.
Spurred on by the astonishing growth of Amazon in the late 1990s, others began to enter the online bookselling market. Barnes & Noble had watched the rise of Amazon with growing concern, and in March 1997 it opened its own online bookstore, b&n.com. In 1998 Bertelsmann, which had already been planning to launch its own internet business, BooksOnline, acquired a 50 per cent stake in b&n.com for $200 million and rolled its proposed US operation into it. By 1999, b&n.com was posting sales of $202 million, making it the fifth largest bookselling establishment in the US. Barnes & Noble bought out Bertelsmann’s stake in b&n.com in 2003, and the following year it took full control of the online business. Although b&n.com is separate from Barnes & Noble and has a different corporate structure, the two companies work closely together and collaborate on the purchasing and managing of inventory, among other things. This gives b&n.com a certain competitive advantage vis-à-vis Amazon, its main rival, since it enables b&n.com to draw on a more extensive range of in-house inventory. The Borders group also launched its own online operation in 1997, but Borders.com trailed far behind Amazon and b&n.com, achieving sales of only $27 million in 2000. In 2001 Borders announced that it was handing its loss-making online operation over to Amazon, which became responsible for running the operation, fulfilling orders and providing customer service.
The great advantage of the online retailers is that they are able to offer a huge range of titles, many times more than the bricks-and-mortar bookstore. When Amazon.com started business, it claimed to offer over a million titles – ‘Earth’s Biggest Bookstore’ was the tagline – compared with about 175,000 titles in the largest terrestrial bookstore in the US. But of course, the comparison was not entirely fair, since Amazon’s listings were derived from the database of Books in Print and the books were not actually held as inventory. Amazon relied heavily on the major wholesalers, Ingram and Baker & Taylor, to supply the inventory: when Amazon received an order from a customer, it ordered the book from one of the wholesalers, unpacked it when it arrived in its Seattle distribution centre, repacked it and mailed it to the customer. This model had the huge advantage of being inventory-free, but the disadvantage was that it was relatively slow since books had to be ordered and mailed twice. So in 1996 Amazon began to expand its warehouse capacity and to build regional distribution centres, enabling it to fulfil orders more quickly and reduce the costs involved in double-handling the books. But the more Amazon moved in the direction of warehousing its own inventory, the more capital it tied up in physical stock and real estate, and the more it began to resemble a traditional retailer and to experience the financial pressures and problems associated with conventional bricks-and-mortar operations.
The online retailers competed with one another and with terrestrial bookstores not only in terms of the range of titles offered and those held in stock, but also by deep discounting. Amazon was preoccupied with ‘the customer experience’, and its research had led it to conclude that the three things that mattered most to book-buying customers were selection, convenience and price. By offering over a million titles it could excel on selection; by being open 24/7 and aiming to ship books directly to the customer as quickly as possible, it could score high on convenience; and by discounting a substantial proportion of its titles it could compete against the superstores on price. Amazon offered a discount of 10 per cent on 300,000 titles, a discount of 30 per cent on the top 20 hardback and top 20 paperback titles, and a discount of 40 per cent on a select number of titles. When b&n.com went live in 1997, it offered discounts on 400,000 titles, including discounts of up to 50 per cent on some bestsellers. To some extent, the online retailers could offer deep discounts of this kind because their overheads were lower than those of bricks-and-mortar bookstores, but they continued to offer substantial discounts despite the fact that they were running losses year on year because they regarded this as crucial to their ability to compete with the superstores. Both Amazon and b&n.com also introduced free shipping on orders over a certain amount to ensure that the total price of purchases remained low.
From its original base in the US book market, Amazon expanded its operations overseas and diversified its product range. A significant proportion of Amazon’s client base had always been overseas, but in 1998 Amazon moved directly into the European market by acquiring the British online bookseller Bookpages and the German online bookseller Telebuch and using them to launch Amazon.co.uk and Amazon.de. Other international branches were subsequently opened in Japan, France and Canada. By 2007, 45 per cent of Amazon’s revenue was being generated outside of North America. Amazon also diversified beyond its core business of books, in part by acquiring other online retailers and adding them to what was rapidly becoming a vast online shopping centre. In 1998 it added music CDs and videos, in early 1999 it moved into toys and electronics, and in September 1999 it launched zShops, an online shopping zone offering a wide range of goods from clothes and household appliances to pet supplies.
By 2006, online bookselling accounted for about 11 per cent of the book retail market in the US.19 This included all online booksellers, but Amazon had become by far the largest player with around 70 per cent of the online book market. In just ten years Amazon had risen from nothing to become one of the most important retail outlets for publishers – indeed, for many university presses and smaller publishers, Amazon had become their single most important customer. Even the large trade houses soon found that Amazon was among their top two or three accounts – one large house said that Amazon represented about 8 per cent of its business overall in 2006 and was growing by around 20 per cent a year. For some kinds of books, like hardcover non-fiction, Amazon’s market share was already as high as 20 per cent.
For publishers, the meteoric rise of Amazon and other online retailers was a welcome addition to the existing channels to market. At a time when terrestrial retailing was being consolidated increasingly in the hands of the large retail chains and many independents were falling by the wayside, the emergence of online retailing represented a major reconfiguration of the bookselling business. It proved to be particularly good for selling backlist titles and books of a more specialized kind, or books by authors who were not already well known, which the bricks-and-mortar bookstores were becoming less inclined to stock. One of the appealing features of Amazon as a retail channel – for publishers as well as authors – is that it responds quickly and visibly to demand: the more frequently a book is ordered on Amazon, the higher it is ranked in Amazon’s sales rankings. So even if a book is not strongly supported by the central buyers at the retail chains, it can find an effective market through Amazon; and if it does particularly well on Amazon, the central buyers at the chains may, on occasion, reconsider their initial decision and place a more substantial order after all. ‘Every retailer looks at Amazon all the time,’ explained one bookseller who used to manage a team of central buyers for a major chain. ‘Because it’s live, it’s an honest chart, it changes frequently on real sales and you can see that in action. So you can fix something in a day if needs be. You can order stock and it can be there the next day. And that’s something you have to really get engrained into the culture of the buyers – if you make a mistake don’t panic; you can fix it very easily.’
At the same time, the rise of Amazon, and of online bookselling more generally, created new dangers for publishers and exacerbated some old ones. For one thing, the online environment proved to be particularly well suited to the selling of used books, as online retailers like Biblio, AbeBooks and Alibris could operate as clearing houses for hundreds of small used-book merchants who were spread across the country and, indeed, the world. When Amazon and b&n.com entered the used-book market, acting as clearing houses for used-book merchants and listing used books alongside new books in the search results, this brought much larger customer bases into the used-book market – not just individuals who were specifically looking for used books and were familiar with the specialist online booksellers who supplied them, but anyone who was buying books online. While college textbook publishers in the US had been accustomed to dealing with the used-book market for many years, used-book sales were now becoming a matter of growing concern for trade publishers as well. And there was some evidence to suggest that their concern was not without foundation: a survey carried out in 2005 suggested that sales of general trade used books reached $589 million in 2004, up 30 per cent from 2003.20 Total used-book revenue in 2004 exceeded $2.2 billion and while textbooks and other course materials represented the largest share (73 per cent), most of them sold through college bookstores, the most dramatic growth was in the area of general trade-book sales and in sales through online channels. At a time when overall sales growth in the industry was very modest, a growth of 30 per cent in used-book sales was very worrying indeed, since used-book sales, while very profitable for booksellers, contributed nothing to the revenues of publishers or the royalties of authors.
A second concern for publishers was that, as Amazon grew in size and became an increasingly important channel to market, so too it became more powerful and more able to use its size as a bargaining tool to try to extract better terms and conditions from publishers – higher discount, more co-op advertising money, better payment terms and so on. Publishers were accustomed to facing pressure from the large retail chains for better terms and conditions, but now they were faced with similar pressure from a new player that was rapidly becoming one of their most important customers. ‘Whether it’s payment terms or co-op or freight, there are lots of ways that 800-pound gorillas can force you into things,’ reflected one seasoned sales director. ‘Do I worry about that? Sure I do. The bigger they are, the more power they can wield.’ His worry was reflected in his behaviour: he hesitated to talk about these issues, my questions were followed by pregnant pauses while he carefully weighed up his words, and he asked me more than once for reassurance that his comments would not be attributed. No sales director would wish to fall out with what has become one of his most important customers. And there is always the fear – not entirely groundless, as we shall see – that Amazon might use its ability to remove books from its site or disable the ‘buy’ button as a weapon in the struggle to improve its terms of trade. The fact that Amazon is a large and growing customer for most publishers, that it is much bigger than any other online retailer and that it is also a very visible site, in the sense that many readers will look for books on Amazon and many authors will go to Amazon to check the availability of their own books, has put Amazon in a strong negotiating position. It could be very damaging for a publisher if its books were no longer listed on Amazon, or if they were listed but not available for purchase: being available on Amazon has increasingly become the litmus test of availability per se.
The growing role of mass merchandisers
Bookstores, whether independents or chains, were never the only outlets for books: as noted earlier, they were also commonly sold in non-specialist retail outlets like drugstores and department stores. In the 1980s and 1990s, publishers found new outlets for books in the expanding chains of large discount stores, like Wal-Mart, Kmart and Target, and in the emergence of the warehouse stores – the so-called Price Clubs. Sam Walton opened his first Wal-Mart Discount Store in Arkansas in 1962; within five years it had become a chain with 24 discount stores across the state. From the 1970s on, Wal-Mart expanded its chain, first by opening stores in neighbouring states and then by expanding across the US and overseas. By 2005 Wal-Mart had 3,800 stores in the US and 2,800 elsewhere. Wal-Mart had become the largest retailer in the United States, Canada and Mexico; it had also become the second largest grocer in Britain, thanks to its acquisition of Asda in 1999 for $10 billion.21
Wal-Mart opened its first warehouse club, called Sam’s Club (after Sam Walton), in Midwest City, Oklahoma, in 1983, but the origin of the warehouse store is usually attributed to Sol Price, an attorney from San Diego. Having inherited a vacant warehouse in the early 1950s, Price encouraged a number of wholesalers to fill it with an assortment of goods ranging from jewellery and furniture to alcohol, which was sold at wholesale prices to a membership which consisted of government employees. The business, which he launched in 1954 under the name of FedMart, was a success, and when Price sold it in 1975 it had grown into a chain of 45 stores. Building on the success of FedMart, Sol Price and his son Robert founded the first Price Club store on the outskirts of San Diego in 1976. The retail concept was simple: sell a broad range of goods in high volume and at low prices, usually at around 10 per cent mark-up from the wholesale price. In order to maintain low prices, overhead costs were kept to a minimum: products were stocked on pallets or high shelves on the warehouse floor, the warehouses themselves were located on cheap industrial land on the outskirts of cities and staffing was minimal. Restricting the membership reduced the risk of bad cheques and shoplifting, and modest membership fees helped cover the overhead costs. After an initial disappointing year, the Prices broadened the membership to include employees of hospitals, financial institutions and utilities, and this proved sufficient to enable the business to grow. By the mid-1980s, the Prices had opened 20 warehouses, most of which were in California, and the company was generating profits of $45 million on sales of $1.9 billion.
The success of Price Club spawned many imitators, including Costco Wholesale Club, Sam’s and BJ’s. Costco was co-founded by James Sinegal, who had worked with Sol Price at FedMart and the Price Company before leaving to form Costco with Jeffrey Brotman in 1983. Costco was based on principles very similar to the Price Club, and from its original base in Seattle it quickly became a major competitor. Sam’s Wholesale Club was established by Wal-Mart in 1983 and grew rapidly; by 1993 Sam’s had pulled ahead of Price Club and become the largest wholesale club in the US, with 434 stores and nearly half the market. Partly as a response to the threat from Sam’s, the Prices decided to merge with Costco, which then ranked third among the wholesale clubs in terms of overall revenue. The new company, PriceCostco, proved to be an unstable union; Robert Price left the company in 1994, and in 1997 it changed its name to Costco Wholesale. Costco and Sam’s are now the leading wholesale clubs and are of roughly similar size; with a turnover of $64.4 billion in 2007, Costco has the highest sales volume, though Sam’s, with 713 stores, has more retail outlets.
The rise of the mass merchandisers, including Wal-Mart, Kmart, Target and the wholesale clubs like Price Club, Sam’s, BJ’s and Costco, created a wide range of new retail outlets where books could be sold. These were retail venues that reached deep into the community and had a high level of throughput in terms of shopping traffic: it is estimated that 90 per cent of Americans live within 15 minutes of a Wal-Mart store, and each year 93 per cent of American households shop at least once at Wal-Mart.22 From roughly the mid-1990s on, these mass-merchandising chains became increasingly important retail outlets for certain kinds of books – for bestsellers above all, and especially for bestselling commercial fiction by brand-name authors, selling initially in hardcover and subsequently in mass-market paperback. ‘They carry very few books,’ explained one sales analyst at a large publishing firm, ‘but on the books they carry, they sell a lot.’
Table 2 Market share of major accounts for two commercial bestsellers
| Market share (%) | ||
| 2005 novel | 2008 novel | |
| Barnes & Noble | 13 | 15 |
| Borders | 8 | 11 |
| Costco | 21 | 18.7 |
| Wal-Mart | 15.8 | 18.2 |
| Sam’s | 17 | 11 |
| Target | 7.5 | 5.9 |
| Amazon | 2.9 | 5.4 |
Hardcover sales for the first three weeks after publication.
Table 2 shows the market share of the major US retailers for the sales of two bestselling novels by a leading commercial fiction writer. One book was published in 2005 and the other in 2008; the figures are based on sales of the hardcover edition during the first three weeks after publication. While the market shares for each account vary somewhat from one book to the next, the overall pattern is clear: Costco is the single largest account, with a 21 per cent market share for the 2005 book and 18.7 per cent for the 2008 book; Wal-Mart and Sam’s (which is owned by Wal-Mart) are among the next most important accounts, with market shares of 15.8 and 18.2 per cent in the case of Wal-Mart and 17 and 11 per cent in the case of Sam’s. Taken together, the mass merchandisers (including Target) account for over half of the sales of these books during the first three weeks of sale – 61.3 per cent in 2005 and 53.8 per cent in 2008. Barnes & Noble’s market share was 13 per cent in 2005 and 15 per cent in 2008, while Borders had 8 and 11 per cent. Taken together, the book superstore chains accounted for roughly a quarter of the sales (21 per cent in 2005 and 26 per cent in 2008). Amazon’s share grew from 2.9 per cent in 2005 to 5.4 per cent in 2008. These seven accounts – four of the key mass merchandisers, the two book superstore chains and Amazon – accounted for 85 per cent of the sales of these bestselling hardcover books during the first three weeks after publication. All remaining outlets – including the remaining chains such as Books-A-Million and all the independent bookstores taken together – accounted for only 15 per cent of sales.
The sales pattern illustrated by these two books is particular to this type of book – that is, a commercial bestselling novel by a brand-name author, released initially in hardcover. For other types of book – for a work of literary fiction, for instance, or a biography or serious work of non-fiction – the distribution of sales by channel would be very different: Barnes & Noble, Borders, Amazon and the independents would account for a larger share, while the mass merchandisers would have a much smaller share (and, for most books, no share at all). The sales pattern by channel varies greatly from one category of book to another, one format to another, one author to another and, indeed, one book to another. The sales distribution also varies by type and format of book from one mass merchandiser to another, reflecting in part the different demographic profiles of their customers. For example, Wal-Mart tends to do better with commercial fiction in hardcover and mass-market paperback, whereas Target, with its more affluent customer base, tends to do better with trade paperbacks. The mass merchandisers offer a very limited range of bestselling books, carefully selected for their customers. They discount heavily, sometimes by as much as 43 per cent – charging, say, $15.95 for a hardcover with a list price of $27.95. Other retailers, including the book superstore chains, find it difficult to match these prices. ‘The clubs, and Wal-Mart and Target, stole the bestseller business from the superstore chains, just as the chains had stolen the bestseller business from the independents before that,’ explained the sales analyst. ‘And they did it because of discounting, which is exactly how the chains stole it from the independents.’ Margins are wafer-thin, but the mass merchandisers are able to make books profitable by keeping their overheads to a minimum and by achieving high sales volume. The books are often stacked on pallets or tables and are kept in stock only as long as they are selling at a certain rate – typically, for one major wholesale club, at least 1,800 copies a week for new hardcovers. Books that are selling more slowly than this are returned to clear the space for other titles. Hence the return rates from the mass merchandisers tend to be high – generally around 50 per cent, but returns can be as high as 80 per cent for some books. This is a high-volume, low-margin business where the sales opportunities are great – the mass merchandisers can shift large numbers of books – but the risks in terms of returns are also much higher than they are in other retail channels.
Table 3 Estimated shares of US book retail market, 2006
| Percentage | Estimated dollars in millions | |
| Superstores/chains | 45 | 5,571 |
| Libraries, schools | 16 | 1,980 |
| Independents | 13 | 1,609 |
| Internet | 11 | 1,362 |
| Bookclubs/mail order | 10 | 1,238 |
| Other (mass merchandisers, wholesale clubs, drugstores, etc.) | 5 | 619 |
| Total | $12,380 |
Sales data from Book Industry Study Group; book sales only (excluding music, magazines, gifts, stationery, cafés, etc.).
Source: Stephanie Oda and Glenn Sanislo, The Subtext 2007–2008 Perspective on Book Publishing (Darien, Conn.: Open Book, 2007), p. 64.
The dramatic changes in the marketplace over the last 40–50 years have produced a retail landscape that is a far cry from the array of independent bookstores, department stores and other outlets where books were sold in the 1950s and before. Table 3 provides an estimate of the retail book market in the US in 2006, broken down by channel. The superstores and book chains accounted for about 45 per cent of the $12.4 billion retail book market, while the independents accounted for around 13 per cent.23 Online retailers accounted for around 11 per cent of the market, with book clubs and mail order accounting for another 10 per cent. Other outlets, including the mass merchandisers and warehouse clubs, probably accounted for around 5 per cent overall, although on certain bestselling titles their market share would have been much higher, as we have seen. This is a marketplace in which, over a period of some 40 years, there has been a dramatic shift of market share from a plethora of independent booksellers and stores (whether drugstores or department stores) to large retail chains – first the mall store chains, then the superstore chains and now the mass merchandisers and wholesale club chains – and to online retailers (especially Amazon). It is a shift in which a handful of major retailers – Barnes & Noble, Borders, Amazon and, for certain kinds of bestsellers, Costco, Wal-Mart, Target and Sam’s – emerged as the key customers for publishers and as key players in the struggle to gain visibility for books and bring them to the attention of consumers in an increasingly crowded marketplace. This small set of key retailers has come to wield enormous power in the field of trade publishing, since publishers do not sell directly to consumers but depend increasingly on these retail giants to make their books available to consumers and encourage them to buy.
The peculiarities of the British
The transformation of the retail landscape in the United States was mirrored by similar changes in the UK; most of the players were different, some of the customary practices were peculiarly British and the consequences were in some respects more radical, but the overall pattern was the same. For most of the twentieth century, the British book trade had been regulated by the Net Book Agreement – an informal arrangement between publishers and booksellers that had been proposed by Macmillan in the 1890s following a period of turmoil and intensive price competition in the publishing industry.24 The Agreement was based on the idea that publishers would set a fixed or ‘net’ retail price for each book they published; booksellers would agree to sell the books at the net price in return for a discount that would enable them to make a reasonable margin. Any bookseller who broke the rules would not be supplied on trade terms by the publishers. The Agreement came into force on 1 January 1900 and remained in place for nearly the whole of the twentieth century, creating a relatively stable commercial environment for publishers and booksellers.
The NBA was not without its critics, however, and it was challenged on numerous occasions. In 1959 it was referred to the Restrictive Practices Court, a special tribunal that had been established by the Restrictive Trade Practices Act of 1956, and the case was heard in 1962.25 The Registrar of Restrictive Trading Agreements argued that the NBA was an illegal price-fixing cartel which acted against the public interest, whereas the publishers and booksellers associations argued that, given the cultural and educational value of books, it was in the public interest to have a wide network of stock-holding bookstores and that this would be destroyed if underselling were allowed, leading to a decline in the quality and quantity of books published. The Chairman of the Court ruled in favour of the publishers and booksellers and the NBA survived.
The reprieve, however, was only temporary. The NBA faced renewed pressure in the early 1990s from a number of retailers and consumer publishers who wanted to experiment with discounting in the hope that lower prices would drive a higher volume of sales. Terry Maher, head of the Pentos retail group which had acquired Dillons – an academic bookseller with its main store in Gower Street, London and a couple of small campus bookshops – in 1977 and begun to roll out a national chain of bookstores in the late 1980s, had always opposed the NBA. ‘I just thought the Net Book Agreement was stupid – it was an irritant,’ he recalled. ‘When we had a few shops, it didn’t matter that much, but once we had a national chain and we were branding Dillons nationally, it became more of an irritant.’26 Dillons began experimenting with price promotions in 1989, including an attempt – cut short by an injunction secured by the Publishers Association – to discount the titles shortlisted for the 1990 Booker Prize. In 1991 Reed Consumer Books withdrew from the Agreement – the first of the major publishers to do so – and in August 1994 the Director General of the Office of Fair Trading decided that the NBA should be reviewed again by the Restrictive Practices Court. A period of confusion and uncertainty followed. In September the Publishers Association announced that it would defend the NBA and the following day Tim Hely Hutchinson – then CEO (chief executive officer) of Hodder Headline – announced that he was going to de-net their books on the day after Christmas. In September 1995 Random House and HarperCollins both announced that they would no longer be bound by the Agreement, and shortly after the retailer WH Smith – previously one of the staunchest defenders of the NBA – announced a major de-netted promotion with them. The NBA was effectively dead. In March 1997 the Restrictive Practices Court sealed the coffin by ruling that the NBA was illegal. From this point on, retailers were free to discount books and to sell them at any price they chose.
Prior to the dissolution of the NBA, Britain had experienced the growth of book retailing chains in a way that was somewhat similar to the US. In the 1970s and before, WH Smith, the general high-street bookseller, newsagent and stationer, was the most important player in the retail book market in Britain. Originally established as a wholesale newsagent and stationer in London’s East End at the end of the eighteenth century, WH Smith had expanded rapidly in the nineteenth century thanks to a series of exclusive deals with the major railway companies to operate bookstalls in railway stations.27 By the 1970s WH Smith probably controlled as much as 40 per cent of the retail book market in the UK. The rest of the market was accounted for by some well-established, traditional independent booksellers, like Hatchards of Piccadilly, a few small chains like Blackwell and Hammicks and a plethora of small independent bookstores. Unlike the United States, Britain had not experienced the rise of mall bookstore chains in the 1960s and 1970s, as this phenomenon was linked to the social geography of the American city, with the migration of the middle classes to the suburbs and the growth of the suburban shopping malls based on high levels of car ownership.
The bookselling environment in Britain began to change significantly in the 1980s, thanks in large part to the rapid rise of Waterstone’s and Dillons. Tim Waterstone joined WH Smith in the late 1970s but was sacked in 1982. At the time he had been working on a paper on bookselling in Britain and had come up with a plan for a new kind of bookstore – ‘a store which would have an extraordinarily well-informed inventory, extraordinarily well-informed staff and a sort of messianic desire to sell books, independent bookselling at its best, but to have them as a chain,’ as he put it. He managed to raise £6,000 to open his first bookstore in the Old Brompton Road in London, and then raised further finance to roll out a chain of stores across the country. These were large bookstores in central, high-street locations, filled with huge amounts of stock including many backlist titles and designed in ways that were attractive to customers and conducive to browsing. The stores were similar in conception and design to the superstores that were being opened by Barnes & Noble and Borders in the US in the 1980s but the idea appears to have been developed independently.28 While Waterstone’s was actively expanding its national network, the Pentos Group began, from 1986 on, to roll out a national chain of bookstores under the Dillons brand; by 1989 it was operating 61 bookstores across the country. A third chain was started up in 1987 by James Heanage, an entrepreneur with a background in advertising who had spotted an opportunity to develop a network of attractive, well-run bookstores in small and medium-sized towns in southern England; the first two Ottakar’s bookstores were opened in Brighton and Banbury in 1988 and the chain continued to expand over the next decade. By the end of the 1980s, there were two major bookselling chains rolling out stores nationwide and a third chain opening bookstores in the smaller towns and cities of southern England. The volume of retail space for books was expanding rapidly and dramatically. All three chains were competing against one another and taking market share away from WH Smith. They were also forcing many independents out of business, partly through predatory activities and partly because many of the independents were poorly run businesses which simply could not compete with much larger and more professionally run bookstores, just as in the US.
The rivalry between Waterstone’s and Dillons was brought to an end in the course of the 1990s, when the UK book retail sector underwent a process of consolidation. In 1993 Tim Waterstone sold the company to his former employer, WH Smith, for £49 million and the business was integrated with 48 Sherratt & Hughes stores, which were converted into the Waterstone’s brand. As an autonomous business within the WH Smith Group, Waterstone’s expanded rapidly and became the leading specialist bookseller in the UK. In 1998 Waterstone’s was sold to the HMV Media Group, which had been set up, under the chairmanship of Tim Waterstone, by the music corporation EMI and an American venture capital group called Advent, in order to acquire Waterstone’s and merge it with Dillons. HMV had bought Dillons in 1995 when the Pentos Group, which owned Dillons at the time, was declared bankrupt. The HMV Media Group paid £300 million for 115 Waterstone’s stores and £500 million for EMI’s two chains – 78 Dillons stores and 271 HMV music stores. For a year the two rival bookselling brands were maintained, but in 1999 the Dillons name was dropped and the stores were rebranded as Waterstone’s. In 2002, the HMV Group operated 197 Waterstone’s stores, mostly in the UK and Ireland, as well as 328 HMV stores selling music, videos and games. WH Smith also expanded its holdings in the 1990s, using the proceeds from its sale of Waterstone’s to acquire the 232 stores of the Scottish-based John Menzies chain in 1998, bringing the total number of branches in WH Smith’s high-street and travel chains to 741.
By the end of the 1990s, the absorption of Dillons into Waterstone’s had put the newly expanded Waterstone’s in a dominant position in the UK book retail market, but it also marked the beginning of a period of change for the retail giant. HMV’s music stores were very successful at the time, and the management at HMV decided to apply to Waterstone’s some of the retailing principles that had worked so well for the music stores – including a greater emphasis on campaigns and front-of-store promotions, higher stock turn and reducing the range of inventory. It was a model that went against the grain of Tim Waterstone’s conception of bookselling: ‘HMV wanted to go into the mid-market, to reproduce in the book market what they had so brilliantly done in the music market. But it just did not work in books, and I didn’t even want to try it in books,’ he explained. ‘Waterstone’s depends on heavy inventory, it depends on heavy investment in stock, it depends on the quality of its backlist. If you start dragging the inventory out, what you’re doing is dragging out the backlist. And once you start dragging out the backlist, the whole character of the bookselling changes. You’re left with a frontlist, and if you’re left with a frontlist then you’re led into a discount war.’ In 2001 Tim Waterstone resigned as chairman.
In the late 1990s and early 2000s, Waterstone’s also faced threats from new players who entered the market. In 1997 the US-based Borders Group expanded into the UK by acquiring Books Etc.; within five years Borders was operating 37 Books Etc. stores and 21 superstores in the UK and had become one of Waterstone’s major competitors. But the overseas expansion of Borders didn’t last; Borders sold the UK business in 2007, as noted earlier, and allits stores in the UK were closed down in 2009.
The other US-based book retailer who entered the UK market proved to be more resilient. Having acquired the British online bookseller Bookpages in 1998, Amazon quickly expanded its presence in the UK and took a growing share of the market. By 2006 internet booksellers had captured around 11 per cent of the retail book market in the UK – the same share as in the US – and Amazon was overwhelmingly the largest player. While Amazon sells across the whole range of books, it is particularly well suited to selling the more specialized books and older backlist titles, thus eroding the revenue that Waterstone’s and other bricks-and-mortar bookstores were able to generate from backlist sales.
The other set of key players that entered the British retail book market in the late 1990s were the supermarkets – Tesco, Asda and Sainsbury’s. It was the collapse of the Net Book Agreement in the mid-1990s that cleared the way for the entry of the supermarkets into the retail book market. Prior to that, the supermarkets had been largely uninterested in bookselling; the only books they sold were bargain books. The reason was simple. For supermarkets, the ability to compete on price is crucial – it is one of the key ways they are able to secure competitive advantage vis-à-vis other retailers. So long as the Net Book Agreement was in place, the ability to use price as a competitive tool for the sale of books was simply not available to them. However, once the NBA had gone, books became an attractive addition to the non-food mix of the large supermarkets. Part of the strategic aim of large supermarkets like Tesco was to grow non-food to be as strong as food, and non-food ‘can be funerals, it can be garden centres or whatever we’re going into now,’ explained one former buyer for Tesco. ‘Books were seen to be part of entertainment and part of consumer’s disposable income.’ But the supermarkets had to be able to sell the books at prices that were sufficiently low that ‘it’s not considered a purchase any more – it’s, you know, stick it in the basket.’ Once the NBA had collapsed, the supermarkets could negotiate terms with publishers that would enable them to discount heavily and achieve the kinds of prices they felt they needed to make books a ‘stick it in the basket’ good. And books had some additional advantages for the supermarkets. They were one of the few goods that could be returned to the supplier if they didn’t sell, thus protecting the retailer from the risk of being left with lots of unsold stock on the shelves. And they were one of the few products in a supermarket sold with a recommended retail price printed on it, so shoppers could see how much cheaper they were able to buy it at the supermarket.
The supermarkets started with paperbacks, and then three or four years later began to move into frontlist hardcovers and children’s books. So in the course of the late 1990s, a diversified book offering evolved within the supermarkets. The major supermarket chains brought in specialized book buyers who worked at the head offices and were visited regularly by sales reps from the major publishing houses. The buyer’s priority was ‘chart’ – that is, books that were either on, or were likely to make it on to, the paperback or hardcover bestseller lists. The supermarkets watched the bestseller lists produced by newspapers like the Sunday Times but they also produced their own bestseller lists, based on their own sales records. Even the largest supermarket stores had a limited amount of shelf space devoted to books, so the buyer had a small number of slots – maybe six or twelve slots, depending on the store – which could be filled with new titles every two weeks. Titles move up and down the chart and they stay on the shelves so long as they’re selling. If the book continues to sell well it will be kept on the shelves – ‘Something like Martina Cole could be there for eight months.’ But if the sales fall off or are simply too low, the title is pulled out of the stores and returned to the publisher.
The impact of these changes in the retail landscape in Britain in the late 1990s and early 2000s was dramatic. For trade publishers, the changes meant that a declining proportion of their sales was coming through traditional book retail outlets and a growing proportion was coming through non-traditional outlets, especially the supermarkets. This can be seen from table 4, which gives the breakdown of sales by channel for a major UK trade house in 2000 and 2006. In 2000, Waterstone’s and Ottakar’s together accounted for 28 per cent of sales; by 2006, their joint share had fallen to 23 per cent. (In 2006 Waterstone’s bought Ottakar’s; they are grouped together here for both 2000 and 2006 in order to establish a common point of comparison.) WH Smith’s share fell slightly from 13 per cent in 2000 to 12 per cent in 2006. Other chains, including Borders, Books Etc., Blackwell and others, accounted for 11 per cent in both years. Independents’ share fell significantly, from 8 per cent in 2000 to a mere 3 per cent in 2006. Wholesalers fell from 14 per cent to 9 per cent. By contrast, internet sales – and these are overwhelmingly Amazon – rose from 2 per cent in 2000 to 7 per cent in 2006; even these figures probably underestimate the real volume and increase in online retail sales, since Amazon and other online retailers acquire some of their stock from wholesalers. However, the most striking percentages in this table are those indicating sales through the supermarkets, which doubled from 12 per cent in 2000 to 25 per cent in 2006. For this trade house, sales through the supermarkets accounted for a quarter of their sales in 2006, and the supermarkets had overtaken Waterstone’s in terms of sales volume. Moreover, whereas Waterstone’s share was declining over time, the share accounted for by online retail (Amazon) and by the supermarkets was increasing rapidly. These non-traditional outlets were the growth areas for this and other trade publishers, whereas the traditional bricks-and-mortar booksellers were either static or declining as sales channels.
Table 4 Sales by channel for a major UK trade publisher, 2000 and 2006
| Channel | 2000 (%) | 2006 (%) |
| Waterstone’s/Ottakar’s | 28 | 23 |
| WH Smith | 13 | 12 |
| Other chains | 11 | 11 |
| Independents | 8 | 3 |
| Wholesalers | 14 | 9 |
| Library | 4 | 2 |
| Travel | 8 | 9 |
| Internet | 2 | 7 |
| Supermarkets | 12 | 25 |
In June 2011 the HMV Group announced the sale of Waterstone’s to the Russian billionaire Alexander Mamut for £53 million. HMV was facing serious financial difficulties, with declining sales and high levels of borrowing, and the sale of Waterstone’s was part of a broader strategy aimed at reducing its overall debt and securing new lending agreements with its creditors. The new owner of Waterstone’s installed James Daunt as managing director. As the founder of Daunt Books, a small independent bookselling chain in London, Daunt had forged a reputation for running attractive, high-quality bookstores that served a loyal customer base. Managing a large nationwide chain of bookstores that face growing pressure from the supermarkets, from Amazon and from the growth of ebook sales will be a challenge of an altogether different order.
We shall return in later chapters to the consequences of these enormous changes in the retail landscape of bookselling in the United States and Britain. But first we must examine the other structural transformations of the publishing field.