Behind the sales euphoria in England generated by the overwhelmingly strong numbers from the latest Harry Potter—2.64 million copies sold, and rising—lies a more ominous retail landscape. As book retailers have been battling encroaching competitors in the way of online retailers and supermarket chains, the dire nature of the situation was driven home in the build-up to the release of HP7, which was marked by prepub squabbles over discounts, returns policies and the book's suggested retail price. In short, something is rotten in the state of English bookselling. The question now is: Can it be fixed?
The fighting that led up to the release of HP7 culminated in an unprecedented faceoff between publisher Bloomsbury and Asda, the U.K.'s second-largest supermarket chain (owned by U.S. giant Wal-Mart). When the supermarket chain's director of general merchandise accused Bloomsbury of “blatant profiteering” and criticized the book's recommended retail price (£17.99), Bloomsbury responded by threatening to cancel Asda's order and sue for libel. After an apology from Asda, the orders were fulfilled in time for release, and Asda sold all 500,000 copies it received in fewer than two days.
More significant than Asda's backing off is the price it charges for the book. At £5 (a price that can be had only with the purchase of £15 worth of groceries) the supermarket is losing money on every copy it sells. Asda is not alone, either: the leading supermarket chain, Tesco, was selling the book at heavy discounts (never for more than £8.99) and moved over 400,000 copies in the first day. The willingness of supermarkets to sustain this kind of loss-per-unit highlights the threat they pose to the U.K.'s traditional book retailers. The largest of these—Waterstone's, Borders and WH Smith—have all followed suit in offering the book at a retail price (£8.99) lower than the book's wholesale price of £10.74.
In following a policy of high discounting, the British chains are struggling to compete against the increasing pressure of both the supermarket chains and Amazon, which have contributed to softening already weak sales for all three major book retailers. In its last full financial year, Waterstone's, the largest book chain in the country, with annual sales of just under £400 million, saw comparable sales fall 4.1%, compared to an overall book market growth of 2.1%.
To reverse its faltering performance, Waterstone's has embarked on a new strategy that includes a centralized consolidation center for distribution and a greater emphasis on children's books, which are less vulnerable to online sales—many of the children's buyers from Ottakar's, the retail bookshop chain taken over by Waterstone's last year, have been retained. It has also set an ambitious target of 10% of turnover from its own Web site (online sales were previously routed through Amazon) and is aiming for increased sales of nonbook product, such as stationery.
Despite some signs of a recent turnaround (a rise of 0.6% in sales for the last eight weeks when set against the same period last year), prospects for Waterstone's look unpromising, particularly as signs of an economic slowdown (and higher interest rates) signal a possible downturn to Britain's overall retail sector.
Consolidation and centralization are increasing features of the retail book business, and both are also occurring in the wholesale and distribution sector of the business. Britain's three largest wholesalers seem certain to become two, as the Competition Commission has approved the merger of Woolworth's-owned THE with Bertrams. Final approval is expected by mid-September. The move is likely to boost the book business of Woolworth's stores, and many independent booksellers have expressed alarm that they will suffer from the newly reduced number of suppliers and the possibility of more severely negotiated trading terms. Further adding to the uncertainty is the question of who will buy Borders, which the parent company has put up for sale.
The high discounting that now seems a permanent part of British book retailing has taken its toll on independent booksellers, who have neither the clout to procure better terms from publishers and wholesalers nor the deep pockets to offer the likes of Harry Potter as a loss leader. More than 100 independent book shops have shuttered in the last two years, and further closures are expected, especially as supermarket penetration is expected to increase. Two alliances of independents, one tied to the Independent Alliance of Publishers led by Faber, have helped procure increased discounts for members, which they can in turn pass on to customers. Yet no one suggests this kind of marketing mimicry can really compete with the muscle of Tesco and Asda, and there is no U.K. equivalent of the Robinson-Patman Act to prevent preferential discounting to major customers.
Interestingly, in fact, the healthiest independents seem to be stores that expressly don't compete on price, but work to provide unique value in customer service, book recommendations and a more diversified array of stock. With HP7, for example, many independent shops offered the title without any discount at all, but tied it to an event (typically a midnight party), which customers seemed to recognize came as part of the price. Of those 2.64 million copies sold, perhaps the most remarkable were the 74 copies sold by one independent shop in rural Berkshire, whose customers showed their loyalty by shelling out the full £17.99 list price.
