Thrive in the Age of Amazon. From garage to boutique
The chaos that reigned in Foyles bookshop in central London was legendary. Books piled up on the service stairs, in the corners, in the bathrooms, everywhere. Now the new building that houses the library, a few tens of meters further on, still on Charing Cross Road, is a feast for the eyes.
The design is elegant, everything is neatly arranged with stacks of books carefully chosen and stacked by Foyles' staff. He seems to be in a high fashion boutique. Maybe better. There is the cafeteria, gallery, event space and a large central atrium with comfortable reading positions. Foyles' mission statement is emblazoned on the walls: "Welcome book lovers, you are among friends."
Such self-confidence is something astonishing and even challenging for a bookseller. It would be enough to think of the hell into which the book industry fell just a few years ago. Foyles has embraced the new approach to bookselling adopted by Waterstones who have three shops just a stone's throw from Foyles, at 19 Tottenham Court Rd, Covent Garden and Piccadilly. Overall, Waterstones has 280 stores in the UK.
Last year, the bookshop chain also bought Foyles from the historic family of the same name and the management moved to Charing Cross Road.
Ten years ago Waterstones was on the verge of bankruptcy. Then came James Daunt to take over the reins of the company. Daunt immediately turned working methods upside down and carried out a profound renewal of the entire business. He decided it was worth it. As he stated at the
"Financial Times" is convinced that in the age of Amazon and e-commerce, there is still an important role and business for the shops that line the city streets.
James Daunt goes to New York
Now Daunt is called upon to prove that this can also be true across the Atlantic. Last week, activist hedge fund Elliott Management, which owns Waterstones, agreed to buy Barnes & Noble, the world's largest bookstore chain.
Barnes & Noble had been struggling for many years. The fund acquired the chain for $683 million including debt. Daunt will have to move to New York to take care of Barnes & Noble and its 627 stores. He will also continue to manage Waterstones in the UK.
Elliot's initiative, who leads the most activist hedge fund on the planet, has amazed many observers. It's not that the book business is an exciting, adrenaline-pumping and Eldoradic sector. Adrenaline, as it appears in the Billions series, is a must-have for hedge fund managers. What could have happened to target an industry on the way out? It just so happened that Amazon accomplished the mission.
Amazon in 10 years has turned the whole industry inside out like a sock they redefine the paradigm itself. The rules of the book business have been rewritten from the ground up. A brutal selection took place. Now Eliot Managemente assesses that after this flood there are the conditions to build a prosperous business.
Most of all, it was booksellers who felt the brunt of the retail model introduced by Amazon. In 2011, the Borders chain was forced to close its doors. E-commerce has put the entire distribution and bookshops sector in crisis. The move by Elliot Managament, which has the pulse of the market, would make it clear that the apex of the disruption operated by Amazon has been reached. Survivors can once again thrive in an area that Amazon has difficulty covering, that of high street shops. An area that has demonstrated its vitality with the growth of independent bookstores.
The example of independent bookstores
Daunt, who also boasts experience as a former banker and a good reputation at the helm of a chain of London boutiques, starts from an assumption:
“There are limits to the online experience. In the world of books this is evident. Now other industries are going through what we went through. We have endured the fire and have had to vastly improve our stores and up the ante."
Waterstones and Barnes & Noble will be separate businesses going forward. Daunt says his goal is not to transform Barnes & Noble into Waterstones, but rather to create the conditions for improving the business of the American chain, drawing on the experience of the British one.
He also hopes to expand Barnes & Noble, based on the consideration that America has fewer bookstores than it needs.
He plans to implement some stimulus actions that have worked well in the UK. One of these is to devolve more decision-making power to local store managers. A decision that can lead to more efficient management of stocks, reduce costs and limit the disaster of "returns" of unsold items. The current centralization of purchases takes little into consideration the differences in readers' habits between the various territories of the country.
One of the competitors that the new Barnes & Noble will face is Amazon itself. The Seattle-based giant has 19 bookstores across the United States, with decision-making store managers leveraging big data collected by Amazon on consumer behavior and market trends across all territories for their decisions.
The user experience advantage
Strengthening the activities of store managers, who will find themselves making decisions like an independent bookshop, is also part of another goal. To improve the customer's shopping experience. The user experience is precisely one of the capital advantages of the brick and mortar store compared to e-commerce.
“Clients want to have fun, take the kids to buy a book,” says Mr Daunt. Then make that happen and customers will come and buy.'
Joseph Evans, a senior analyst at Enders, wondered how applicable that model is, given the size of Barnes & Noble, which has larger stores than Waterstones. However, he added that "the impetus is the right one. The threat to both comes from the same place."
Independent bookstores, with a similar store model to Waterstones, have risen from the ashes. They have done so by assuming a role in the reference area that goes beyond being mere points of sale. Indie bookstores have become centers of cultural aggregation where many cultural, social, recreational and relational activities are developed. After all, historically, the bookshop has always been more deeply rooted than other commercial activities in the life of a community or a territory.
Publishers with Daunt
Publishers hope Mr Daunt succeeds. A commercially thriving retail business sector is seen by publishers as a key counterweight to Amazon.
In addition to having revolutionized the book industry from the ground up, the Seattle group has entered into direct competition with publishers with its publishing activities. They cover all formats, physical, digital and audio. The global reach of Amazon's publishing business also poses a major challenge to the established book industry practices, existing system of author-publisher relationships, and distribution. All milestones of the sector's business model.
David Shelley, managing director of the UK division of Hachette, one of the "big four" English-language publishers alongside HarperCollins, Macmillan and Penguin Random House told the "Financial Times" that "Amazon is the deciding factor in our business". And it really has become so in an unusual form. It is a key partner and competitor.
Living with this reality is not easy. Amazon's brutal negotiating tactics are hard for publishers to stomach. As suppliers they are forced to constantly reorganize theirs
internal operation to meet dealer requests. But there is seemingly little they can do about it. As one senior publishing executive puts it: "Amazon is a brutal partner, even though books have become a small part of its big business."
“Thank you Amazon”, signed: the publishers
But there is the other side of the coin. Amazon has allowed publishers to reach a larger customer market and made it easier to sell books to them. Readers have shown their affection for Amazon's model by purchasing billions of dollars worth of products each year. A role that the publishers themselves recognize. Jane Friedman, former chief executive of HarperCollins told the "Financial Times": "I think Amazon has opened the world to books and I can only say thank you."
Many of his colleagues experienced the anguish intensely in the belief that Amazon would overwhelm their industry in the same way that it had overwhelmed the film and music industries. Beyond the crisis in the book value chain, readers' habits were changing. Consumers, especially younger people and genre fiction aficionados, were switching to ereaders and other digital devices, or simply moving away from reading altogether in favor of videos and podcasts accessible on their smartphones.
"It all seemed terminal," says John Makinson, former managing director of Penguin, the London publisher. Penguin's response was a 2013 merger with Random House to create a business with scale that was a credible counterweight to Amazon.
Yes,… Amazon has helped traditional business
Perhaps the first book in history. A Sumerian clay tablet that dates back to 3000 years before Christ. The book has undergone many challenges in its history, but its form appears to be a technology invented today.
The publishing industry has in fact gone upside down, but it hasn't been the apocalypse that many operators in the sector feared. Publishing houses have taken up Amazon's challenge, making decisive and necessary changes. The industry has consolidated, processes have been optimized along the entire value chain, new distribution centers have sprung up organized on just-in-time basis. These actions have helped make the industry more efficient and profitable. And the market has returned to growth, thanks to non-fiction which has increased by 5%.
Eventually the sales and profits returned. In 2017, UK industry revenues increased by 5% to £5,7 billion. In the United States, the trade market remained stable at 16 billion dollars in revenues. Publishers are also reporting a renewed interest from readers in "serious" non-fiction books. Verified and thought out content that strives to bring clarity and understanding in uncertain times.
The loss of trust in the content generated on the net and on social media and the growing awareness that unbridled content can be bad for democracy itself, has benefited the book. The book form has once again been regarded with the respect, consideration and trust it deserves. The book is a form that built knowledge of the modern world. It is a form of transmission of knowledge, knowledge and information that will never decline.
Thanks to e-commerce, the backlist becomes central again
Thanks to digital formats and the online sale of books, the catalog of publishers, ie the backlist, has returned to being a central element of the publishing business and generating revenues and profits. In a digital format, a book never goes out of business and never goes out of stock. It benefits enormously from the long tail phenomenon, one of the engines of the new economy. Above the historical catalog of Mondadori. An invaluable heritage for the Segrate house.
The result of this change is that large publishers can now benefit from excellent economies of scale. They have rediscovered the value of their backlists, which in the old model were almost nil and the need to cut production and storage costs.
«Today book publishing is based on a catalog business. Most new titles are barely a third more profitable than backlist titles,” Toby Mundy, former chief executive of independent publisher Atlantic Books and now a literary agent, told the Financial Times. He then added:
Large publishers can orientate their activities in such a way that the cost of all their operations is covered by the profits of the backlist. This allows them to carry out their book novelties program more as a kind of gamble. If one of these bets pays off, profits go straight to the bottom line of the balance sheet.
This is not an advantage which, however, can be enjoyed by small-medium players. Technology has helped create a vibrant sector of independent business ventures, often focused on a particular niche content type or literary genre. But the narrowness of their catalog — and limited bargaining power with retailers — limits their profitability. If the big houses try to achieve profit margins of around 10 percent and above, smaller operators have to settle for lower, single-digit figures.
The resilience of the paper book
The book is a “resilient metal”. The traditional physical book format has proven impregnable for rebellious formats. A few years ago the de profundis of the paper format was pronounced. Today, as Stephen Page, the CEO of Faber & Faber, says, the book has proven to be an "extremely flexible form of technology."
After an initial period of very strong growth, ebooks seem to have already reached their peak. Some publishers have even experienced declining sales. According to Nielsen, ebooks accounted for 24% of total sales in the UK last year, stagnating on the previous year's figures.
Reading extensive text on the screen is, apparently, a less pleasant experience than many thought. "It's like all Kindle batteries died on the same day," an industry executive told the Financial Times. In reality, the success of publishers in gaining control of the final price of ebooks has played a major role in causing the advance of this format to halt. Digital disruption has turned out to be "more benign than many pessimists thought," said Anthony Forbes-Watson, chief executive of London-based Pan Macmillan.
The growth of self-publishing
Less benign for traditional publishers is the growth of self-publishing, particularly in the field of genre fiction, crime, fantasy, romance, etc.
Genre fiction has traditionally been one of the driving forces behind the industry's business and profits. Self-publishing is a very lively market. Most sales are in Kindle format through Amazon.
It is difficult to find precise data on the phenomenon of self-publishing. Evans of Enders says it's a phenomenon that makes the ebook market share much larger than that attributed to it by official statistics. Author Earnings, an organization that monitors sales of Amazon's Kindle Store, estimates that Amazon's self-published revenue alone is approaching $XNUMX billion.
Like many industries, publishing has invested heavily in going digital. Publishers have changed their approach to areas like marketing. For example, they have dedicated themselves to improving the management of a book's metadata to increase its "discoverability" on Amazon. They tried to reach readers directly via social media. They refined data analytics to determine the best price and understand consumer trends. “The more data you have, the more competitive you are,” says a top publisher.
But skeptics wonder how successful incumbents are at tapping the enormous potential of digital media. "They are ready to jump on the latest social media trend - says a former editor - , but they are less good at building and managing online communities that influence readers' choices".
