Journalists reporting the appointment yesterday of administrations to RED Group, the parent company of Borders, Angus and Robertson, Whitcoulls and Calendar Club, have been pointing to online sales as the cause.
I think that they have been too quick to feed off the line put about by publishers and others in the book space.
While I am no expert on the finances of RED Group, I suspect that the appointment of administrators came about because of debt levels, flat retail, the challenges of online book sales and, importantly, the impact of migration of print to digital.
The other factor is the challenges for the Borders brand. The UK group closed in 2009. The US group last year released the Kobo reader, three years after Amazon entered the space. From 2007 until last year, Borders was not attracting revenue from the rapidly growing digital books business. This is business which has been growing exponentially for the last three years. In fact, growth in sales of digital books has taken off just the same way growth in the sale of digital music did around six years ago.
While I am no expert on the Borders business, I would speculate that the migration of sales from print to digital has been a bigger factor in the appointment of administrators to RED Group here in Australia and the filing of chapter 11 bankruptcy in the US of Borders over there.
The RED Group story is a story Australian newsagents ought to watch and study as it unfolds. I am certain that in the analysis we will find insights which are useful to us as we contemplate what the newsagency of the future may look like. I say contemplate as if newsagents are doing this. Unfortunately, too many are not.
Newsagent continue to build shop fits which are suited to ten and more years ago, shop fits which are not flexible and with large fixed magazine departments. There are too many shop fits with fixed location and too big newspaper displays. Too many newsagents operate loss making newspaper home delivery businesses. Too many newsagents act as warehouses for stationery rather than buying on a just in time and more commercially viable basis. In short, too many newsagents are not adapting to changed conditions.
Maybe RED Group in Australia and Borders will trade out of their situation. That is, after all, the goal of chapter 11 in the US and administration here in Australia.
In the meantime, I hope that the news of yesterday is a wake up call to newsagents to look carefully at their business plans. If they take the bait and believe that the problems are due to online sales of books they they will not do this. If they accept that the problems for Borders and Angus and Robertson are, in part at least, caused by a migration from print to digital then they they will consider their future and revise their business plans as a result.
The potential for negative impact of print disruption on our channel is considerable. Not planning could be a fatal business mistake. Planning for it could uncover the best business opportunities for newsagents in decades. I think that the opportunities for our channel, or some in the channel at least, are excellent.
Footnote: From what I can tell looking at the ASIC website, the Supanews group is not currently affected by the RED Group issues. However, media reports suggest otherwise.
big rents in large retail areas,competition from online bookstores exacerbated by the strong aussie dollar
and protectionist laws surrounding local publishers
They have used the protection of administration to cut off the dead wood while keeping the whole company strong.
The parent company (REDgroup retail) is going well but it needs to shed borders in order not to lose any more money on a bad deal.
Small business owners like us that are stupid enough to put our family homes and hearts into our businesses are the only ones that are scared of aministration or even going bankrupt.
All the big boys keep personal wealth at arms length from business so if they walk away they are not the ones that suffer. Look at the Storm financial mess to see that.
I was national marketing manager at A&R for three years to 2004. Granted, a lot has changed since then but I am sure the challenges then would be the main challenges in 2011. The two main issues (head and shoulders above ANY other issues) are the antiquated parallel importing laws which insist that Australian book sellers buy off Australian-based publishers (the big four are all foreign owned!) and cannot source cheaper stock from o/seas and the fact the the DDS’s sell new releases and best sellers at or below cost price.
A&R had a very solid ecommerce business from 2001 which I helped establish. Sure, amazon is cheaper and Australian booksellers cannot compete with this but the local sales were pretty good considering.
Mark, e-books account for 1% of all sales worldwide so this rush to digital is a factor but it’s not even close to being a significant factor like you claim.
This is actually a story about the challenges of specialty retail with rising rents, wages budgets and other on-costs trying to serve the “50% off sale” Australian consumer mentality which has been driven by the GFC.
Former, My understanding is that ebook sales accounted for 9% of total book sales in the US last year.
RE: e-book penetration. Sorry, meant Austrlia – Bob Carr (former NSW Premier and Director of Dymocks Book Stores) said on ABC Radio this morning that e-books account for about 1% of the Australian market. I know margins are thin but that’s not big enough to bring down a retail icon.
Just spoke to a former A & R owner
who said that the real reason for A & R’s imminent demise is incompetence at the managerial level.
I was actually pleased to hear that because we don’t need to be thinking that all is doom and gloom in our industry (or related industries).
If we are benchmarking and using KPI’s to administer our small
business we will be ok, in my humble opinion.
I concur June. We looked at an A&R franchise 15 yrs ago alongside our current newsagency. They were not viable, the store concerned never sold as a franchise and runs as A&R “operated”, I’m sure it has been at a loss for ages, but propped up by head office with managers.
It will be interesting to see how Dymocks and Collins handle the future.
Former, I would not place too much credence on Bob Carr’s view given his position.
A tweet just in from Jack Welch (of GE fame) about Borders US bankruptcy filing:
Borders bankruptcy warning to all entrenched players in industry going through tech disruption (Amazon) “change before you have to”
Former,
There is certainly a case to be made against the antiquated importing laws that currently exist in Aust. The fact that we are seeing above average growth in online book sales (print, not ebooks) is a clear reflection of consumers seeking better value for money. Traditional book retailers cant compete with this because they’re more or less locked into a model that limits their ability to compete on price.
Over the next few years the financial situation of traditional book retailers is only going to get worse. The e-book bug hasn’t hit here yet namely because no one has been pushing that model heavily.
I doubt book retailers will be able to contend with the compounded problems of archaic importing laws, a huge shift from print to ebooks and rising business costs (namely rent). What many see as the long term fate of the book retailing industry may actually eventuate in the short or medium term as these issues compound to put pressure on an already straining industry.
book industry crisis sat financial review page 7 ebooks 6% US
book market compared 1% in Britain and Australia global sales are growing fast
This is worth a read and puts some perspective on the story.
http://www.smh.com.au/business/dont-blame-the-internet-for-bookshops-going-under-20110218-1azgu.html
Graeme,
The inability to service too much debt is undoubtably a major factor, however we also have to look at why they cant service that debt. Should they have taken on so much debt – probably not. But their ability to service that debt is directly linked to their ability to be competitive in the market.
The Narrows by Michael Connelly – Published 2005
RRP $22.99
Booktopia Advertised Retail $15.99
Booktopia Online $9.50
Angus & Robertson. $25.99
Pretty simple really!