Reaction to ABA's Letter to Justice Department Abounds

October 29, 2009

Last week, the Board of Directors of the American Booksellers Association sent a letter to the U.S. Department of Justice requesting that it investigate practices by Amazon.com, Wal-Mart, and Target that it believes constitute illegal predatory pricing. The letter stated that the price wars on new hardcover bestsellers, including books by John Grisham, Stephen King, Barbara Kingsolver, Sarah Palin, James Patterson, and others, of between $8.98 and $9.00 was damaging to the book industry and harmful to consumers.

The letter drew widespread media coverage, including the New York Times, Time magazine, the Boston Globe, CNBC (see video below), other news outlets, and bloggers. Many media outlets simply reported the facts in a straightforward manner; however, in some coverage, authors, including Stephen King, and some publishing executives spoke out against the practice. On the other side are some columnists who argued that such loss leaders were a part of standard business practices. Here, BTW provides a sampling of comments in recent coverage.

The New York Times (October 17) quoted David Gernert, John Grisham's literary agent, who noted, "If you can buy Stephen King's new novel or John Grisham's Ford County for $10, why would you buy a brilliant first novel for $25? I think we underestimate the effect to which extremely discounted bestsellers take the consumer's attention away from emerging writers."

Stephen King himself concurred in an interview with Entertainment Weekly (October 23): "It's time to give the smaller bookstores a little breathing room (although not much chance of that, with Walmart offering Dome for nine bucks)," he said.

In the New York Times (October 23), David Young, chief executive of Hachette Book Group, publisher of James Patterson's I, Alex Cross, said that he would like the U.S. to follow France's prohibition of selling books for less than the cover price. "I do think this massive devaluation of the industry's crown jewels could very quickly be extremely harmful," Young said. "And I would not be alone in thinking that."

On his blog, Michael Hyatt, CEO of Thomas Nelson, offered his opinion as to why the price wars "will prove damaging to publishers, authors, booksellers, mass retailers, and ultimately consumers." Because "Amazon, Walmart, and Target are systematically conditioning consumers to expect these lower prices," Hyatt wrote, "eventually, these retailers will be in the position to force publishers to lower their retail prices." About booksellers who don't rely on sales of household goods and other items to boost sales, he asked, how can they "compete with big box or online retailers who are willing to sell books at below-cost prices?... Most [bookstores] are willing to discount the books and accept lower margins, but few are in a position to actually lose money on every sale. It is not a sustainable model." And, while Hyatt acknowledged that such prices might be good for consumers in the short run, "they are not good in the long run if authors and publishers are no longer willing to assume the risk of creating and producing the kind of quality and selection consumers currently enjoy."

Time magazine (October 27) quoted Michael Norris, a publishing-industry analyst for the research firm Simba Information, who said, "The fear is that people get used to paying less for books than it costs to make them, which puts downward price pressure on everything," including wholesale prices for publishers and advances for authors. In the same article, David Heupel, a senior equity portfolio manager at Thirvent Financial in Minneapolis, observed, "I wouldn't want to be a mom-and-pop bookseller right now."

However, in a Boston Globe (October 28), Jeff Jacoby considered the price war "spirited competition" that spurred sales: "If 'the very concept of the book' is being shredded by low prices, the message hasn't reached the millions of Americans who buy books.... The rise of discount book chains and online booksellers has certainly altered the industry, but it has only increased the appetite for books." He added that "as in every other industry, innovation and technology have changed the way books are bought and sold -- and in the wake of change there are always winners and losers." Indies, he said, should tout their advantages -- "attentive and knowledgeable service, eye-catching displays, a reader- and author-friendly atmosphere, community involvement, the serendipitous joys of browsing."

And in The Atlantic, business columnist Megan McArdle wrote: "The American Bookseller's Association represents independent bookstores, whose members cannot afford to sell top bestsellers as loss leaders. But the interest of antitrust law does not lie in protecting small, inefficient sellers for the tiny minority of Americans who prefer to shop there. They lie in making sure that there is robust competition in the bookselling market. What they're trying to do here is stop bigger, more diversified companies from competing with them, because they'll lose." The recent price wars, she said, make it clear "the big players are competing: with each other, and this "is where the market is going to end up anyway."

In a column on the Huffington Post and reprinted in today's BTW, Bill Petrocelli, co-owner of Book Passage in San Francisco and Corte Madera, California, offers a thoughtful argument about why all this is not a simple price war, but rather a fight over what consumers get to read. "Some readers think that if their favorite store closes they can always buy the book they want somewhere else. But that's a dangerous delusion," Petrocelli said. "The books they want may not be there at all. In fact, these types of disruptions in how books are sold or distributed have a profound effect on what publishers decide to publish in the first place." And, he noted, "It's hard to exaggerate the consequences of this mass-merchandiser dominance. These outlets carry, at most, a few hundred titles at any given time. This means that a handful of books -- far less than one percent of all the books published -- are probably accounting now for more than 30 percent of all sales in America. Price wars in this segment of the market only make matters worse, driving more customers to these merchandisers in search of quick bargains on a handful of big-name books." (Read Petrocelli's column in full.)

Reprinted with permission from Bookselling This Week, a publication of the American Booksellers Association, on the web at news.bookweb.org.

Nourishment is a two way street

Good morning,

The article pasted below comes from an industry email; called "Shelf Awareness" and it hits upon some themes I have been writing about of late. Please note that Ms Ripley was a legendary leader of our industry. I believe and I hope you do as well, that there is something inherently valuable about the existence of Phoenix Books. We offer a sense of community to our customers that doesn't exist on the internet. There is nothing anonymous about sitting across from your friend over a cappuchino and catching up on life. There is nothing overwhelming or depersonalized about chatting with our booksellers about new books, old books or hard to find books. Nor do I feel like a salmon swimming upstream or a futile gesture because I believe that there are enough thoughtful and mindful folks in our community who will come and sustain Phoenix Books in return for nourishing your appetite for literature and coffee:) Read on and feel free to comment!

* * *Sad Ending for Second StorySecond Story Bookshop, Chappaqua, N.Y., is closing, according to the New York Times.
Owner Joan Ripley, who founded the store 37 years ago, told the paper, "Our customer count is so far down, and I attribute that mostly to Amazon, and then you have the double whammy of the economy. . . . Especially for younger people, it's like a game now: You look on the Internet and find where you get something for $10.29 here instead of $10.39 there. We can't compete with that, but there are things you lose in ways that are not numerically measurable when a place like this closes."
The store had come close to shutting its doors in the past, but Ripley, who is 75 and a former ABA president, managed to keep going. She had been helped in part by former President Bill Clinton, a book-buying resident of the town since 2000 who regularly has sung Second Story's praises.
The Times allowed as how indies that are doing well share two attributes:
"Many of the most successful independents, like Bookends in Ridgewood, N.J., or R. J. Julia Booksellers in Madison, Conn., are increasingly in the business of book events and real-world social networking as much as walk-in sales. Despite the aura of predigital charm, they're like any other business: Change and adapt, or die.
"And most of them, whether explicitly or implicitly, have managed to get across the message that we need you, but you need us: A community that wants a vibrant downtown with a local bookstore that's about books, and about something more as well, needs to support it. So, in New Canaan, Conn., for example, Elm Street Books exists because seven local residents put up the money to keep it going, more as a civic gesture than an entrepreneurial one."

borders and noble and amazonian thoughts!

Buy Local folks! That is not a slogan it is a necessity. Buy from Amazon and steal sales tax revenues from the state of Vermont. That is not a real savings since you are in effect stealing from yourself. Until the politicos realize that sales tax ought to be collected on all transactions and that the Internet simply does not deserve "special tax treatment" to "protect it" then we can go ahead and continue to weaken our local communities and infrastructures by blindly believing we are "getting a deal". Think about that the next time you hit a pot hole!

Then recently our wonderful friends at Barnes&Noble got caught with some 50 illegal immigrants working in one of their distribution centers, which, since they use them, allows them to get a book for 5% less than Phoenix. Gee, you don't' suppose there is a relationship between low wages and artificially low prices do you?

And just today the wobbly folks at Borders announced layoffs of 250 employees. That must be on top of the 136 HQ layoffs in February and...the 742 layoffs announced on March 5th.Another blow for customer service at this fiscally troubled chain!

Hey, if you were worried about Gift Certificate redemption before, I'd hurry on down to Borders and cash mine in LOL

And yet, Phoenix Books has not let any one go, nor have we cut any hours and our customers have responded by keeping our sales at or above last years figures for January and February. Hooray!

Michael DeSanto

Discounts

Dear Reader,

Upon perusing this entry you will soon discern that something untoward occured today as it relates to customer interactions and discounts:) I offer this up as my take on the world of educator discounts and the like. I invite you to respond to this. I would add that I too have been a HS teacher, and a HS Coach so I have some familiarity with the intense pressures faced by the education establishment to deliver the highest quality service with a shrinking revenue source.

So, here we are in the brave new world of a recession worse than any financial crisis I have lived through since 1949. The pressure on small businesses to survive is acute to say the least. And the requests for gifts, auction items, donations and discounts has exploded. Virtually everyday I hear "Please give more and better to ____________(pick your worthwhile charity or educational institution)." And those groups that have been receiving support continue to believe that the amount or type of support should continue unabated despite the dramatic change in the business environment. My first question would be: How does my business survive with reduced sales and continue to do everything the the store has been doing without fiscal adjustments? If I cut back employees I add to the unemployment ranks. If I cut back hours then I push my workers into an even worse financial crisis. If I cut back advertising the sales rep loses their job and perhaps my sales fall off even more than before. If I raise prices then I put more pressure on the already strained pockets of my loyal customers. What would you do? So far, only the advertising has been affected...prices are unchanged and my staff is still intact!

One thing I would do is take a hard look at educator/institution discounts. Let's take a hypothetical school doing a book fair. There is one thing , dear reader, you must remember. If I offer a 20% discount off of the list price I have offered a 50% cut in my gross profits...half of the gross profit. If I sold all my merchandise with that level of price cut I would be closed in a month! So, when a school calls in and asks for that discount I think I am doing my community a good deed. I think I am putting back into the community. I think I am helping. Guess what? The school thinks the same thing! They think they are helping my business by asking me to sell books at a 20% discount. They think they are doing a good deed. They think they are helping!

So, when I recently suggested to a school that I would provide books for an author reading without a discount but rounded down so as to not charge the individual students for sales tax, in effect a 6% discount, I was met with a very negative reaction. This school called me at the last hour, on a Tuesday night. I had the books here by the next Monday for them to pick up Tuesday, in time for the event on Wednesday and Thursday. At the last minute I received a phone call cancelling the order because I failed to display enough enthusiasm for filling the order, had not provided a price list of the books in time for a mailing to the students(not made clear to me at the time:) and was not offering the books tax free and with a 20% discount...which becomes a 26% discount because the books are sold to individual students(By the way sales tax must be paid when sold individually) I was told other stores would have done this and I was only being contacted out of a sense of community loyalty. So, you guess, dear reader, which of these transgressions was the deal breaker? Oh well, I missed that one.

The school was right. I was not enthusiastic about the order. The wholesaler did not have adequate numbers of the books, any books from them would , in effect, be nonreturnable and the discount is significantly lower than a publisher. I foolishly allowed one publisher to tack on a 2 day freight charge in order to get the books here in time($27.00LOL) Supporting this event was a money loser. If one thinks I can survive offering these discounts then one also must think I am egregiously over charging my regular sales?

In my opinion there is a gigantic disconnect between what my store does to stay in business and what the recipients of the discounted sales think they are doing for meLOL. Part of me wants to say....please hurt me...get the books from B&N...get them from anyone besides me. Without throwing too many stones at glass houses I fear their is a sense of entitlement and privilege at play. If you don't play my game I'll get you and your little dog too:) Even though the world as I know it is in the middle of an earthquake I am supposed to do business as usual. And keeping your special interest happy is paramount...no matter the adverse affect on my business or the people I employ. I fear I cannot do business as usual. We all must make changes in how we do our work, even educators. In the long run I know I do more for the community by keeping my doors open, paying sales tax, employing 8 people and providing an intellectually honest alternative to box stores. And remember, please, that my employees are still here and my doors are still opened.

I'd be delighted to know what to do about this.

Irritated by fear!

Hi All: Here is a draft letter for publication in a local paper! It irritated me greatly:) Mike

I am an irritated small business owner who thinks the recent articleI How To Avoid Losses If A Retailer Goes Bankrupt in the Essex Reporter of January 8th creates fear among my customers where none is warranted. I am not going to dispute the facts of the article. I am going to dispute the notion that masses of consumers are somehow going to loose their shirts because a company goes bankrupt! I had customers approach me during the holiday season asking if the gift certificates would be good next year. I had customers ask me if they should even buy a gift certificate from me. As if I was going to sell the certificate and close my doors the next day! The customer said they had received an email warning about it. Now you chose to publish an article that implies masses of retailers are all going to go belly up any day now. Let's ignore a trillion dollars to the financial services sector. Let's not worry about entire life savings wiped out by Bernie Madoff but let's instead get my community worried that I am going to rip them off for a gift certificate. You don't suppose this somehow deflects attention from important issues and continues the mythology that big companies are safer? That this article indirectly benifits big chain stores? This kind of fear mongering is simply not news. Take a minute, take, for example a small independent bookstore or the Sacred Grounds Cafe(which had a big article and numerous letters about it) . Wouldn't the community know the company was going out of business. Anybody seen any going out of business sale signs lately? What do you suppose happens when a small retailer closes their doors. Anybody noticed any unmarked vans sneaking up at midnight to spirit away the goods and leaving masses of surprised customers banging at the doors the next day? Please! If that happens it won't likely be an independent retailer but it might be a big chain, maybe even a big chain bookstore!