Friday, October 16, 2009

British-Style Book Price Wars Come to The US

[from this Wall Street Journal article; go there for further details and reaction]

Wal-Mart's online division announced yesterday that they will sell ten top November hardcover books for $10 apiece, including Sarah Palin's memoir Going Rogue and the new Stephen King novel Under the Dome. Those ten books will also have free shipping, and Wal-Mart will also sell 200 hardcover bestsellers at 50% off cover price.

Amazon quickly countered, matching the $10 price on those ten books...and then Wal-Mart dropped their price on those books to $9.

Wal-Mart's CEO was quoted as saying "If there is going to be a 'Wal-Mart of the Web,' it is going to be" In other words: here, as in other categories, Wal-Mart is willing to lose huge sums of money to buy market share and muscle out the competition. The question is whether their muscle is sufficient to beat Amazon, which has been dominant in the online retail space for ten years.

Obviously, this is good for consumers in the short run -- lower prices are always good for consumers. But it's bad for publishers, and will be bad for the ecology of books in general; a world in which Wal-Mart sets priorities for bookselling is not a healthy one. As everyone in the business knows, prices that low either mean the retailer is selling at a loss (likely in this case, for now) or that the retailer is pressuring the publisher for ridiculously high discounts (which I expect to see soon, as has happened in the UK).

It's probably vain to hope that consumers will deliberately pay more for books, particularly in this economy, but that's what we're left with. Wal-Mart, among other things, doesn't report to bestseller lists or BookScan, so it will be difficult for publishers to even gauge how effective this promotion is -- they'll be able to tell how well their books did, if they are lucky enough to have a book at $9 from Wal-Mart, but they won't know how that compares to the other titles, or how it fits into the overall sales picture.

No good will come of this, mark my words. We'll be in as bad shape as the Brits within three years. It might be time to move to a saner, more stable industry, like sheep-farming or riverboat piloting.

Update, Oct. 20: Since the above, Wal-Mart lowered its price on those books by a penny to $8.99, to remain the lowest price.

And then yesterday Target entered the picture; they will sell seven of the ten books in question for $8.99, with the other three following "in the next few days." Wal-Mart again countered by dropping their price a penny.

The leaderboard as it now stands:
Wal-Mart: $8.98
Target: $8.99
Amazon: $9.00
I wouldn't expect to see B&N or Borders/Walden try to compete in this area, but we seem to have entered a new silly season, so I may be wrong.

Publishing opinion generally believes that these three accounts are buying the ten books in question at regular discounts -- probably the highest available under their discount structure, on the order of 60% off suggested retail price -- but are not getting British-style 70-90% discounts. Since the books in question are priced in the $24-$35 range [1], the general assumption is that these accounts are getting the books for between $9.60 and $14, and thus losing money on every sale.

But if this becomes more than a one-time pissing contest, these accounts obviously will start demanding higher discounts for programs like this, and will be able to play publishers against each other in their attempts to get those discounts. Wal-Mart in particular has long experience in those kinds of negotiations.

[1] Why on earth is the new Stephen King novel Under the Dome priced at $35? I know it has "A Novel" after the title, which is usually good for another two or three bucks, but that seems exceptionally high for a popular novel.

[update via a new Wall Street Journal article]


bingol said...

Don't a few states have laws against 'loss leaders'--if that's what this is?

Also, I dream of a world in which the top 20 bestselling authors insert language in their contracts that limits the amount of discounting the publisher is allowed in the first x-amount-of-time after publication.

But I also dream of chocolate unicorns who swim in rainbow rivers.

Brett Dunbar said...

The only year since 1969 in which UK book sales fell was 2008, sales look likely to increase again this year. So maybe a bit of British style aggressive marketing and cost cutting in the distribution chain is what the US book industry needs. It is notable that while Waterstones is expanding fairly aggressively the US chains are in financial trouble. Waterstones and the Supermarkets do demand larger discounts than the local stores they also handle more of the distribution, greatly lowering the fulfilment cost to the publisher. It is a lot cheaper to send a single bulk order to the distribution centre rather than sending hundreds of small orders to individual shops.

Andrew Wheeler said...

Brett: The UK supermarkets commonly ask for discounts that cause a loss for the publishers -- who only do it in hopes of driving profitable sales through other channels. (And that's on the few books that they do carry, which tends to reinforce the huge-gamble, boom-or-bust model of publishing.)

Yes, UK book sales units keep increasing, but I don't believe the same can be said for monies received by the publishers, which is the problem. Selling ever more units -- of fewer books, which means the authors are getting a larger share -- at ever-lower prices is a recipe for doom.

The independent stores are already a tiny part of the business here, so US publishers are already often consolidating shipments to five or so large accounts (B&N, Borders, B&T, Ingram, Amazon). So there's no substantial cost savings for publishers in shipping to Wal-Mart instead.

I'll also note that shipments do not necessarily go through an account's central warehouse -- one of the difficulties with Borders' supply chain is that it does require all of its stock to flow through one of four warehouses to be stickered before going to a store, which is not always efficient, and has resulted in delays many times. (And also note that the distribution efficiencies of the UK, a small country thickly populated and full of bookshops, is not at all the same as the US, which is massively larger and contains vast differentials in bookbuying and population levels.)

If you ask UK publishers off the record, they will not be happy at the power and discounts that Asda and Tesco have. Wal-Mart is larger and more demanding than either of those chains. Wal-Mart isn't good for books.

Lastly, "the US chains" aren't in financial trouble -- B&N is as strong as any retail chain anywhere. Borders, which focused heavily on DVD and music sales to fuel its massive growth over the past two decades, is having financial troubles, and is refocusing on books, since those are the more profitable side of their business.

Kenny Penman said...

I'm both a bookseller and a publisher in the UK (albeit a very small publisher). Currently we only publish in a very specialised field (Graphic Novel) but we do sell via Amazon as the exposure for the kind of material we publish is not good through our specialist outlets of the comic shop. The truth of Amazon orders is that you almost certainly don't make any money when you ship single copies against single orders via one of their schemes - given the very large discount they ask for and receive. We currently still fulfill orders but are contemplating not doing so in future and selling through brick and mortar comics stores and direct from our website only. Selling to Supermarkets I imagine is even worse - with their many fines for sending on the wrong size pallet etc. The day the nett book agreement went in the UK was a good one for the consumer - I, in truth haven't seen much of a reduction in the lists being published but a very bad one for publishers and ultimately writers.

The bigger companies HAVE restricted their lists somewhat meaning writers have fallen down the food chain to where they might be publishing as little as 750 on a specialist press. Most of the material is still getting out there but half the writers being published now are probably what could be considered 'Vanity' presses. The very big authors have had their books pushed harder and harder - and your right picked up more and more of the % return of discounted sales. Many, many authors probably can hardly even contemplate making a living without selling stories to literary mags, newspapers etc (all of which themselves are shrinking markets).

It's hard to argue against better prices for consumers right now - but it might be in the future when fewer books that have quality companies supporting them emerge. In France there is still price maintenance and there are still book stores everywhere - comic speciality is still very strong - and FNAC for all their dominance cannot destroy the market with pricing and Amazon have a much less all pervading presence.

I think you would be surprised how many books are in some supermarkets now - it's gone well beyond the top 100 in Tesco for sure. Personally I think a retail environ without classic bookstores would be a terrible thing. I do think it will ultimately transpire though unless the dynamics or rental values changes quickly. Once most book stores are gone they are never coming back. Publishers should be doing EVERYTHING they can to preserve them as they can actually make margin there which they don't get much of from Amazon and Wal Mart et al. Still no sign of that happening.

Only thing keeping the book market as it's currently set going is the substantial drop in costs that far east printing has brought. In the end won't Amazon just become the publisher? I'm kinda surprised they haven't already - with some effort they could rip enough of the mid market out that there would be no profit left in bestsellers for the publishers and pick of those authors one by one. Margins all the way to retail - surely it's coming.

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