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Margin maintenance

04.07.11 | Philip Downer

One of the challenges facing James Daunt, Waterstone's new m.d., is around pricing and margin maintenance.

In his new role, Daunt's primary competitors—who aren't other bookshops, but are instead Amazon, the supermarkets, and the e-book—are pretty consistently selling identical products to him, at lower prices. The residual affection that Daunt's customers may feel for Waterstone's wouldn't survive any significant increase of average prices, but, with margin maintenance a challenge, what are his options?

W H Smith is testing alternative strategies. The British Bookshops fascia and that brand's “every book discounted” strategy is being retained in a number of stores, where performance is being benchmarked against ex-BBS units that have been rebranded as WHS. In essence, Smith's is testing books as loss-leaders, while they continue to squeeze up the margins in stationery, cards and other less sensitive categories. Kate Swann has received plaudits for her progressive withdrawal from the CD and DVD markets in recent years, and Smith's must be thinking about the shape of its high street stores in a world where the physical book plays a less significant part.

For Waterstone's, however, books are the offer. Dominic Myers tested cards/stationery offers with Paperchase concessions and the in-house Papershop concept, and Waterstone's has a long-standing relationship with Costa Coffee. Both categories fit comfortably into a specialist bookshop, though brand appropriateness may need to be addressed. 

But many Waterstone's shops are too small for a significant non-book offer, and the new management may want to reassert the book's primacy. How can Waterstone's offer value, but maintain the premium margins it needs to remain on the high street?

Bluntly, before any sleight of hand with discounting takes place, trading terms with the publishing groups will have to be addressed. Sainsbury's may be Chain Bookselling Company of the Year, but it and the other supermarkets have been over-rewarded for delivering volume, and the specialists under-valued as the trade has taken the specialists' breadth for granted. Now, the physical availability of breadth is threatened, and trading terms (base, promotional, consignment, payment, returns) all require a serious review. 

Personally, I should like to see the printed price eliminated, so that booksellers of every stripe can take greater control over their margins, as is the case in practically every other retail sector. The drive for agency pricing on e-books suggests that many publishers are still seeking to dictate the maximum price that can be charged for a book, while doing little to dissuade excessive discounting. This creates unbalanced pricing, with a short-term price advantage for the customer followed by the long-term disadvantage of competitive elimination.

Daunt's challenge is therefore not his alone—it's one that the book trade needs to share, unless it wants falling sales to accelerate. Because, as we all know, when bookshops close, their sales don't all transfer to other channels—around half of them simply disappear.

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By David R N Livesley

Certainly I am surprised that Philip wants to put himself out there with an article like this, as his personal record of success seems to be less than impressive. Knowledge he certainly has.....but he also has a fair few critics....is he brave or just foolish? Philip mate best advice I can give you....move on and find a new life challenge to tackle.

Wed, 06/07/2011 - 03:27
By thinking fault

There is a fundamnetal thinking fault with Philp Downer and the Waterstones managers till now. To compare a bona fide bookshop with the supermarkets and even WH Smiths. And no, I'm not talking about snooty booksellers who discuss obscure literature all day long. Whether I work in a bookshop or not, I want there to be real bookshops, because without them we will be lost.

Thu, 07/07/2011 - 00:11
By billy's brother

im in the same place as you dinah - UNLESS as a poster above suggests, that PUBLISHERS (and it starts out, once printed, AS YOUR "PRODUCT") start charging the opposite way around - instead of a RRP and a discount from that to decide every customers price to pay - turn it around, work out cost of product, add margin= price to pay. retailer then buys, adds margin = sales price to consumer. amazon/supermarkets will still be cheaper as their margins dont need to be as large as they obviously still sell more volume. but every1 can chose their margin, and as said customer can then decide on value of "product" being offered at price its being offered at.

after my move and sales since.. i doubt i shall be around for any of the above, even if it were to happen very quickly. publishers offering direct to schools for bigger discounts than we get offered is another nail in our coffins.

We now get CGP stock through my local school not the other way around, they make some credit against other purchases, and i still pay less to them than i would to CGP. (such a silly world we work in)

Thu, 07/07/2011 - 00:45
By The Ancient Mariner

And how, pray, is Daunt's challenge - a review of trading terms, i.e. margin - to be shared in the book trade without breaching competition law? It is a battle Waterstones will have to fight on their own from a weak position, made only marginally stronger by Mr Mamut's takeover.

Thu, 07/07/2011 - 19:52
By French pricing

In France books are viewed as something of value, whether printed lavishly or on cheap paper with a white cover. The French (myself included) value a book for its content, not for its production price. There are many discounted books in France too, but not this kind of baser-than base approach of those who have run the big chain bookshops till now as if they were 'retail'. That words say it all - its about maximum distribution, fine for clothes etc. But unlike a pair of shoes which are just a piece of leather before they are shoes, books exist long before they are made into a product. So in France books are regarded largely as an product of the intellect with a value beyond the paper, marketing and margins.

Mon, 04/07/2011 - 17:06
By Melanie C

The truth is though that even without the price printed on the back of the book by the publisher this model will only work if the price charged by the publisher/wholesaler to shops is a set net price and not based off a still notional rrp discount structure as is the case today even with those who don't print the price on the back of books!
I see little chance of that happening any time soon more's the pity - but if it did it really could see the change in tide for high street and indie bookshops and in turn for the publishers - set the price you need to make to cover your costs publishers, keep it the same for all of us and let us set the price for the books at our discretion then the culture of undervaluing vanishes and the paltform of cutthroat and ill thought out discounting vanishes too -everyone wins - readers included, ohh though maybe not the amazons and sainsbury's but they certainly don't lose either.

Mon, 04/07/2011 - 12:00
By Dinah Anderson

Removing the printed RRP is often suggested as the panacea for all our troubles at times of extreme stress, but, as Philip no doubt knows, bookselling is not like other retailing - you can't walk into a branch of Debenhams and order the latest whatever you know to be out there. All bookshops undertake to order books for customers and do so on the basis of the printed/stated rrp. This, for the customer, is the accepted starting point of our relationship with them, even if they do not like the rrp. Without it, we would have to know trade/net prices before accepting an order and these would differ according to volume ordered so that publishers could protect their own margin. Indies need to know they are following a template price - we simply do not have the means to investigate the average selling price before we set our own. The elephant in the room is the excessive discounting of new titles - until this issue is forcefully addressed by the UK's remaining chain bookseller, then the future looks grim, and the token gesture of the removal of rrp will not help one jot.

Mon, 04/07/2011 - 22:21
By Old Bookseller

Hear hear - I've been an advocate of getting printed prices off books for many years. It's the only way the bookshop trade in the UK will survive. The customer will make a value judgement based on the product in their hand and the price stickered by the bookseller. It's NOT the publisher's decision, and should have stopped years ago. The worry is it's all too late now.

Mon, 04/07/2011 - 10:07
By Inkozi

Nicely put David.

You're a better man than me.

Wed, 06/07/2011 - 16:09
By Previous Books Etc employee

Couldn't agree more! As I was reading this, I was trying to work out what gave Downer the right to advise anyone on the matter.
Also, anyone else fed up with articles about what James Daunt SHOULD be doing? Please just let him get on with it! I'm certain he doesn't have time to read any of the nonsense on the comments pages anyway....

Sat, 09/07/2011 - 12:10
By malcy

I believe that France has price maintenance just like Germany and many other European countries

e.g. in Scandinavia where I lived for many years the local language books are price maintained but the English language are a free market and retailers could also source from whereever they wanted, so you saw a mix of US, Canadian and UK sourced English language books, depending upon which published first and pricing. With WHSmith now running the airport stores in Scandinavia you are seeing a growing focus on UK sourced books for the English language offer.

Mon, 04/07/2011 - 15:09
By Bookish

On a pratical level - I would need an extra member of staff just to price all the books that come into my store!
I don't think it would make a huge difference, taking the printed price off the book doesn't change the amount of money a customer has spare to pay for the book...or have I missed the point?

Mon, 04/07/2011 - 19:54
By books loss-leaders

Philip Downer comments - favourably it seems - on WH Smith's idea to run books as loss-leaders and make their profit on stationery etc. He also observes that James Daunt may want to reassert the book's primacy ... sorry, did I hear that right? MAY WANT ...the BOOK'S PRIMACY. Has he never heard that Waterstones was supposed to be a BOOKshop?

As for competition by supermarkets - I browsed in Sainsbury's and there is nothing there that I would'nt have found in the FAILED British Bookshops,i.e. a totally random selection of obvious 'easy sell' stuff. How and why does everyone talk themselves into the belief that this is real competiton for a proper bookshop - as long as it is a proper bookshop.

Wed, 13/07/2011 - 10:53
By Old Bookseller

Have a look at Amazon's French website - the 'discounts' offered are minimal - is this because of retail price maintenance or are prices not printed on books in France? Anyone know?

Mon, 04/07/2011 - 12:43
By one man's nonsense

Dear Previous Books etc employee,
It's sad to hear that you think all the stuff here is nonsense. In reality it's all the things that bookseller working for W'stones have had to suppress because all comments were labelled as toxic. Note that few are mentioning that they haven't had a pay rise in 2 years (£6.06 or so p.h)because they'd rather had a good bookshop than more money. In which other industry would you find such dedication?

As for Mr. Downer - no wonder he's so red in the face. Who is he to give advice when Borders failed?

Mon, 11/07/2011 - 23:18
By booksellers not waving

When Borders in Boston Mass. closes the city will be left with on bookshop, so it's not just happening here. The Borders in Islington was a mess - full on non-books stuff, staff detached, they looked as if it made no difference what they were selling, as long as you got through the tills asap. And it's down that road that HMV/Simon Fox and Mr Myers were driving Waterstones. The fact that Borders failed didn't seem to register with them. So Philip Downer, please go and advise other companies in er... how to fail.

But on the ground now, regional managers and their store managers are still frantically fiddling, rearranging, putting thousands of bits of card in on the shelves - DOING DAMAGE all in the model of the Myers days.

All sane booksellers are praying that Mr Daunt sends a message down the echelons of managers to STOP ALL initiatives on the shop floor until he's decided what is right.

Wed, 13/07/2011 - 10:38
By Old Bookseller

Hear hear - I've been an advocate of getting printed prices off books for many years. It's the only way the bookshop trade in the UK will survive. The customer will make a value judgement based on the product in their hand and the price stickered by the bookseller. It's NOT the publisher's decision, and should have stopped years ago. The worry is it's all too late now.

Mon, 04/07/2011 - 10:07
By Melanie C

The truth is though that even without the price printed on the back of the book by the publisher this model will only work if the price charged by the publisher/wholesaler to shops is a set net price and not based off a still notional rrp discount structure as is the case today even with those who don't print the price on the back of books!
I see little chance of that happening any time soon more's the pity - but if it did it really could see the change in tide for high street and indie bookshops and in turn for the publishers - set the price you need to make to cover your costs publishers, keep it the same for all of us and let us set the price for the books at our discretion then the culture of undervaluing vanishes and the paltform of cutthroat and ill thought out discounting vanishes too -everyone wins - readers included, ohh though maybe not the amazons and sainsbury's but they certainly don't lose either.

Mon, 04/07/2011 - 12:00
By Old Bookseller

Have a look at Amazon's French website - the 'discounts' offered are minimal - is this because of retail price maintenance or are prices not printed on books in France? Anyone know?

Mon, 04/07/2011 - 12:43
By malcy

I believe that France has price maintenance just like Germany and many other European countries

e.g. in Scandinavia where I lived for many years the local language books are price maintained but the English language are a free market and retailers could also source from whereever they wanted, so you saw a mix of US, Canadian and UK sourced English language books, depending upon which published first and pricing. With WHSmith now running the airport stores in Scandinavia you are seeing a growing focus on UK sourced books for the English language offer.

Mon, 04/07/2011 - 15:09
By French pricing

In France books are viewed as something of value, whether printed lavishly or on cheap paper with a white cover. The French (myself included) value a book for its content, not for its production price. There are many discounted books in France too, but not this kind of baser-than base approach of those who have run the big chain bookshops till now as if they were 'retail'. That words say it all - its about maximum distribution, fine for clothes etc. But unlike a pair of shoes which are just a piece of leather before they are shoes, books exist long before they are made into a product. So in France books are regarded largely as an product of the intellect with a value beyond the paper, marketing and margins.

Mon, 04/07/2011 - 17:06
By Bookish

On a pratical level - I would need an extra member of staff just to price all the books that come into my store!
I don't think it would make a huge difference, taking the printed price off the book doesn't change the amount of money a customer has spare to pay for the book...or have I missed the point?

Mon, 04/07/2011 - 19:54
By Dinah Anderson

Removing the printed RRP is often suggested as the panacea for all our troubles at times of extreme stress, but, as Philip no doubt knows, bookselling is not like other retailing - you can't walk into a branch of Debenhams and order the latest whatever you know to be out there. All bookshops undertake to order books for customers and do so on the basis of the printed/stated rrp. This, for the customer, is the accepted starting point of our relationship with them, even if they do not like the rrp. Without it, we would have to know trade/net prices before accepting an order and these would differ according to volume ordered so that publishers could protect their own margin. Indies need to know they are following a template price - we simply do not have the means to investigate the average selling price before we set our own. The elephant in the room is the excessive discounting of new titles - until this issue is forcefully addressed by the UK's remaining chain bookseller, then the future looks grim, and the token gesture of the removal of rrp will not help one jot.

Mon, 04/07/2011 - 22:21
By billy's brother

im in the same place as you dinah - UNLESS as a poster above suggests, that PUBLISHERS (and it starts out, once printed, AS YOUR "PRODUCT") start charging the opposite way around - instead of a RRP and a discount from that to decide every customers price to pay - turn it around, work out cost of product, add margin= price to pay. retailer then buys, adds margin = sales price to consumer. amazon/supermarkets will still be cheaper as their margins dont need to be as large as they obviously still sell more volume. but every1 can chose their margin, and as said customer can then decide on value of "product" being offered at price its being offered at.

after my move and sales since.. i doubt i shall be around for any of the above, even if it were to happen very quickly. publishers offering direct to schools for bigger discounts than we get offered is another nail in our coffins.

We now get CGP stock through my local school not the other way around, they make some credit against other purchases, and i still pay less to them than i would to CGP. (such a silly world we work in)

Thu, 07/07/2011 - 00:45
By David R N Livesley

Certainly I am surprised that Philip wants to put himself out there with an article like this, as his personal record of success seems to be less than impressive. Knowledge he certainly has.....but he also has a fair few critics....is he brave or just foolish? Philip mate best advice I can give you....move on and find a new life challenge to tackle.

Wed, 06/07/2011 - 03:27
By Inkozi

Nicely put David.

You're a better man than me.

Wed, 06/07/2011 - 16:09
By Previous Books Etc employee

Couldn't agree more! As I was reading this, I was trying to work out what gave Downer the right to advise anyone on the matter.
Also, anyone else fed up with articles about what James Daunt SHOULD be doing? Please just let him get on with it! I'm certain he doesn't have time to read any of the nonsense on the comments pages anyway....

Sat, 09/07/2011 - 12:10
By one man's nonsense

Dear Previous Books etc employee,
It's sad to hear that you think all the stuff here is nonsense. In reality it's all the things that bookseller working for W'stones have had to suppress because all comments were labelled as toxic. Note that few are mentioning that they haven't had a pay rise in 2 years (£6.06 or so p.h)because they'd rather had a good bookshop than more money. In which other industry would you find such dedication?

As for Mr. Downer - no wonder he's so red in the face. Who is he to give advice when Borders failed?

Mon, 11/07/2011 - 23:18
By thinking fault

There is a fundamnetal thinking fault with Philp Downer and the Waterstones managers till now. To compare a bona fide bookshop with the supermarkets and even WH Smiths. And no, I'm not talking about snooty booksellers who discuss obscure literature all day long. Whether I work in a bookshop or not, I want there to be real bookshops, because without them we will be lost.

Thu, 07/07/2011 - 00:11
By The Ancient Mariner

And how, pray, is Daunt's challenge - a review of trading terms, i.e. margin - to be shared in the book trade without breaching competition law? It is a battle Waterstones will have to fight on their own from a weak position, made only marginally stronger by Mr Mamut's takeover.

Thu, 07/07/2011 - 19:52
By booksellers not waving

When Borders in Boston Mass. closes the city will be left with on bookshop, so it's not just happening here. The Borders in Islington was a mess - full on non-books stuff, staff detached, they looked as if it made no difference what they were selling, as long as you got through the tills asap. And it's down that road that HMV/Simon Fox and Mr Myers were driving Waterstones. The fact that Borders failed didn't seem to register with them. So Philip Downer, please go and advise other companies in er... how to fail.

But on the ground now, regional managers and their store managers are still frantically fiddling, rearranging, putting thousands of bits of card in on the shelves - DOING DAMAGE all in the model of the Myers days.

All sane booksellers are praying that Mr Daunt sends a message down the echelons of managers to STOP ALL initiatives on the shop floor until he's decided what is right.

Wed, 13/07/2011 - 10:38
By books loss-leaders

Philip Downer comments - favourably it seems - on WH Smith's idea to run books as loss-leaders and make their profit on stationery etc. He also observes that James Daunt may want to reassert the book's primacy ... sorry, did I hear that right? MAY WANT ...the BOOK'S PRIMACY. Has he never heard that Waterstones was supposed to be a BOOKshop?

As for competition by supermarkets - I browsed in Sainsbury's and there is nothing there that I would'nt have found in the FAILED British Bookshops,i.e. a totally random selection of obvious 'easy sell' stuff. How and why does everyone talk themselves into the belief that this is real competiton for a proper bookshop - as long as it is a proper bookshop.

Wed, 13/07/2011 - 10:53