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.