Books are part of the universe we study and forecast at Enders Analysis, alongside TV, newspapers, mobile platforms, music, news and magazines. What scenarios and outcomes for books and e-books look most likely?
In books the impact of digital has come much later, so the industry has not suffered to the same degree as music or newspapers. However, this means consumers do not have to learn digital as they did for media that transformed earlier. The book trade is now transforming at an extraordinary pace. Nevertheless, we predict digital growth will plateau earlier than other media as the physical format will remain attractive for particular demographics and genres, and as gifts. We argue books are a good deal more heterogeneous—in both supply and consumption—than most other media and entertainment.
The most important disruptive force in physical and digital books is Amazon. Amazon provides a consumer service level unimaginable in UK bookselling a few years ago, and the company’s scale and relentless focus on market share means its discounts are attractive to anyone who buys books. In terms of convenience and pricing Amazon is an irresistible consumer solution for bestsellers and the long tail (when the consumer knows exactly or roughly what she wants), but we believe Amazon’s merchandising solutions are generally over-rated. Amazon is a logistics, ecommerce and digital specialist first, and less of a market specialist. Besides, discovery in digital is very much harder to achieve than in physical: consumers do not browse the internet as is often suggested. Ask a handful of App developers how well discovery works.
Consumer behaviour is highly directed online. Browsing is an activity we retain for bookshops and magazines.
How important is browsing? We estimate that serendipity and discovery generate as much as two-thirds of UK general book sales. Many elements contribute to discovery: book reviews, word-of-mouth and advertising among them. But two contributors really matter: consumers and bookshops. Consumers are more or less sensitive to discovery and serendipity depending on many factors, but older, wealthier demographics, who are much more likely to read and purchase more physical books, are also much more likely to immerse themselves in, and purchase from, a good bookshop.
Two further observations underline the importance of bookshops. The first is that, overall, consumers older than 35 (60% of the population) value physical formats, even when they enthusiastically engage in digital. The second is not only that consumers are living longer, but that wealth in the UK is skewing to older demographics (over-45s own 80% of the nation’s wealth), meaning that many industries will increasingly rely on older consumers for their future income. Females also buy the most books, which is why we consider the Kindle Fire and iPad mini launches in 2012 to be such critical milestones for the general book sector.
We estimate that when a bookshop closes about a third of its sales transfer to another bookshop. This means as much as two thirds of sales disappear. Some of this spend doubtless migrates online; but much of it vanishes from the book sector entirely. Are we suggesting that for every book it sells a bookshop generates two further sales that can never be achieved in any other way? We do not want to suggest that reading and transactions are precisely predictable in this way; our numbers are indicative. However, we strongly argue that the single most effective technique for dismantling the physical book sector would be to accelerate the closure of bookshops. For CDs and DVDs, the retail infrastructure did not unravel simply because demand collapsed; sales decline steadily gathered momentum as retailers exited the high street, and physical products were not being merchandised to the right people at the right time.
Assuming book publishers continue to believe not just in bestsellers and the long tail, but also in the 'fat middle' that drives density in reading (and good margins), the role of the well merchandised bookshop could hardly be more important. There is almost nothing that can be done to sustain the health of the network of bookshops that should be collectively considered too extravagant. Without bookshops, publishing would have to rethink its model at every level; and the role of general books and reading would be rewritten forever.
Douglas McCabe, chief operating officer, Enders Analysis