Tough in the middle

<p>Daunt Books is that rare beast among retailers, a bookshop that managed to make some money out of the latest Harry Potter.</p><p>&quot;We did,&quot; founder James Daunt says, with a smile. &quot;We made money out of Harry Potter. We opened at midnight and we had a thousand or so people. We had bunting and stuff and there were plenty of witches hats around.&quot;</p><p>Daunt, a small independent chain of four shops in London that has grown out of the first business in Marylebone High Street, sold the book at &pound;12.99. Not a discount, Daunt says, but the marking down of an overpriced book. Still, in a market as transparent as book retailing, parents could have got it cheaper elsewhere.</p><p>&quot;It is the same reason that I shop in Waitrose even though there is a Tesco 10 doors down,&quot; Daunt says, nodding down the street. &quot;Tesco is an appalling, ghastly place and I will buy exactly the same Weetabix in Waitrose and it will be more expensive. But Tesco is so utterly dispiriting. That&#39;s just the way it is. You have the same psychology going on in books.&quot;</p><p>Daunt, a former investment banker, has been in business since 1990. Since then he has pretty much seen it all. The growth of Waterstone&#39;s; Dillons is history; Books Etc has come and gone, as has Ottakar&#39;s; Borders arrived from the US; the supermarkets jumped in with their hobnail boots, and Amazon was born. So what has it been like trading as an independent? He lifts his pen to a 45-degree gradient. &quot;Every year we sell more.&quot;<br /><br /><strong>Proliferation of booksellers</strong></p><p>Nobody would suggest the independents have it easy. According to the Booksellers Association, the number of independents in Britain has fallen from 1,700 in 2000 to 1,400 today, although that figure does appear to have stabilised. Shops in London in particular have the additional stress of rising rents.</p><p>But an examination of market share figures suggests that they aren&#39;t the ones that are suffering the most from the intensely competitive market conditions of recent years.</p><p>The book market is reckoned by Waterstone&#39;s to be growing at around 2% a year. The Publishers Association says that 472 million books were sold in 2006, the best figure for at least five years. And in the meantime the number of places that consumers can buy books has raced ahead.</p><p>Consumer research agency Book Marketing Ltd maps the changing pattern of book buying. It reckons that between 2003 and 2006, supermarkets increased their share of the market from 8% to 12.6% in volume (although only 8.2% in value). In the same period, online retailers have increased their share of the market from 5.8% to 10.6%.</p><p>But independent bookshops have not only defended their position, they have managed to claw up their volume share from 15.6% to 15.9%. The big declines have been among the chain stores, which have seen their share drop from 38.4% to 34.9%, and from the direct mail-based book clubs, down from 17% to 13.7%.</p><p>If the figures are accurate, the book retailing market is polarising. Those doing well are the supermarkets offering cheap and popular blockbusters, the online retailers like Amazon offering huge range as well as the top sellers and the independents, benefiting perhaps from a backlash against what might be called the &quot;Starbucks effect&quot;&mdash;the same reason that farmers markets are steadily increasing in popularity.</p><p>The pain appears to be in the middle of the market, the big chains. &quot;The people who have really suffered at the hands of the internet and supermarkets are the book chains,&quot; says Sarah Webb-Wilson, co-owner of the Sevenoaks Bookshop, &quot;not that it isn&#39;t hard for all of us&quot;, she adds, as though fearful of jinxing her business. &quot;The chain stores are battling it out for the centre ground and they are coming a cropper. There is desperate discounting going on. As an independent, you can&#39;t compete on price and we wouldn&#39;t pretend to. But every member of staff is well read and can chat to the customers, and people come back because of that.&quot; Webb-Wilson says business is pretty much &quot;level-pegging&quot; at the seven-year-old shop.<br /><br /><strong>Broadband and blockbusters</strong></p><p>The headlines would certainly seem to support the idea that it is the centre ground that is especially tough. Waterstone&#39;s is closing 30 stores; Fopp went out of business and Borders, the US chain that arrived with huge ambition in the late 1990s, is selling up to refocus on its domestic business. Borders last year lost $74m (&pound;37m). At the time of the announcement it described sales in the UK as &quot;flattish&quot;. HMV announced this week that it had bought six Fopp stores, including the Covent Garden branch pictured left, and will revive the brand albeit as a much smaller chain.</p><p>Alan Giles, the former HMV boss, describes how the market has changed. &quot;Prior to about three years ago the chains were rapidly growing space and market share was tending to come away from W H Smith and&mdash;in a Darwinian way&mdash;from the weaker independents that were going out of business. The supermarkets were at the time gaining and the internet was putting pressure on the big range chains&mdash;Borders and Waterstone&#39;s&mdash;but that was being offset by the rate at which they were picking up share from elsewhere.</p><p>&quot;In the past three years that has changed dramatically. The internet retailers have entered a new period of growth that shows no signs of stopping&mdash;broadband has made things easier and people are much more comfortable shopping online. Amazon too has just got better and better. The supermarkets meanwhile have gained ground because they have become more competent at the category and are offering more space. They really are in a virtuous circle. The kind of blockbusters they sell are becoming ever more important and are increasingly the focus of what the publishing industry is trying to achieve. So that plays into their hands.&quot;</p><p>In the year ending 28th April, Waterstone&#39;s like-for-like sales declined by 4.1% on the previous year, a worse decline even than at the HMV chain, which was down by 3.3%. Waterstone&#39;s operating profits were down almost 22% to &pound;16.3m.</p><p>Gerry Johnson, Waterstone&#39;s managing director, says the business is adapting to new market realities. &quot;Go back five or six years and the internet hadn&#39;t really established itself. If you wanted a deep range you had to go to a big store. But even the biggest store in the UK carries only around 150,000 titles&mdash;about 10% of the books in print. The internet has removed their reason for being.</p><p>Book retailing then becomes more about leisure and convenience. There is a very healthy market for small book stores serving local communities. It&#39;s not a crisis but it is a fundamental change and we have to dance our way through that. We will still open stores but they will typically be smaller and serving local communities. Our store on Oxford Street was 25,000sq ft and was just too big. The rents were huge and it was beyond our ability to support it. We just opened a 5,000 sq ft store in Wigan and it has gone brilliantly.&quot;</p><p>Johnson has said there will be more emphasis on popular book categories like fiction, cookery and children&#39;s books, less on academic and humanities. It is also devoting more space to children&#39;s books. &quot;There will be a good range of fiction and children&#39;s books and a bias toward popular genres like gardening and cookery. The world is changing. More special interest books are being sold online. We are still an expert bookseller but experts in genres people are buying on the high street.&quot;</p><p>Both Waterstone&#39;s and Borders are putting renewed investment into their own websites as well, in the hope of winning back lost sales.</p><p>The middle ground has become more competitive still after the decision by WHS to go back to its roots and refocus on books with a stated strategy to &quot;rebuild authority&quot; in the books market. It is expanding the space given to books and cutting back on music and DVDs. Its book sales for the year to August 2006 were down 5% on a like-for-like basis, although entertainment fell by a more precipitous 19%. The most recent statement, for the six months&nbsp; to 28th February 2007, shows an improvement, with book like-for-like described as &quot;flat&#39;.</p><p>Where WHS is succeeding is in its Travel division, opening further small outlets in railway stations, motorway service stations and hotels.</p><p>Paul Smiddy, an analyst at HSBC, says: &quot;Neither Waterstone&#39;s nor Borders have been badly managed. But it is a fine line between the infinite range of the online retailers and the chart-led supermarkets. You have to create a store that attracts people. There is a degree of depression that the main marketing mechanic remains three-for-two and possibly consumers are a bit bored with that.&quot;</p><p>How easy it might be for the chains to become more entertaining, community stores is questionable when control is still exerted from head office. In the window of Daunt on Marylebone High Street this week, a book called Jamila by the Kyrgyz author Chingiz Aitmatov was put on display in the window because Daunt had read and liked it. He said the shop had sold about 700 copies in a week. &quot;Good bookshops do well whether they are chains or independents,&quot; Daunt says. He offers a bit of plain advice: pay higher wages to retain knowledgeable staff.</p><p>Giles says planning constraints on the supermarkets mean they are unlikely to keep adding significant floor space and that competitive pressures from that end at least will ease in the next few years. &quot;With the internet it is difficult to predict behavioural changes. I am certain that people will continue to buy books from bookshops but I would suspect that over the next five or 10 years sales will continue to move online,&quot; he says. &quot;I believe it will be a case of last man standing [on the high street]. I believe in the argument that there will continue to be a role for a very well run, efficient chain bookseller that is sensitive to the local environment and has intelligent, well-read booksellers. But I am not sure there is really room for more than one or two.&quot;</p>