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Wednesday, October 28,2009

Casualties of war

Independent book stores brace for retail giants’ online price cuts

by Bill Castanier
Wal-Mart is playing the Grinch this holiday shopping season by starting an online book pricing war with Amazon.com and Target, driving the prices of best-selling books by the likes of Stephen King, James Patterson and Sarah Palin to record lows.

That may sound like a gift from Santa Claus for customers, but for brick and mortar bookstores relying on those books for a margin of profit, it’s a lump of coal in an already dismal year.


Last week, Wal-Mart took dramatic action in the Amazon-dominated online book market by offering online pre-orders for 10 of the hottest upcoming book for $10 each. Amazon responded with a preorder price of $9.99, after which Wal-Mart dropped to $8.99, before Target.com announced books for $8.98. Sears is offering a $9 coupon to anyone who buys the books and also makes a $45 purchase online. At this rate, we may soon find Stephen King’s latest novel as a premium in our cereal box.


“It’s just more of the same, with booksellers using loss leaders to attract market share,” said James Dana, executive director of the Great Lakes Booksellers Association, which represents 200 smaller booksellers in six states.


“More” may have started back in 1995, when Amazon entered the market and dramatically changed the dynamics of book selling, which for more than a century mostly took place in musty store fronts with disheveled store owners at the till.


Smaller independent bookstores had already felt the onslaught of big box stores like Borders and Barnes & Noble, which forced hundreds of small stores out of business beginning in the early 1990s.


And then there are e-readers, like Que, Kindle, Nook, and i-REX, which have slowly, but surely made their presence felt.


Dana said one result of selling books as a loss leader could be consumers treating them like a commodity they can buy for $10, which is less than they can be produced for.


Cecile Fehsenfeld, co-owner and founder of Schuler Books & Music, which has five Michigan stores (three in Grand Rapids and two in the Lansing area) sees something worse happening if buyers become accustomed to those prices. “No one thinks about the unraveling of the industry,” Fehsenfeld said. “It would do serious damage to independents.”


In the short run, Fehsenfeld said stores would lose some sales, but in the long term they would lose sales on all books. She said Schuler sells a “ton” of new bestsellers, typically at 20 to 30 percent off list price, and the new pricing could put a “chokehold” on the publishing industry. “If you begin treating book buying like going to Wal-Mart to buy a bag of sugar or a Christmas ornament, well that’s a different story,” she said.


Most booksellers already deeply discount front list best sellers, banking on the same idea as Wal-Mart, Amazon and Target: once you are shopping, either online or in a store, you will spend more time there, take suggestions to buy something else and come back.


Fehsenfeld admits that when bestsellers come out, bookstores don’t make much on them, and they have to discount to be competitive.


Booksellers are also making an appeal on a higher plane, claiming the new pricing will winnow down books by lesser-known authors.


Fehsenfeld uses Sara Gruen’s phenomenally successful “Water for Elephants” as an example. The book was hand sold and recommended by independents to customers and went on to become a perennial New York Times Best Seller, spending 12 weeks on the list in the hardcover category. She doubts the same could happen in an environment fostered by deep discounts. “It would never had the opportunity to have legs,” Fehsenfeld said.


The national bookstore trade group American Booksellers Association has also weighed in on the pricing issue, asking the Federal Trade Commission to consider the retail giants’ moves as predatory pricing and to end the war.


“If this is not successful, it is going to be one of those shifts in the industry,” Fehsenfeld said.


Schuler has already responded to numerous economic shifts by selling used books, offering beer and wine in one of its Grand Rapids locations and by installing the print-on-demand Espresso machine for backlist books. It has also paid homage to blockbuster books by holding release parties for the latest Harry Potter and “Twilight” installments and hosting touring authors. Last weekend, Schuler Books in Okemos hosted a party for Neil Gaiman’s “The Graveyard Book.”


This new assault on bookselling comes when the industry is already reeling from a weak economy, sagging sales and store closures. Even sales at the big box stores have fallen, while sales at Amazon have increased, resulting in this year’s announcement of record sales and revenue.


Dana estimated that bookstores have been closing at a rate of about 5 percent a year, but he declined to give data about the Great Lakes area.


Fehsenfeld said stores like Schuler are updating their Web sites and their mindsets. Schuler will soon sell e-books online, and when a customer is looking for a book that is out of stock, sales associates will take a different approach.


“Currently when we ask, ‘Can I order that for you?’ the customer says, ‘No I can get that online,’” Fehsenfeld said. “Well, so can we. Our source is basically the same as Amazon. Online does not have to be totally synonymous with Amazon. People like to think of that as the gold standard, but we are the same virtual store. We just have to reeducate the customer.”


For fans of brick and mortar bookstores, hopefully that reeducation will start soon. But for most, it’s tough to turn down a deal, and King’s latest, which lists as $35, is a heck of a deal at $8.98.

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