Monday, February 04, 2008  
Canadian Book Retail Too Concentrated, Sales Level

:: Posted by Bryan @ 2/04/2008 12:05:00 AM

"Long Tail" Helps Niche Publishing, Online Sales
by Bryan Munn

The $1.59 billion Canadian book retail industry is dominated by a small number of large chains and has been experiencing flat sales, according to a new study released by Heritage Canada last week. The report, "The Book Retail Sector in Canada," is based on a study conducted between April and June, 2007. The key findings of the report can be broken down into four categories and include the concentration of book retailing into a small number of companies (most notably Chapters-Indigo, the only national bookstore chain, which owns 44% of the Canadian market); the growth of non-traditional retail outlets (online sales and Costco); the high dollar has resulted in increased book imports ("Canadian retailers can now source some books outside of Canada at lower cost"); book publishing is outstripping sales by a factor of roughly four-to-one.

These conclusions were arrived at by some dedicated number crunching, based on accessible data from publishers, Statistics Canada, and sales-tracking services like BookNet, which monitors 70% of the retail book trade.

The report, prepared by marketing company Turner-Riggs (Kiley Turner and Craig Riggs), provides detailed pictures of the book market in Canada and of consumer habits, breaking trends down by retail channel and including a look at the book market in Quebec, where two regional chains, Renaud-Bray and Quebecor's Archambault, play the same role that Chapters-Indigo does in the rest of Canada and where the Quebec government is strongly involved in funding both publishers and retailers.

In general, the report is a positive one from the point of view of the Canadian book buyer. From one perspective, Canadians are currently enjoying something of a "golden age" in terms of price, availability, and variety of books being published. Prices are more in line with those in the U.S., a variety of distribution methods and retailers vie for the opportunity to sell books, and more books in a greater number of categories are being published each year (16,000 new titles in 2006).

But these trends mask some serious underlying problems and structural dangers for both consumers and the book industry. On the one hand, the growth in online outlets and sales (Indigo's online sales increased 9% between 2006 and 2007) means an increase in price and stock transparency for both consumers and retailers, with the general result of lower prices. On the other hand, according to the report, "deep price discounts at retail tend to create pressure for additional trade discounts from publishers, which further constrain the profit margins and profitability of publishing firms." Further, online discounting "exerts pricing pressure on all retail channels; lowers the customers' perceived value of the products, especially bestsellers and new releases; results in narrower margins for suppliers, which in turn restricts their ability to invest in product development or marketing."

As well, the dominance of Chapters-Indigo in the marketplace has disturbing implications for book sales and the industry as a whole. Not only does the continued growth of Chapters continue to erode traditional retailers with specialized knowledge and a dedication to promoting Canadian authors and publishers, but the big-box trend towards deep discounting and greater economies of scale have the added effect of squeezing smaller players out of the market, reducing competition and further concentrating market share into one company. While the report does include some refutations of the standard industry wisdom on these issues, the idea that bigger stores ironically mean smaller or more homogeneous selections is a hard one to shake and the report provides an informative graph (scroll down) illustrating the decline in sales of Canadian "literary" titles through chain stores.

It is worth quoting from the report at length on the added danger inherent in the continuing price wars, especially between online vendors (Chapters, Amazon.ca and abebooks):

"Consumers quickly become conditioned to locate retail sources for discounts, and to identify what type of books discounts usually apply to—and they make their shopping decisions accordingly. There is a concern that this undermines the perceived value of books, making it less likely for consumers to buy a book, particularly a new release, at the established list price.

In the extreme sense, this concern describes a process where consumer purchases are more informed by price and less by the unique aspects of the individual book, including its literary or artistic merit. As consumer behaviour becomes more weighted by price, so does the supply chain and in particular the selection of books that are featured, or even available, within a given sales channel.

Concentration means more sales for fewer books. This discounting practice also has the effect of concentrating sales at a couple of levels—both by title and by channel. It concentrates sales by title, in that discounted bestsellers prominently featured will sell in large numbers. In contrast, books not featured in this way will be left on the shelf or simply not be available in store."

These trends, combined with the traditional hazards of book publishing in Canada (economies of scale, U.S. competition, large numbers of returns), help to paint a considerably less rosy picture of Canadian book retail. However, the report also makes reference to Chris Anderson's conception of The Long Tail, the idea that niche markets are made increasingly accessible and viable by technological growth and changes in supply-chain management. The report indicates that falling costs in these aspects of book retail may result in greater opportunities for a larger number of publishers and authors.

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see the report's Table of Contents

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