The Changing Bookstore Battle
It Used to Be Little vs. Big Guy. Then the Bigger Guys Came.

By Michael S. Rosenwald
Washington Post Staff Writer
Saturday, April 5, 2008

Barbara Meade could not resist a little schadenfreude. After the Borders bookstore chain announced recently that it was exploring "strategic alternatives" -- corporate lingo for "there's trouble" -- the co-owner of the independent store Politics and Prose, which has held on against the chain's cost-cutting competition, took note in her online newsletter.

"We have never been tempted by the allure of corporate imperialism -- invading new book markets, slashing prices, demolishing the competition, and then back to business as usual, poor inventory and poor customer service," Meade wrote, reporting that "Borders announced a shift in direction from selling books to selling the whole business."

While it is tempting to marvel at, or even gloat about, the potential demise of a tough competitor, analysts and publishing industry executives say Borders's troubles are emblematic of an ironic shift in book selling. Large corporate booksellers, once an enemy of the little guy, now have enemies of their own: and big-box retailers like Costco and Target are taking on Borders with even deeper discounts than the chains used against the independents.

"It's only a matter of time before the independents and chains realize they are actually in the battle with them as opposed to each other," said Michael Norris, a book industry analyst for Simba Information, a media market-research firm.

Costco, Target, Wal-Mart and Sam's Club aren't just moving in for the kill with big discounts on the latest Stephen King or John Grisham page-turners. They are also engaging the culturally connected, targeting readers who delight in cocktail or book-club conversation about the latest titles. About 34 percent of book buyers made purchases at such locations last year, according to the Simmons National Consumer Survey.

Last week, Costco in Gaithersburg was selling Jhumpa Lahiri's new short-story collection, as well as a new novel by Richard Price, a book on economics by Jeffrey Sachs, and a 688-page tome on the bin Laden family by former Washington Post managing editor Steve Coll. Target in Germantown was also carrying Lahiri's book, as well as a novel by Sue Miller and a short-story collection from Margaret Atwood. Germantown's Wal-Mart was carrying Cormac McCarthy's Pulitzer Prize-winning novel "The Road."

In most cases, the list prices at the big-box retailers -- without coupons or other discounts -- were lower than at Borders and the District's Politics and Prose. "The small mom-and-pop booksellers have some allies now in that they are all probably going to be squeezed from a pricing perspective," said Michael Souers, a Standard & Poor's analyst who tracks Borders.

Making matters worse for stores that depend on book sales, fewer Americans are buying books. About 56 percent of adults bought books last year, down from 61 percent in 2002, according to Simmons.

It's difficult to know just how many books the big-box retailers are selling because they generally don't report such specific figures. Borders declined to comment on its troubles, but its executives have acknowledged that big-box retailers were eating into their business. The company has also been hurt because it has not operated its own sales Web site, as Barnes & Noble does. Borders's net income was $131.9 million in 2004 and $101 million in 2005, but it lost more than $300 million in the past two years. The company recently agreed to borrow $42.5 million from a hedge fund to fund operations this year. The terms of the deal were steep -- an interest rate of 12.5 percent.

The big boxes are also moving in on one of the signature offerings of bookstores, the author book signing. Costco regularly hosts authors to promote books. Those who have appeared or are scheduled to appear with new books at Costco stores include Ken Burns, Bill Clinton, Barbara Walters, Jose Canseco, Harlan Coben and Newt Gingrich.

Seth Gitell, a Boston journalist and political analyst, wrote on his blog last year that he had dropped by a local Costco "to purchase some delicious whitefish salad" but noticed a sign promoting, of all things, a book signing by Burns. Gitell "couldn't believe that Burns would be making an appearance here of all places," he wrote. "But here he was. Burns sat dressed neatly in a blue blazer in front of a large display of Vizio 60-inch and 42-inch big-screen HDTVs as eager fans lined up to meet him."

Because there is a romantic quality to books -- curling up with them on the couch on a rainy Sunday afternoon is an eternal exercise in passing time -- people often forget that books are a business, too, with price tags, economics, marketing, competition, growth, stagnation and all the other trappings of commerce. In many ways, what is happening in the book industry is similar to what has happened in other industries -- for instance, the grocery business.

Selling food for the family home was once largely the province of the little neighborhood grocer. Customers dropped by a few times a week to visit the butcher, and helpful shop clerks pointed out the tastiest cuts of meat and the freshest produce. Eventually, with sprawl, grocery store chains emerged -- locally, companies like Giant and Safeway. And then Wal-Mart, Costco, Target, Sam's Club and others got into the food business, with deep discounts.

Today, as with independent booksellers, only the strongest local outlets have survived, and the large grocery stores, like the large bookstores now, have strong competitors in big-box retailers.

In Washington, besides the big-box chains and the large book retailers, shoppers have several independent bookstore options, though not nearly as many as a decade ago. There are, among others, Politics and Prose, Olsson's, Busboys and Poets, and Kramerbooks. Those that have closed recently include Chapters, Karibu Books and A Likely Story Children's Bookstore.

On the matter of Borders's troubles, the opinions of independent bookstore operators vary.

Scott Abel, general manager of Kramerbooks, said: "We certainly don't feel proud of the fact that Americans aren't reading as much as they used to. That's the take we have. I don't feel a sense of pride by outlasting Borders."

Meade, the co-owner of Politics and Prose, noted in her newsletter that Borders, once a small independent store in Ann Arbor, Mich., had evolved into a kind of "book hell." She said her sales have grown year over year except for the two years after Borders came into the area in the early 1990s. Her opinion on the Borders situation, she said, largely depends on what happens with Borders.

Already, Barnes & Noble executives have indicated interest in buying the company, should they be approached to do so.

"If Barnes & Noble does buy Borders, we're facing a real monopoly," she said, though such a deal would also be likely to receive regulatory scrutiny. "We would see an initial deep discounting, trying to keep or attract the Borders customers to Barnes & Noble." Meade said the deep discounting is not sustainable though: "I just regard it as an imperialistic tactic to just throw the competition out of business and then you can raise the prices back to whatever you want."

Meade's note to her customers last month referring to the "imperialism" of Borders prompted several e-mail replies. "I got three or four e-mails from people who said, kind of, right on," she said. "But I did get an e-mail from somebody who said that she thought it was rather snide, that after all Borders did put books in people's hands."

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