19 December 2010

Can Digital Technology Actually Save Retail Bookstores?

NPR ran an article on their website this week entitled "End Of Days For Bookstores? Not If They Can Help It", that brought into question the chances for independent bookstores continuing their existence in a digital age.  With Borders posting a $74 million loss just in the third quarter of this year, what chance is there for the independent book sellers?  The 2000 pound gorilla sitting in the living room of eBook sales cutting into print profits also makes the outlook for independents grim.  With all of the gloom and doom the article's summary was, "All bookstore owners know that the digital future is now. It's up to them to work it in a way that keeps their doors open and their shelves filled with actual books." 

Like the mechanic said after taking a look at your broken radiator hose, "there's your problem"...The problem facing most retailers is paying for the big three operational costs: inventory, facility related costs, and labor.  In order to make a profitable retail venture, one must exceed the investments in each of these areas.  (I realize this is no great revelation to those who have run retail businesses, but bear with me for those unfamiliar with retail operations.)   The catch-22 of retail operations is that one is always guessing.  A retailer has "X" amount of square footage to fill with "Y" amount of inventory.  The guessing game is which inventory to buy and in what quantities one fills that space with.  The more items one has in their inventory, there is a greater chance a customer will find something in one's store to purchase.  The flip side is that the more items one has for sale, the more square footage one needs to display those products.  The more square footage one has, there are higher facility related costs. 

The big box chains, like Borders and Barnes and Noble, made the gamble that having tons of inventory in large stores would increase sales to a point their stores could be profitable.   Smaller independent booksellers either have to specialize in a niche market or make very good inventory guesses with smaller square footage.  Should either category of booksellers find they're not coving their big three operating costs, efforts were made to increase sales through: price reductions, loyalty programs, books signings, and other promotional endeavors.  Due to the encroachment of eBooks and other digital editions on print sales, there is little chance in the future that the increasing sales tactics will cover the big three operational costs. 

If increasing sales isn't the answer for independent bookseller to survive in the digital age, there must be a dramatic reduction in one or more of these "big three" cost factors.  To achieve cost savings in one of these areas, booksellers are going to have to create of fusion of the comforts an old fashioned bookstore with the digital age. 

A number of bookstores have done this with an Espresso Printing Press.  Espresso type machines have formed the backbone of the print on demand industry.  With the size of a 1970's Xerox station, the Espresso can print out a prefect bound book in a matter of minutes.  The ability to print a book in-house dramatically reduces the need to invest in inventory.  A bookseller also has access to thousands of more books, via on line catalogues, than they could have ever previously stocked on their shelves.  Bookstores would need a fraction of the space in which they operate in now.  The space savings would translate into lower facility costs and higher profits after the initial equipment was amortized out.  With an investment of around $120,000 the Espresso technology could be the savior for independent bookstores to survive in the digital age. 

One model for an Espresso fueled independent is selling used books.  The thought of selling used books is anathema to most new book retailers.  However, there are merits to creating an Espresso fueled used book store.  Let's say that Joe's Books decided tomorrow to buy an Espresso Machine, and has a five year lease on his retail space.  Joe still has all of his old inventory on hand and starts taking books in trade from his customers.  To keep the math simple, for every $2 retail trades Joe takes he will give $1 in store credit.  With every trade Joe is increasing his inventory and reducing his existing inventory's cash costs.  Joe might even give bonus credit to customers that bought new books printed on his brand new Espresso Machine as a loyalty component to his services.  With enough savvy book trades, Joe's cash outlay for inventory will approach zero.  Joe's customers have the experience of browsing the shelves for books and they can still buy new books via the Espresso printing process.

Another profit enhancer for Joe is taking special orders.  Let's say there is a book festival in town next month.  Joe contacts one of the publishers that will be represented at the festival.  He offers to print all of the stock the publisher will need for festival selling at near wholesale costs.  The publisher reduces his transportation costs for shipping books to the festival site.  The publishing company comes away with an ace in the hole for dealing with our independent.  Joe can print additional copies for the publisher during the weekend's festivities to cover any out of stocks.  Everyone wins and our independent bookseller stays in business for another day.

The Espresso fueled bookstore model is not without its disadvantages.  One could lose an entire days worth of sales with a downed machine.  Plus the initial investment in the equipment is daunting for many independents.  Customers might not take to the thought of going into a bookstore that is more like a Kinkos than a their traditional conception of a bookseller. 

No matter if Espresso printing technology is the answer to bookseller's woes, a paradigm shift has to happen on the retail end of the book trade.  The universe of publishing has changed dramatically over the last year and the trickle down to brick and mortar stores was inevitable.  With these changes, the retail book industry should be looking for pioneers instead of licking their wounds.  If the industry does not look for innovations, independent and big box booksellers are destine to go the way of the dodo. 

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