Is the shift we see in the book industry between physical and online stores and category sales real? The answer is, yes.
From where Ingram Content Group sits and observes the publishing world and reviews our data, we’ve come to some conclusions on where the industry is going. Our Ingram data reveals that a shift is taking place. But the good news is there are more retail opportunities for publishers than ever before. In the past five years, Ingram has opened more than 13,000 new retail accounts: 40% in growth markets, including Internet and gift.
These new accounts create both opportunities and challenges for publishers. By definition, once the top customers are accounted for, there are more total customers selling fewer books per location, and more titles competing for less and less shelf space in these locations. The problem now is about distribution reach and relevant marketing.
At Ingram, we sell a broader list than independent stores buy. A snapshot of a sample store indicates that a typical, stand-alone independent only buys about 14% of the top 10,000 Nielsen BookScan titles in the market. A broader sampling of our top 700 independents shows that as a whole they buy 95% of the top 10,000 Nielsen titles. In the aggregate, independents are buying the top 10,000, but at individual stores, stock outs, assortment gaps, and lack of information about the market all cause lost sales. Yet independent bookstores collectively purchased nearly a half a million unique titles in each of the past three years.
More Retail Opportunities
While unit sales have declined, the number of unique titles has gone up, and the “long tail” has become thicker. From Ingram’s data, roughly 50,000 titles sold more than 50 copies to indies in each of the past three years, and the number of titles above that threshold has risen steadily in each year. The question for publishers is how to raise awareness of what sells in a way that leads to stocking decisions at the store level. With top accounts like Amazon, Barnes & Noble and two wholesalers making up a large percentage of sales from publishers, it is no wonder that even the top 10,000 titles are not fully represented at the indies. For most publishers, it is simply more cost effective to focus on the big retail and wholesale accounts.
At the same time that title count has increased, unit sales per title have decreased, which makes it difficult for a physical retailer to compete with an always “in stock” assortment at an online retailer. Looking at the merchandising mix of the new independent accounts, we found that these bookstores are still focused on fiction, with the category making up 68% of what they buy from Ingram, and nonfiction trailing at 32%. Following the close of Borders, Ingram analyzed our sales and found several categories that were strong at the chain that would fit at an indie. We also saw an increase in sales over the previous year from more than a quarter of our independent bookstore customers located in the same zip code as a former Borders.
Perhaps Borders’s customers began shopping at another local bookstore. However, 72% had no increase. I’m not suggesting that stores stock a standard inventory, but an increase in sales just from carrying more of the same thing won’t help bookstores compete in the long run. Further analysis shows that of the stores with an increase, 75% of them are still up year-to-date vs. last-year-to-date and 40% have experienced growth of 50% or more. Almost three-quarters experienced growth of 20% or more. When I look at this data, I see opportunities to help physical bookstores develop category strengths outside of fiction. Publishers need to be thinking about how to help bookstores understand customer need at the store level, and support those needs.
It has been widely reported that fiction is shifting to e-book formats. Over the past five years, we have seen our sales in narrative fiction decline to our independent bookstore customers, while sales of nonfiction, for both adults and children, have been roughly flat. However, nonfiction sales have expanded to more outlets, with lower sales per outlet. My assumption is that narrative fiction has some natural competitors in certain market segments and formats, which makes physical bookstores less attractive. At the same time, aggressive discounting in fiction in Internet and mass merchant channels makes competitive pricing difficult for independent stores. This factor combined with the ease of use and penetration of fiction in e-books makes recovery of past sales levels in fiction at independents unlikely.
A final factor is that fiction sales are fairly concentrated in a low number of titles and few publishers, primarily the big six. The publishers with the most sales resources are selling bestselling fiction to stores that can least compete on price and have the most competition from the Internet and mass merchandisers. Independents have more opportunities in nonfiction.
Going forward, publishers will see a reduction in the number of locations selling fiction, making the stakes even higher in competing for diminishing shelf space. At the same time, the sale of nonfiction titles has more potential. The challenge for the nonfiction, or “books you can use,” category is that there are more titles and more potential locations for those titles. Add in assortment inefficiencies across the independent channel, and publishers have a real distribution and reach problem.
Now the question becomes how to get more revenue out of a growing list of available nonfiction books across more outlets, knowing that broad distribution can be more expensive than fiction distribution, which is more targeted. It’s further complicated by the fact that the best place to sell nonfiction at good prices is in what we think of as an inefficient channel.
I think the number of retail locations selling books, whether physical or online, will increase. Assortments will become more specific, and communities will be built around enthusiast categories. One trend we see in retail is the movement of categories into specific retail verticals, or purchasing communities. Publishers like F+W create direct-to-consumer verticals, and a new business model, because of expertise in a category. But don’t forget that a well planned section in an independent shares characteristics with a vertical.
As the relevance of superstore assortments has declined due to the exit of Borders and the ubiquity of content, the ability to “micro merchandise” a category has increased. Our data shows that our top 700 independent bookstore customers purchased more individual titles in several nonfiction categories in 2011 vs. 2010. Travel books were up 23%; antiques & collectibles up 22%; design up 20%; crafts & hobbies and photography both up 14%; and art increased 12%. Broad general assortments are being trumped by deeply assorted verticals targeted at more specific communities, whether in a physical store or online.
Within nonfiction categories subjects that make the most sense for online exploration, discovery, and use seem to have the most resilience in terms of physical sales. Travel, cooking, art, and other visual or reference categories continue to hold their ground. We think these subjects are expanding the number of locations where they are available, including museum stores, the gift market, smaller independents, and online verticals.
Conventional wisdom suggests that these nonfiction subjects shifted to Internet consumption long ago and that book sales have settled into a new normal—the impact of the Internet is already baked in. Though there is also evidence that books you dip into are more resistant to format shifts than narrative reading. Whatever the reason, the challenge in the long run for these categories is not going to be overall unit sales but sales per title.
I expect some big publishers will condense lists and concentrate more resources on certain titles while at the same time worrying about how to compete with low barriers to entry in content development. The barriers to developing, editing, acquiring, and distributing books has fallen dramatically, which has created a big marketing challenge for traditional publishers. We think that as the consumer gains power over distribution, publishers will have to acquire better content, market to both retail accounts and consumers more specifically, and be prepared to contend with a huge number of competitive titles.
All this leads to a massive change in distribution strategies for publishers. We think many publishers are going to trade their infrastructure and distribution costs for content development money. The most nimble publishers will have great content, marketing, and distribution reach—and no back office or warehouse.
Ingram’s position and reaction to this diversity of readily available content and the new consumer-driven market requirement is to use print-on-demand and digital distribution technologies to create availability to the broadest number of outlets. It will be the publishers’ responsibility to create content that grabs the attention of the enthusiast customer. Informing bookstores of what they are missing is going to be a big part of this equation. Unfortunately, the fiction category is not going to be the category that carries the day in independent stores. Ironically, it is the publishers of fiction that have the resources to sell to these stores, but they are selling them the least competitive choice.
Ollila is chief content officer, Ingram Content Group.