The fact that books today are sold through more outlets than ever before has been a major reason behind the great retail wreck of 2001, when an unprecedented number of chain stores selling books have gone out of business or downsized. Heading the list of the dearly departed was Crown Books, whose bankruptcy and subsequent liquidation marked the largest ever business failure of a bookstore chain. At its height, Crown had sales of $305 million and was the nation's third-largest bookstore chain; although it was a much smaller entity when it went out of business, the chain, as one publisher noted, "still sold a lot of books"—to the tune of about $195 million.
In addition to Crown, the college bookstore chain Wallace's Bookstores and the Baltimore-area independent chain Bibelot have both gone out of business, while the children's multimedia outlets Zany Brainy and Store of Knowledge are in Chapter 11. Rizzoli is in the process of reducing its number of outlets from about 13 to one, while Tower is reducing its presence in the book market by cutting the number of stand-alone bookstores it operates and downsizing its book departments in its music stores.
Crown's last chairman, Charlie Cumello, told PW that the chain suffered from a combination of lack of capital and poor timing. "We were doing fine until the second half of the year," Cumello said, but the lack of big books in the holiday season was a fatal blow. "Crown's business model depended on moving hot products, and we really didn't have any," Cumello explained. Without the expected cash flow from a strong fourth quarter, Crown had no choice but to shut its doors.
The importance of the fourth quarter to any retailer was also cited by Danny Gurr, president of Dorling Kindersley and former president of the now defunct Lauriat's. "Many retailers are highly leveraged and one difficult holiday season can cause major problems," Gurr said. He sees the recent spate of closings and downsizings as part of a continuum. "Taylors Bookstores, Kroch's & Brentano's, Intimate were all great stores," he said, referring to three regional chains that went out of business during the 1990s. "These things [closings] seem to come in bunches and are tied to the economy."
While no one in the industry would question the role the softening economy has played in the trouble at retail, the overexpansion of bookstores was repeatedly mentioned by industry members as a crucial ingredient in the wave of downsizings. Ed Morrow, co-owner of Northshire Bookstore in Manchester Center, Vt., observed that in the "euphoria" of the early and mid-1990s companies rushed to open as many bookstores as possible. "Certain markets became oversaturated, and there had to be some fallout. It's a natural contraction." While the undercapitalized independents were the first to feel the effects of overbuilding, the weakening economy has now caught some of their larger competitors.
Outlets Galore
And bookstores' competitors are everywhere. "Books are literally available in every retailer in America, and Americans have greater access to books than ever before," Morrow claimed. While that is a good thing, the downside is that the wide number of outlets selling books has curtailed foot traffic at traditional bookstores. "The superstores and the Internet have taken out a lot of business," Cumello said. The deep discounts offered by warehouse clubs on bestsellers have siphoned off sales not only on those titles, but by keeping customers out of bookstores, which prevented customers from buying additional titles, said Bill Petrocelli, co-owner of Book Passage in Corte Madera, Calif. Petrocelli summed up the feeling for many in the book retailing business by noting that the growth in unit sales has not kept pace with the increase in retail space.
That was definitely the case in 2000. According to the Book Industry Study Group, unit sales of trade books fell 3.3% last year, despite sales at superstores being at record highs and sales over the Internet topping $1 billion; the Internet now accounts for 6% of unit purchases compared to 4% in 1999, according to the Ipsos-NPD BookTrends annual survey. These figures suggest that some sort of cannibalization has taken place over the course of the last few years. When he was president of Waldenbooks, Cumello said that when the company opened a large store in an area where stores already existed, there was some cannibalizing of sales, but total sales did rise. But Cumello added that in today's market "I don't know where the line is between growth and cannibalization." Even Borders and Barnes & Noble acknowledge that the decline in sales at their mall stores is due in part to competition from superstores (including their own), as well as to the downsizing of the mall operations. As locations for new superstores become harder to find, Morrow predicts that Borders and B&N will come to an informal agreement through which they will divide up different territories between themselves.
Although publishers have been unsettled by the recent shakeout, they do not think there is anything fundamentally wrong with the industry's retail structure, and they certainly don't believe that books are being sold in too many outlets. "The proliferation of outlets can only mean good news for the industry," the top sales executive at a major New York publisher said. The president of a midsize publisher attributed the downsizing to the cyclical nature of the economy and said that while his company will be controlling expenses, no other major changes are planned. Still, it is clear that the back-to-back closing of Crown and Bibelot caught publishers' attention. An executive at one major house noted that shortly after Crown's bankruptcy was announced, his company was devising new promotional programs for independents when word of Bibelot's closing came. "That was a tough blow," he said.
