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Publishing in the UK: All Change Here
John F. Baker -- 4/1/98

With Borders already well ensconced on their shores, Barnes & Noble still hovering mysteriously in the wings (one British publisher said he had heard on good authority that the bookseller would definitely be making its presence strongly felt before long) and an ever-growing exchange of rights and books with the U.S., Britain's publishers have never seemed closer to us than in the first weeks of 1998.

The retail side of the British book business was in a greater state of change and turmoil than at any time anyone could remember. In addition to the likely American invasion, the merging of W.H. Smith's upmarket and innovative (by British standards) Waterstones chain, with 115 stores, with Dillons (85 stores) under the corporate aegis of EMI, was imminent (and was in fact announced Feb. 25). The giant recorded music empire had acquired Dillon's from receivership three years ago.
Borders' UK Connection: The Chain Drops Into London
Steven M. Zeitchik

A few days before Borders UK was to open its first store, on London's retail mecca of Oxford Street, one wag reportedly scrawled a sign that read "America Comes" and hung it near the site. The identity of this modern-day Paul Revere was a mystery, but his sentiments were not: the entrepreneurial imperialists from across the pond were moving in, drawing curiosity -- and a little skepticism -- from traditionalist locals.

Borders, with its one-stop approach to books, music, video, coffee and cushy chairs, ran the first trial of its potent formula in the United Kingdom last month. For the chain, the process of moving into the Queen's domain has been a long one, and it's still not finished. Beginning with the acquisition of England's quirky Books Etc. last October, the U.S. chain continued with the purchase of sites such as the pricey one on Oxford Street and will culminate -- temporarily, at least -- with the opening of five superstores in the U.K. (Most Books Etc. stores will continue to operate as independent entities and will undergo no name change.)

Over the past month, customers have been streaming in, as a good buzz makes its way around London. Much of this praise has been driven by the press -- newspaper and magazine articles first anticipated, and then marveled at, the store's selection, accouterments and spaciousness. But the coverage has not been without its negative moments. On opening weekend, the Financial Times ran a moderately alarmist story titled "Borders Set to Trigger Bookshop Price War." The reference is to Borders' decision, in a culture frigidly ambivalent to discounts, to sweeten the bookbuying experience with a quintessentially American tactic. Forty bestselling titles are presently discounted, a move that took some by surprise because the company had declined to discuss discounting plans before the opening. "Customers expect not just excellent service but value," Joseph said.

But the chain's ambition g s beyond knocking a few quid off a handful of titles. Borders UK -- not unlike its American counterparts -- seeks to find readers where they already exist and create them where they don't. "We believe that the way we sell books and music can actually build a market," Joseph said, sounding a little like Len Riggio boasting of his success in bringing reading to the masses. Hence the coffee, the chairs, the well-stocked sidelines section and the attempts at branding.

Strolling around Borders, there's a sense that -- whether because of customer's natural curiosity or the store's synthetic polish -- the strategy has already begun to work. The expressions on a few nonplussed faces upon entry quickly turn to looks of "So this is why people hang out in bookstores." Hardened bookbuyers, too, appear won over. An ungainly stack of books sits next to the latte of one caffeine-loving customer, who quips that "it's nice to be able browse through the books without the store detectives coming over to you."

Warm responses are nice; translating them into sales is an entirely different matter. Some rival booksellers think it's no easy task. "I'd like to offer a more congenial place for customers," said Steve Boal, general manager at Foyle's on Charing Cross Road. "But I don't think that will result in more sales." Or a slightly more positive spin from the Oxford Street Books Etc. manager Ann-Marie Slattery: "Our window is about seducing people to buy. There, it's about atmosphere."

To make the Borders atmosphere a bookbuying one, Joseph is respectful of the difference between the gregarious American customer and the reserved British one. "My view is that American customers are more willing to walk up to employees and ask where things are," he said. "Here they're not, so we put a lot of effort into way-finding." Indeed, signs around the store have a specificity not found in most libraries, with arrows accompanying the manifold subject signs.

When it comes to store hours, though, Joseph has made no concession to London custom. While most shops in the city close soon after the evening commute, the bookstore is gambling by staying open until 11 p.m. "One day we might have the first 24-hour Borders," Joseph said in a voice that sounds like he's only half-joking.

But perhaps the store's most important decision, sales-wise, comes not from Joseph but from the buyers. Many have wondered how the store will handle title selection and promotion, especially given that some of the staff has been brought over from Books Etc., where they have experience catering to the chain's Nick Hornby-reading demographic. Other staffers -- such as merchandise manager Patti Russo -- have been imported from the company's Ann Arbor, Mich., headquarters. But Russo answers these concerns by saying the company will play off strengths.

"We use a lot of sales reporting from the States," Russo said, though she cautions that "Borders UK inventory is very different from the Borders US inventory."

As for invading the youth market, Russo said, "We know what we're good at. We pride ourselves on great selection. But we're not going to try and be hip in London because it's something we're not."

The combining of the two chains would result in a single entity representing about 20% of the market for quality books -- roughly comparable to the sales at Smith's itself, though the latter's 500 more downmarket stores are far more comparable to smaller U.S. mall stores, with books only part of a mix of stationery, music and other general merchandise. To add to the general sense of major change in the offing, Smith's, which had seemed faltering and rudderless in the past few years, seemed to be re-orienting itself toward books, sharpening its marketing focus, and rehiring some of the experienced book buyers it had previously let go.

"We're in the middle of the greatest change of ownership we've ever been through," declared Philippa Harrison, who brought Little, Brown U.K. back from the dead and is now widely regarded as a person with her ear very close to the ground (and who is about to become the next president of the Publishers Association). She continued: "And the entry of the U.S. on the scene is a fascinating development. The superstore concept has never really been tried out here."

If everyone's plans go as expected, she said, "we can look for 50 superstores within three years, and I'll be fascinated to see how it works." (Her estimate was by far the largest heard from anyone PW interviewed.)

At Random House U.K., which during the week of our visit had earned the Publishing News's "Nibbies" award as Publisher of the Year, Gail Rebuck and Simon Master also welcomed the potential arrival of American-style chains. "The good thing about them is that they're range booksellers, and we just had one of our best-ever Christmases because of range; it wasn't so much a matter of individual titles as of a whole assortment of backlist and paperbacks," said Rebuck.

Rob Shreeve of Virgin liked the idea of the "user-friendly" American stores coming in, and added that "anything that expands the mass market is welcome, but it's going to bring pressure on discounts."

Ian Chapman at Macmillan thought there was not a huge U.K. market to be exploited, and that the new competition the invaders and the new combines would be likely to bring would make things "extremely tough, especially for Smith's." Although he, too, believed increased discounts would be a likely consequence, he was a great admirer of what he had seen of Borders in the U.S. and said, "We can learn from their expertise" -- though he feared that it would become a tighter marketplace, and that "tighter and tighter margins" were likely. There would also, he felt, be increased pressure on independent stores, as there is in the States.

Peter Kindersley of Dorling Kindersley was looking forward to the arrival of Borders -- "our kind of store," he said -- though he worried about a concentration of bookselling power, and added, "It remains to be seen whether big superstores can make money; there are a lot of American stores on credit hold, which is a big worry."

There had been reports that the extensive home selling staff build up in recent years by DK had been decimated, but Kindersley explained that it was more a question of walkouts by salespeople with insufficient new material to sell than conscious cost-cutting by the company. It works, he said, rather like a Tupperware party: a "host" gives a "book look," at which family and friends are invited to buy, and recruiters of new salespeople get a bonus. Ultimately a staff of about 10,000 such "salespeople" was built up in the U.K. and the U.S., and since many of the people to whom they sold were not regular bookstore customers, it had been "a wonderful way of branding the company," putting it in touch with a million potential new customers a year.

It is now a little over two years since Britain's Net Book Agreement collapsed under pressure from publishers and retailers who wanted to discount, and in many ways the jury is still out on the effects.

As Bloomsbury's Nigel Newton pointed out in a speech he made at a recent conference in Venice on the subject of fixed prices around Europe, "The world has not ended, as the pundits predicted." But he also noted that discounting in the U.K. had so far been on a relatively limited scale, certainly compared to the U.S. "A relatively small number of titles are discounted at any one time -- generally not more than 180 in a given month out of the 70,000 titles published each year."

But there was no doubt that discounting had caused higher book prices, as publishers had to raise prices to be able to offer discounts and not lose margin. Newton felt that some books sold better, particularly those price-promoted in supermarkets, whereas others suffered; overall, consumer expenditures on books dropped in the year following the abandonment of the NBA; but one of the encouraging signs of the British book economy that surfaced during our week of interviews was a report that consumer expenditure on books had actually risen a rather healthy 8% during 1997.

Hodder's Hely Hutchinson, an early proponent of free prices and a keen observer of what has been happening in the past two years, felt the current retail scene was "very dynamic," borne out by such figures as overall increases in Waterstones' sales of about 18% and an average of 5%-10% in general bookstores. He cited schemes such as Smith's first novel program, for which the chain wanted big discounts and offered big support; it had led, he said, to sales increases on the order of 150,000 instead of maybe 30,000.

Watch Out, The British Are Coming!

Books, particularly fiction, that have made it big in the United States have long been a staple of British lists, but at present, some of the brighter, smaller publishers have been doing spectacularly well with some of the more literary American titles, both fiction and nonfiction. (for details on individual publishers' range of titles and some of their authors, see database)

Since the British Isles are distressingly finite, covetous eyes are frequently cast across the ocean toward a market that seems almost miraculously large, prosperous and expansive. Most British publishers do some kind of business in the U.S. already, many of them through a distribution operation called Trafalgar Square, others through the smaller London Bridge and Seven Hills companies. Some are actively talking about working with American publishers on distribution deals for those books for which U.S. rights have not been sold either by agent or publisher.

One of these is Bloomsbury, whose Nigel Newton said roundly: "Any long-term strategy will have to envisage British publishers having American companies, and vice versa." He said he expected Bloomsbury to have a strong American presence before too long (and usually well-informed sources said a distribution agreement might be announced with St. Martin's Press before the year is out).

Dorling Kindersley, of course, has its own U.S. operation, and one that had been doing well until, said Peter Kindersley, it "ran into trouble with the chains." After a lackluster first half, business had improved over Christmas and early this year -- though the search for a new CEO of U.S. operations was an urgent continuing concern. Kindersley still sees the U.S. as "our biggest growth market, both in publishing and direct selling." Ideas for new titles and projects come from the U.S. operation as well as the British one, though only a handful of titles are U.S. originals.

At Cassell, Philip Sturrock acknowledges that he is looking to acquire an East Coast academic publisher of the right size, with a list based in social sciences and the "soft humanities," and a strong direct-mail base. "We know what we want, and we'll find it," he said. "It's vital for an academic publisher to have a base in the U.S.; the best academicians want an international audience."

Two business publishers, Nicholas Brealey and Financial Times/Pitman, naturally see the U.S. as an important part of their market. Brealey, whose eponymous company is heavily into export (Asia is a particularly important part of his market), now distributes his books through Logan Trade in Boston.

"These are times when U.S. and British publishers can be truly international," he declared. He is pleasantly surprised by how well a successful book can do in the U.S., where he has experienced returns as low as 5% on some titles.

At Financial Times/Pitman Publishing, director Peter Marshall described an operation that has recently changed its name (to emphasize the link with Pearson's Financial Times newspaper) to Financial Times Management, and is still a "relatively new entrant" in the business publishing market in the U.S.

"There is less resistance in Europe to reading U.S.-originated business books than there is in the U.S. to reading non-U.S. titles," Marshall observed wryly.

The Web and UK Territorial Rights

Attitudes toward the whole question of online bookselling (especially out of the U.S. by Amazon.com and, to a lesser extent, BarnesandNoble.com) and the impact it might have on territorial rights arrangements were astonishingly varied, ranging from insouciance to grave concern. The issue is one of time and price: U.S. editions of works by popular American authors usually appear some time before U.K. licensed editions, and are invariably lower-priced, and are therefore tempting to a keen British reader browsing the Web bookstores.

Now every effort is being made at DK to beef up selling on the Web, though it is still minimal in terms of sales; deals with America Online and the Disney Channel to increase the amount of Web traffic will continue. For Peter Kindersley, it was "no big problem, in the English-language markets, anyway."

Rob Shreeve was also looking forward to the launch of a Virgin website later this month, since "movie fans and pop culture junkies" (important readers for Virgin titles) "abound on the Web."

However, Victoria Barnsley at Fourth Estate, without a U.S. partner, said her company would be "very hard hit if people started buying off the Web in a big way." She was also concerned that if Borders established a large presence it might start bringing in U.S. editions from Europe.

At the BA, Tim Godfray says he sees a lot more U.S. titles being sold in British bookstores, "and I can see why publishers are so anxious to secure their territorial rights. Ultimately, I think it's going to be very difficult to hold on to them." He also had an interesting thought: "Once you can price-compare online, it may make a big difference to online sales. At present, people can't really tell if they're getting a better deal."

The Politics

For Ronnie Williams at the PA and Tom Godfray at the BA, the arrival of a new Labor Government is occasion for rejoicing. "We haven't been spending nearly enough in the schools," Williams declared, "and there are already signs this government will pursue that." He cited such initiatives as the Year of Reading, in which every British schoolchild on World Book Day (April 23) will be given a book token worth $1.75 and Book Start, in which social workers working with poor families take free books to children at age nine months to encourage a start on reading. "The results are really measurable," Williams said. "There's a political push toward education that's very heartening."

As for the perpetually vexing question under Conservative governments of imposing VAT (value-added tax) on books, which the PA successfully fought off for years, he is sure that with a Labour government that danger has receded. But it could return with efforts to harmonize taxation within the EEC, where some countries have high taxes on books and some, like Britain, none at all. "We'd want to settle on zero or the lowest possible level," he said. (Tim Godfray at the BA felt the level ultimately settled on would probably be 5%)

Godfray, a veteran of 15 years with the BA, described an activist association with a staff of 21 and about 3200 member shops (which include all chain outlets and even supermarkets that sell books). It runs the national Book Token scheme (the formerly staid tokens have been redesigned in a lively and sometimes saucy way that has drawn considerable attention); serves as a clearinghouse for booksellers' end-of month payments; helps develop nonbook sales; and is currently conducting, with the aid of a private research firm, a review of the whole supply chain for books.

His members, Godfray said, are worried about an increasing American presence and the influence it is likely to exert. Still, he is optimistic. There is currently more square footage devoted to book sales than at any time in British history, and most independents have weathered the price wars and supermarket competition following the end of the NBA and emerged with considerable strengths: "They're faster and more knowledgeable."

Whitaker, which publishes The Bookseller the U.K. equivalent of PW and maintains the U.K. books in print database, is active in two systems that offer advanced electronic sales tracking and book ordering services, BookTrack and BookEasy.

(For an extended version of this story please see the March 9, 1998 print issue of Publishers Weekly.)
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