Now that Barnes & Noble's acquisition of Sterling is complete, how are other stores reacting? Not too well, judging by two leading retailers. The publisher confirmed reports that Costco has stopped ordering and selling Sterling's books because it deems B&N a competitor, while Borders Group has articulated a similar policy.
Sterling president Charles Nurnberg said he "finds it kind of interesting" that Costco would make such a decision. "They buy two or three hundred titles and sell it with [high-margin items such as] garden hoses, instead of 150,000 titles, like Barnes & Noble and Borders and the independents do. Who is whose competition?" Costco did not return a call for comment.
Borders said that it, too, would cease ordering from Sterling. In a statement, the company said, "Borders has had a productive and positive relationship with Sterling. Yet since Sterling is now owned by a competitor, we believe it is prudent for our company to phase out that relationship. We are confident the products supplied by Sterling can be purchased through other sources, assuring that Borders will continue to serve customer needs." Borders spokesperson Ann Binkley said the chain has begun looking for books to replace Sterling titles and may order "one or two [Sterling] titles" that it can't replace. The store also recently ended its category-management partnership with Sterling.
Nurnberg said he hopes Borders will "reconsider the decision to deprive their customers of such a successful range of books when they're getting an absolutely equal playing field." Talk has already begun among publishers that publish in Sterling's categories about developing titles that, in the words of one publisher, "will fill the Sterling void."
The size of the hit to Sterling's business from the loss of the two accounts isn't clear. Some estimated that Costco was responsible for as much as 10% of Sterling's sales, but Nurnberg said the "real number is closer to 1% or 1.5%." Borders sales account for about 6% of sales. Despite the loss of two major accounts, Nurnberg expects Sterling's sales to increase by at least 10% in 2003. The company has always done a significant amount of business outside of traditional bookselling channels with customers who don't consider themselves to be in direct competition with B&N.
In the past, Costco has dropped suppliers when it thinks the suppliers are giving preferable terms to the competition. In Austin, Tex., a frozen-food company called Michael Angelo went on Costco's non-grata list after the company reportedly sent a memo to a Costco competitor offering better prices. Sterling, though, says B&N gets the same discount as everyone else, and it appears as if the fact of B&N ownership was enough to rankle the Washington State discounter.
As for independent booksellers and other accounts, Nurnberg said that he has personally called any store with reservations about the new arrangement. Some independents, frustrated by B&N's ownership of Sterling, are ordering Sterling titles from wholesalers rather than directly from the publisher. "I think what everybody's losing sight of is that Sterling's price points have been better as a result of the sale," Nurnberg said.