Just You, Me and Barnes & Noble

Once-Impersonal Big Book Chains Create Consumer Relationships to Regain Market Share

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At Indy Sellers, You Pay Full Price -- but Get a Community
COLUMBUS, Ohio (AdAge.com) -- Barnes & Noble and Borders might have been the big, bad box stores of retail a decade ago -- crushing independent booksellers that number an estimated 1,600 today compared to 4,496 in 1995 -- but today the chains are the Davids among the mass-market Goliaths.

Just consider that of the $53.7 billion spent on books in 2006, according to U.S. census data, only $16.6 billion of those sales were in bookstores. As recently as 15 years ago, one out of two books were sold in a bookstore, according to research firm Ipsos. But as of its last report in 2002, the figure dropped to 38%. The next definitive verdict is a trend study four years in the making coming June 1 from the Book Industry Study Group.

It will be closely watched because there's a lot at stake -- everything from a potential power shift in price negotiations to the ability to command co-op marketing fees. "Book publishers want to sell books, they technically don't care where the books are sold," said Al Greco, professor-marketing at Fordham University and a senior researcher at the Institute for Publishing Research. "But they do care if bookstores really declined in numbers and it impacts their influence."

Losing influence
But fearing they are losing that influence to online-only sellers, non-traditional booksellers such as Costco and Wal-Mart, and even publishers bypassing the bookstore for promotional programs such as online video and audio with authors, the big book chains are using marketing to try and create their own relationship with consumers.

It's no mistake, for example, that the chief marketing officer at Borders -- the nation's second-largest chain, with $4.1 billion in sales -- comes from Nordstrom and American Eagle Outfitters. In his newly created position, Michael Tam is charged with bringing to bookselling the techniques and sensibilities of the fashion world -- quick inventory turns and elaborate thematic displays changed out monthly.

"It gives us an edge so we don't have to solely be talking about the bestseller that is hot at the moment," Mr. Tam said, describing why the chain has spent big creating elaborate Mother's Day displays and signage of white tulips with a palette of pastels that will dominate the interiors of the chain's 567 stores for four short weeks.

It's a significant element in a companywide reinvention plan launched to turn around a chain facing two years of declines in net income that culminated in a $151 million net loss in its last fiscal year.

Stealing business back
Mr. Tam's goal is to lure customers by differentiating the Borders buying experience from that of Wal-Mart or Costco. Those players are steadily stealing share, especially for bestsellers, where a staggering capacity for volume is further consolidating power among players and increasing their ability to reap more co-op marketing dollars.

And then there's the web, where, according to Forrester Research, 21% of all books are sold. Although chains like Borders and Barnes & Noble sell books online, it's Amazon that's the 800-pound gorilla in cyberspace. Of Barnes & Noble's total $5.2 billion in sales, its online tally was only $433 million in 2006, though it's growing at a speedy clip. (Amazon's book sales aren't known; the $10.7 billion company doesn't break out the category.) Complicating matters, it's Amazon that runs the Borders website, though Borders plans to launch its own site in 2008.

"Traditional bookstores are in a fight to the death with Amazon for market share, and Amazon is in a fight to the death with the mass merchants and price clubs. You've got this triangle, they are all fighting to the death for market share, and it's possible some won't survive," said Mr. Greco.

Late to the game
So the chains are trying to establish relationships with consumers to build loyalty. Borders, for example, began offering a free rewards program in early 2006 -- a late response to Barnes & Noble's member program, which for $25 annually gives members 40% off all bestsellers.

But technology is making it tougher. Once booksellers could offer a personal touch by bringing in an author for a book signing or reading; now a reader can get a one-on-one experience without leaving the comfort of his computer.

For the 30th anniversary edition of "Roots" on May 22, its publisher created a multimedia website; a book "trailer" set to stream to the likes of YouTube.com and MSN.com; a discussion forum; a video interview with Alex Haley's son, William Haley; posthumously released audio interviews with Mr. Haley; and a video documentary about the writing of "Roots."

"Roots" Publisher Roger Cooper has no intention of ignoring the bookstore channel or the big boxes. But he's also intent on going "where readers live and engage in a new way. The key is to spend one's money and still have visibility in the bookstore marketplace, and still have time and money and energy to build elsewhere."

So could savvy publishers such as Mr. Cooper be moving toward a place where they don't need bookstores anymore? "'There will always be Paris,' Bogart said to Bergman, and we'll always have bookstores," he said.

Independents unite
It's not just publishers honing their marketing game to win back influence from the big-box bookstores and mass merchants. In 2000, the surviving independents joined to create a national Booksense marketing program to grab co-op marketing dollars from publishers before they all ended up at the major chains.

"It was very much a response to, 'Oh my God, they are selling books in the local drugstore and everywhere else.' This was a way to shine the light on the independent market," said Meg Smith, director-membership marketing at the American Booksellers Association. "The best way to fight competition is to get better at what you do."

About 1,100 of the group's 1,600 members participate. The program includes in-store marketing materials and a "Booksense Picks" monthly flier with a list of 20 book recommendations. Stores can with less expense create their own website via Booksense.com by paying a $225 monthly fee.

Bigger pie
Of course, if Americans began reading in bigger numbers and the pie suddenly got bigger, the fortunes of both bookstore chains and independents could improve.

That's not the aim of a recent campaign by the National Endowment for the Arts, but it could be a side effect of its "Big Read" effort, which aims to "restore reading to the center of American culture." Backed by nearly $3 million in grants for 2007 and expanding to 120 cities by this fall, the push encourages communitywide readings of classics such as "The Great Gatsby" and "Farewell to Arms."

So F. Scott Fitzgerald and Ernest Hemingway could inadvertently play a role in saving Barnes & Noble and Borders.
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