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BW Businessworld

Sting In The Retail

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Nearly a year ago, Tata Group’s Landmark store in Mumbai’s Phoenix Mills was closed for renovation. It has not yet reopened. Last heard, Landmark executives were renegotiating rentals with the Ruias, who own the property. It’s not clear when the Phoenix store will rise again. Reliance TimeOut is said to have shut at over six locations across the country. Odyssey, once the most aggressive of them all, is now a shadow of its former self. From a massive 78 stores, the Chennai chain that sold everything from gifts and toys to books has just six stores now; th­ree each in Andhra Pradesh and Tamil Nadu.

Or take Crossword, which was ranked the 6th most admired retailer in India by this magazine in 2006 and the only book retailer in the top 10. Its fortunes have been mixed, too. In Chennai, it had to close down four times, but has been making money in its fifth attempt. Even in Mumbai, it has shut down a few high-visibility stores: in Bandra and Powai, for instance.

Of course, not many of these retailers might talk about downing shutters, but you can feel the change. So, is your neighbourhood bookstore going to disappear like your neighbourhood library? Or is it migrating to the Web? “Publishers worldwide might be getting 61 per cent of their business through the digital medium now, but the discovery of books online is only 6 per cent,” says Gautam Padmanabhan, CEO of publisher Westland. “We depend on brick-and-mortar bookstores to promote titles.”

In India, at least, most publishers and booksellers are positive; Nielsen Book, the US-based information provider, estimates that book retail is growing over 30 per cent a year. In 2011, nearly 1.2 million books were sold in India: about $62 million, or roughly Rs 350 crore. But experts such as Crossword’s COO Kinjal Shah peg the size, excluding educational books, at Rs 1,600 crore.

Incidentally, B.S. Nagesh, vice-chairman of Shoppers Stop (which owns Crossword), recently told a gathering of retailing professionals not to read too much into these outlet closures; he said they were course corrections. “People have not stopped reading books; the numbers are only growing,” says T.S. Ashwin, founder of Odyssey. But many feel bookstore chains are going through a ‘rough patch’ But why? “Oh, that’s because most people buy books online.” This perception itself might be more than a little flawed. Publishers pricing books at Rs 300 and below still sell 80 per cent of them through brick-and-mortar stores. To complicate things, data from Internet research firm comScore show that the number of unique visitors shopping for books online fell 35 per cent between October 2011 and 2012. That, even as the total online retail business grew 48 per cent.
 
THE STORY SO FAR: While Nielsen Book estimates that book retail is growing more than 30 per cent a year in India, most of the offline book retailers such as Landmark (left) and Crossword saw sales falling or migrating to online sellers such as Flipkart. Pavement sellers such as those in Delhi’s Darya Ganj that offer up to 80 per cent discount on titles manage to do well (BW pic by Subhabrata Das)

So, how did bookstore retailers get it all wrong? Most of the large chains — Landmark, Odyssey or Reliance TimeOut — offered more than just books to customers. The name of the game was the widest range. For instance, outlets of TimeOut reportedly offer 135,000 books of every genre, over 65,000 movie and music titles, 21,000 stationery items, 8,000 toys, 19,000 gifts articles and even a wide range of gaming formats.

Here is the problem: if the leader category in a store is books, it is ­unlikely that a large section of the consumer base is going to walk into the store and pick up watches or perfumes. It also requires a lot of staying power even as chains are expanding into newer territories while funding the existing stores.

If book sales fall, sales of other categories in the store get affected too. Remember Archies, the popular cards and gifts chain of the 1990s? When e-cards came along, greeting cards were tossed. Unfortunately for Archies, consumers identified it more with its leader category (cards) and ignored the gift section.

Book retailers say this doesn’t apply to them. Landmark, for instance, prides itself as a player in the entertainment space, says its marketing head Lijin Thomas. So does Odyssey. “We would like to be the destination store of choice for consumers in the categories we play in,” says Ashwin. That implies more space for all those toys, games, gifts and accessories. In short, higher costs.
 
A SPACE AND CHARM OF THEIR OWN
Early in February, Strand in Mumbai had its annual sale. Unlike in the past, this time the crowds were missing. Are standalone book stores like Strand losing relevance in the click-n-buy age? Independent book store owners say they here to stay. K.D. Singh of The Bookshop in Delhi says many of them own the premises they retail from and hence are not affected by the soaring store rentals. Stores like his, which are leased, survive because of legal provisions such as the Rent Control Act.

There are examples of standalone stores doing well for themselves. Kitabkhana, a standalone 8,000 sq. ft bookstore in Mumbai is one. Opened in 2011, it has been growing at 30 per cent annually, says store manager T. Jagath. Even in cases where stores have eventually folded up, like Manneys in Pune, Singh says the reasons for closure were other than the business becoming unsustainable — in this case, the owner was too old to continue.

Independent book stores have their own charm and a clear positioning, something that chains could learn from. In Delhi, for instance, Fact And Fiction specialises in travel literature; Bahrisons sells current affairs and politics; Full Circle is known for mind body and spirit titles while The Bookshop is focused on literary fiction. So customers for these specific genres are most likely to be loyal to these shops.
 

Freaky Book-o-nomics
Take Odyssey in Chembur, a Mumbai suburb. At 25,000 sq. ft, it was gigantic for the category, where even 3,000 sq ft is deemed large. Oxford’s flagship outlet in Churchgate is just over 3,000 sq. ft, and also includes seating space and in-house café Cha Bar. Shah says books cannot give an unusually high return per sq. ft. On average, returns are Rs 10,000-12,000 per sq. ft a year, while an apparel retailer may get Rs 16,000.
 
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And when bookstores are located in a mall, they pay the same rentals as an apparel store. “Depending on where you are located, rentals can be as much as 25-40 per cent of operating expenses,” says Ashwin. “Bookstores are not 25,000 sq. ft businesses,” says a marketing consultant who has worked with book retailers. Odyssey would need to attract eight times the customers and generate eight times the billing of a rival bookstore in Chembur. In the same vicinity, Crossword had a 3,000 sq. ft outlet, and has a store-in-store within a Shoppers Stop at that. As in all retail businesses, it’s all about location. Several stores in the mall didn’t do too well, and that hit all other tenants, including Odyssey, which had to close.

It’s a Steal!
Book buffs love it when a store shuts down. One such reader gets a glint in his eyes talking about when Odyssey in the National Capital Region shut shop. “Many books were available at a discount of up to 80 per cent. I took home a bagful,” he says. How else can one explain the survival of roadside book vendors such as Mumbai’s Hitler (yes, that’s his real name) who sells second-hand books, almost at scrap value? Or the rush of consumers when bookstore chains offer up to 80 per cent off during the end-of-the-year sale?

Crossword is already running such a sale across its chains as we go to press. So is Strand, Mumbai’s near-iconic book store; it’s running its annual clearance sale with a minimum guarantee of 45 per cent discount to a maximum of 80 per cent. Strand itself is facing bad times.

What underscores book lovers’ penny-pinching ways is the success of e-tailers selling books at, say, 30 per cent discount and finding enough takers. Take author Amish Tripathi’s third book in the Shiva Trilogy, The Oath of the Vayuputras, which is being offered 15 per cent discount for pre-launch bookings in outlets such as Oxford Bookstore. Online buyers get as much as 30 per cent off if they book it in advance.

Sure, brick-and-mortar retailers cannot pass on their savings directly to consumers, like e-tailers. But things are not that simple in e-tailing either. Warehousing costs are increasing, as is the cost of logistics and marketing. Even e-tailers face a big squeeze in their margins. “Customers rarely buy fiction online as the discount is too little,” says a retailer. He says in big-ticket items such as business management or foreign titles, where a discount means significant savings, buyers would buy online.

Rethinking the Business Model
Fiction gets a much higher allocation of space in most bookstores ­because of the sheer volume of titles that are being released. Again, that is a ­low-margin, high-volume business, compared to other categories such as coffee table books or management literature.

Overall, book buying is not declining by any count. Just that buyers now have many more options to buy from. Footfalls were down 15-40 per cent in some outlets. Even the big annual sales seem to have been given the go by, and the average spend per customer is falling in some outlets. What does that say about the prevailing business model? Ashwin agrees that large format stores will not survive. “Globally, Borders or even Barnes & Noble have found it hard to sustain large formats,” he says. So why did they go that way in the first place? He says book retailers went the way shoppers did: to malls. But soon, the novelty factor wore off, and they took a hit.

Now what? Ashwin and Thomas think the way forward is optimisation. “The optimum size for flagship stores would be 6,000-10,000 sq. ft,” says Ashwin. Shah says he finds 3,000 sq. ft the right size. Of course, there will be exceptions, such as Crossword’s 15,000 sq. ft outlet at Kemps Corner in Mumbai.

Average store sizes will come down as retailers are in the midst of space reallocation for categories that drive sales more than others. Categories such as music that had seen up to 90 racks in some Landmark outlets are being heavily downsized and the space freed up will be reallocated for sections such as kids ­corner, a huge and growing segment for book retailers.

The kids’ section was always a bookstore’s favourite. So, categories such as toys are coming up in a big way. Landmark has announced an exclusive tie-up with eco-friendly German toy maker, Hape Toys. Toys form 20 per cent of sales at Landmark. At Crossword, they make up 8-10 per cent of sales. Sivaraman Balakrishnan, head of marketing at Crossword, says in small towns, non-book revenues sometimes account for 55 per cent of sales. But the bookstore is no longer just a bookstore, it’s a social setting.

Going Beyond Books
Take the cafés in some bookstores; they are a huge draw. Moshe’s, inside Crossword’s at Kemps Corner, or the Cha Bar at Oxford Bookstore at Churchgate, have always been great attractions. And profitable too. “Margins in the café business are very attractive,” says a store manager; in some cases, an in-store cafe helps absorb some shocks that ­retailers face.
 
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Another non-book revenue stream is in renting premises out to publishers for launch events. Oxford’s flagship property in Mumbai was once the destination for all book events in the city; it was so successful that the store charged event organisers. Others have tried offering it for free, but the jury is out on if things have changed.

Like Mahomet and the mountain, when customers do not come to you, you go to them. So, corporate sales are becoming a huge source of revenue for book chains. Crossword has two outlets situated within office spaces. “Sometimes, a single corporate client gets you enough sales in a year that equals that of a flagship store in a major city,” says a bookstore manager.

Now, book chains are opting for book fairs inside company premises, or entering annual deals whereby target company employees get a flat discount on every purchase. Companies also give their employees or associates gift vouchers of bookshops as a token of appreciation for their services and so on.  Apart from rethinking the business model, success also entails multiple approaches, such as competing with e-tailers by setting up own online stores: a dual bricks-and-clicks model. An example is Landmark and Landmark­on­thenet, which, Thomas claims, is as competitive as pure-play e-tailers.

Book retailers will continue to find ways of keeping their heads above water, though some may sink. But ultimately, a bookstore is about books, and the bookselling business has to be built around them. Like the name of a bookstore in the New South Wales town of Newtown in Australia: Better Read Than Dead.

A space and charm of their own Early in February, Strand in Mumbai had its annual sale. Unlike in the past, this time the crowds were missing. Are standalone book stores like Strand losing relevance in the click-n-buy age? Independent book store owners say they here to stay.

K.D. Singh of The Bookshop in Delhi says many of them own the premises they retail from and hence are not affected by the soaring store rentals. Stores like his, which are leased, survive because of legal provisions such as the Rent Control Act.

 
KINDL(E)ING A FIRESTORM
Six months ago — in August 2012 — British newspapers reported that for every 100 books bought in bookstores in 2012, there were 114 e-books bought from online retailer major Amazon. Suddenly, it seemed like the beginning of the end for the dog-eared, paperback pulp fiction novels that entertained the last two or three generations of readers. Data on book sales is hard to get, and often delayed, but even the figures for 2011 seem to support that trend in the UK. Using data from 250 publishers, the Publishers Association pegged the value of all digital e-books bought by consumers at £92 million (approximately Rs 750 crore) in 2011.

Across the pond in the US, the 2012 edition of BookStats — data is compiled up to June 2012 — said that adult fiction ebook sales doubled in 2011 over 2010 — a trend that continued into the first two quarters of 2012. But before we write the epitaph of the humble paper book, take a look at some other numbers. Despite the collapse of Borders — a large retail chain — physical books still accounted for 65 per cent of revenues, while the digital format accounted for 29 per cent (the figure in the UK was a reported 6 per cent). The BookStats survey even acknowledges that brick-and-mortar stores remain the primary channel for books. Stepping back across the pond, you can take heart even more; in 2012, Amazon went into partnership with Waterstones, the UK’s largest brick-and-mortar bookstore. What does it mean? Your favourite 200-page potboiler isn’t going anywhere yet.

There are examples of standalone stores doing well for themselves. Kitabkhana, a standalone 8,000 sq. ft bookstore in Mumbai is one. Opened in 2011, it has been growing at 30 per cent annually, says store manager T. Jagath. Even in cases where stores have eventually folded up, like Manneys in Pune, Singh says the reasons for closure were other than the business becoming unsustainable — in this case, the owner was too old to continue.

Independent book stores have their own charm and a clear positioning, something that chains could learn from. In Delhi, for instance, Fact And Fiction specialises in travel literature; Bahrisons sells current affairs and politics; Full Circle is known for mind body and spirit titles while The Bookshop is focused on literary fiction. So customers for these specific genres are most likely to be loyal to these shops.

Kindl(e)ing a Firestorm
Six months ago — in August 2012 — British newspapers reported that for every 100 books bought in bookstores in 2012, there were 114 e-books bought from online retailer major Amazon. Suddenly, it seemed like the beginning of the end for the dog-eared, paperback pulp fiction novels that entertained the last two or three generations of readers. Data on book sales is hard to get, and often delayed, but even the figures for 2011 seem to support that trend in the UK. Using data from 250 publishers, the Publishers Association pegged the value of all digital e-books bought by consumers at £92 million (approxi­mately Rs 750 crore) in 2011.

Across the pond in the US, the 2012 edition of BookStats — data is compiled up to June 2012 — said that adult fiction ebook sales doubled in 2011 over 2010 — a trend that continued into the first two quarters of 2012. But before we write the epitaph of the humble paper book, take a look at some other numbers.

Despite the collapse of Borders — a large retail chain — physical books still accounted for 65 per cent of revenues, while the digital format accounted for 29 per cent (the figure in the UK was a reported 6 per cent). The BookStats survey even acknowledges that brick-and-mortar stores remain the primary channel for books. Stepping back across the pond, you can take heart even more; in 2012, Amazon went into partnership with Waterstones, the UK’s largest brick-and-mortar bookstore. What does it mean? Your favourite 200-page potboiler isn’t going anywhere yet.

(This story was published in Businessworld Issue Dated 25-03-2013)