Monday, March 10, 2003

Elizabeth Sims was asked to write about “the bookstore wars from the point of view of the chains” by the American editor of LOGOS: The Journal of the World Book Community, a quarterly published in the UK by Colin Whurr. This is the piece she wrote. It was published as the lead article in LOGOS volume 13, issue 2, released in July, 2002. It was accompanied by a response written by Andy Ross, owner of Cody’s Books in Berkeley, California.

Note: This is long.

Store Wars: the Case for the Chains

by Elizabeth Sims

©Elizabeth Sims. All rights reserved.

During the winter of 1993-94, I managed a Borders Books & Music store in suburban Chicago. One day one of my assistants caught up with me on the sales floor. “You’re going to love this one,” she said. “A customer just told me that somebody somewhere went to a chain store and asked if they carried The Shipping News. Guess what the clerk said?”
“’Let’s check in periodicals’, right?” The book had come out two weeks ago.
Oh, boy, I thought, we’re going to be hearing that one for a long time.
And, in fact, if I’d had a jelly doughnut—and eaten it—for every time I heard that story since, I’d be sought after by every freak show in the nation.
It doesn’t matter whether the story is true; I’ve little doubt that it is, in spite of the fact that the particulars—which chain? which clerk?—instantly dissolved into apocrypha. What matters is that the story summarizes what many independent booksellers and their supporters believe: The superstore companies are loaded with philistines. Aren’t you glad we’re pure?
The story has been a touchstone for many, and, though by now quite stale, still is.


Twenty years ago, the book business was virtually non-competitive. If you wanted to open a bookstore in America, you rented a space you liked, you bought some inventory, and you hung up your sign. Your shop was small, you drew customers from your neighborhood, and you made a modest living selling merchandise you liked very much.
You rarely advertised, except in the phone book. You never thought about competing with the store on the other side of the neighborhood or across town, never thought about being an aggressive marketer, because aggressive marketing wasn’t nice. You got into bookselling because you liked to read and talk about books, not because you wanted to exhaust yourself writing press releases and analyzing cash flow and pushing hot sellers and beating the other guy.
For customers in those days, shopping for books was a pretty sedate, and limiting, experience.
Tom and Louis Borders opened a small used book shop in 1971 in Ann Arbor, Michigan. After a while they began to sell new books, moving to larger quarters. Seeing their sales rise every time they increased their inventory, they wondered just how big an inventory they could build, while keeping precise track of it, and making their buying more responsive to customer desires.
Louis, the mathematical one, came up with a computer program that helped them do this. It was clunky at first, but over time it became a powerful engine of efficiency.
Barnes & Noble emulated the Borders inventory system, ringing their own changes on it as they went along. These systems today are incredibly sophisticated, increasing by powers of ten the effectiveness of their human masters, the buyers.
It has never been recognized sufficiently that the highly customized inventory control system is what revolutionized bookselling, not pretty carpets and hanging plants. It is the most critical key to the success of the superstore chains. In the 1980s the typical bookstore carried 5,000-10,000 titles, about all the inventory a sole proprietor could keep in memory or a card file. Borders and Barnes & Noble, using their potent inventory systems, began opening stores with 75,000-100,000 titles. Customers went wild for the huge inventories, to say nothing of other services like special orders at no extra charge, free gift wrapping and washrooms.
As the superstores gradually expanded their operations, most independent booksellers simply watched. They watched, but did nothing. And most allowed themselves to be caught absolutely flat-footed by this new competition. Well, yes, I know that some small book shops in other parts of the country have closed, after the superstores came to town, but that won’t happen to me. My customers are loyal.
They somehow ignored that paramount axiom of retail: there is no such thing as a loyal customer. Customers will patronize you as long as you meet their needs, whatever those needs are. If someone else comes along and does what you do, only better, your customers become their customers.
I don’t know why so many independent booksellers take tremendous pride in being naive about the nuts and bolts of business. One independent bookseller protested to me, after a panel discussion, “I’m a book lover, not a businesswoman!”
A few years ago a publisher’s representative commented to me over dinner, “The problem nobody talks about is that most independent booksellers are crappy, crappy business-people.”
I had the unusual experience of working for a respected independent as it morphed into a large chain. Having been an avid customer of Tom and Louis Borders’s first store in Ann Arbor, I went to work for them 1987, starting as a floor clerk in the second Borders they opened, in Birmingham, Michigan. I built a career there, eventually becoming regional director for the West Coast. I left the company in 1997 to follow my dream of being a writer. Now my living is still tied directly to bookstores, and I like it that way.
As a Borders spokeswoman I gave interviews and participated in panel discussions and radio debates. I’ve been insulted and despised by some independent booksellers, and regarded as a curiosity by others.
When Borders was a small outfit, we conducted a simple survey asking customers to rate characteristics of book stores according to importance: price, selection, service, location, special events, ambiance, etc. Quite consistently, customers rated selection highest in importance.
Thus when I read an item in Publisher’s Weekly about an independent book shop owner in southern California who announced he was going to meet the competition of a new Borders by remodeling his store, I knew he had set the clock ticking on himself. He thought his inventory and services were fine the way they were, and he assumed the only difference between himself and Borders was customer comfort. After borrowing heavily to remodel, then seeing little or no increase in sales, he shut down, vociferously blaming Borders.
Is that really who was to blame?
I have a magazine article from 1995 in which an independent book shop owner was asked whether her sales were up or down since a Borders opened very nearby. She noted that sales were neither up nor down in her small store, but grumbled that she and her staff were “working three times harder, though.”
Working three times harder? What had they been doing before Borders showed up? Well, this: when I visited that store while the Borders was under construction, two of three staff members were seated, not doing much as far as I could tell. That was too much help to have on hand on a weekday afternoon in a store that size. I identified myself and spoke with the owner, a very nice woman who appeared to know her inventory well. She told me she was concerned about the new competition, but evidently had no plans to meet it. I wanted her to know that our staff would make a point of referring customers to her store in the event Borders didn’t have what they wanted.
Some months later, I was told that customers coming into her store carrying Borders bags were asked to leave. In addition, I was told by the Borders managers that they had approached her to try to do some special events cooperatively, and were turned down.
That store is closed now, and Borders was blamed by one and all.
So it was no surprise to me to be asked, during an interview for a television program, whether I felt guilty about being a Borders executive, guilty about what Borders had “done to the independents.” Perhaps not hiding my anger very well, I answered no, that I was proud of the fine stores we’d built, proud of the millions of customers we’d pleased over the years.
It is the independents who should feel guilty. Guilty of taking their customers thoroughly for granted. Guilty of not seeking to improve their stores until, for many, it was too late. Guilty of refusing to expand their services. Guilty of refusing to spend money to compete and to accept the temporarily lower profit margin such measures would bring. Guilty of refusing to carry books they didn’t like, whether such books were romance novels, computer how-tos, finance guides, or what have you.
Ask your favorite independent booksellers what percentage of their sales come from discounted titles on the bestseller lists. Ask them what their returns rate is. Ask them what their overall turn rate is, and turn rate by subject. Nine out of ten won’t know. It’s not hard to acquire these statistics, it just takes some effort and attention to detail. Numbers like those can help an owner make more intelligent decisions about inventory, can help a store exploit strength and bolster weakness.
Ask if they’ve ever read a book on economics. Ask when was the last time they cast a savage eye on overhead, from the cost of cleaning supplies to printer cartridges to cat food, to their lease itself, and challenged themselves to find cheaper ways to get good business done.
The best independents withstood the challenge of the chains by focusing on their inventory, their costs, and their space, just as the chains did. Some expanded their space to accommodate more inventory. Others chose to limit and customize their inventories to achieve greater depth than ever before, using newly available software that interfaced with digital cash registers. Others moved their stores to more favorable locations. Many began discounting books. Some focused, as well, on hosting more frequent author readings and other special events. All found ways to better control their expenses. And their customers are much the happier for it.


For the independents the worst is certainly over: the growth spurt of the chains is now slowing in America. Superstores have coexisted with independents for going on two decades. But where America was ten years ago, more or less, Europe is now. Superstores are springing up in the U.K. and elsewhere, and the debate has begun.
Mind you, as far as customers are concerned there is no debate. More books, more choices, more services—that settles it, no matter who runs the store. The debate is not about whether superstores are inherently better or worse than independents. On the contrary, I’ve come to understand over the years that the debate is about nothing so much as ideology. It is difficult to find common ground in this argument about business, because most independent booksellers do not consider themselves capitalists. They do not consider themselves capitalists because they think capitalism is about power and greed. They think it is about the abuse of the weak by the strong.
It is about none of those things. Capitalism is about individual choice. Customer choice, merchant choice. Millions of individual choices are made every hour in the marketplace: choice is what makes it all work.
Some independent booksellers are uncomfortable with this. No wonder: millions of customers with the freedom to choose is a frightening thing, if you doubt your ability to convince them to buy from you.
So this ideological debate, such as it is, turns on independent owners making accusations against the chains, and the chains ignoring those accusations.
A wide palette of charges have been employed, endlessly voiced, massaged, tweaked, and voiced again. When a perceived adversary disregards your complaints and insinuations, you feel more certain and increasingly righteous. You begin to believe that you really are a victim. The role of victim has always offered a considerable level of comfort and sense of self-righteousness.
So much for a general approach to this matter. Let’s look at the specific charges leveled against the chains. The following is by no means an exhaustive list of the particular denunciations, but it includes all of the most common.

1. The chains only succeeded by copying the independents. If Borders and Barnes and Noble wished to copy independents, they would have opened vastly different stores than they did. They would have established a handful of stores with large inventories, a larger number with middle-sized inventories, but mostly small shops. Some of them would do special orders; others wouldn’t; yet others would do special orders if they were for a publisher they already had an account with; and lastly some that would do any special order anytime, as long as the guy who handled it wasn’t on vacation or off sick. Some that would take personal checks, ones that wouldn’t. Shops that wouldn’t carry books on hunting or guns, but would carry every word that Wittgenstein ever wrote. Staffs would range from the super-friendly to the surly and/or condescending.

2. The chains situate their stores to do maximum damage to the local independents. To believe this you must believe that independents are the center of the bookselling universe. You must believe that the indies were the obsession of the chains, subjects of intense scrutiny and fascination, and fit for imitation. By analogy, you must believe that Henry Ford created the assembly line in order to ruin the lives of harness makers. Never will independent booksellers believe the truth, which is that the big chains carefully appraise the sites selected by each other, while the location of independents is almost always irrelevant.
Borders contracted demographic surveys for each town in which they considered placing a store; Barnes & Noble undoubtedly did the same. There is no value in assuming that existing independents have placed their stores optimally. Chains seek to place their stores where the best concentration of potential customers is. Having located such a district, the trick is finding appropriate retail space.
Furthermore, when deciding to build a store that will have to do $5m to $12m of business per year to justify its investment, what sense could it possibly make to deliberately plop it next to an independent doing no more than $250,000 per year, using that as the only criterion?
But if an ideal space opens up in the desired area, and it happens to be near an independent, it is not the chain’s job to keep that shop in business.

3. The chains spied on independents. A distinct, and beloved, variation on the center-of-the-universe theory. So many independents believe they’ve been the subject of espionage that if all the corporate spies required to do such Herculean work were placed end to end, they’d reach coast to coast at least once.
One successful independent in northern California published a piece in its newsletter suggesting that it was spied on before the Borders store opened a few towns over. The piece described a cadre of men in suits looking around the store, making comments and studying things carefully, and suggested that the men were Borders operatives, clumsily revealing themselves to be the nasty corporate spies they were. As the ranking Borders executive on the West Coast at the time, I can tell you that not only did we not have any men in suits on the payroll, but the idea of spying on another store was out of the question. We took great pride in our stores, considered Borders to be the best in the business, and so expected others to be spying on us.

4. With the big chains, buying power gets concentrated into a few hands, and that’s dangerous for a free press. This is the one argument that, on the surface, appears to have some teeth. Of course, nobody wants the caprice of some cubicle-bound drone to dictate whether a writer will have a career, or be found beneath the dark waters of a lonely canal, a suicide whose frustrated death should be blamed on Borders.
The reality is that as long as there is a multitude of authors, publishers, readers, and sellers in the market, bookstore buying cannot lapse into sloppiness or be driven by corporate whim or ideology. If a chain were to lapse in some way, a significant hole would develop in its ability to serve a heterogeneous market, one into which its competitors will be more than happy to jump and scoop up that market share for themselves, be they other chains or a slew of sharp independents.

5. The chains use/used crooked business practices. Since the dawn of the chain bookstore era, the chains have been accused of thievery. This makes perfect sense if you share the Steinbeckian belief with many independent booksellers that any large corporation is, by definition, immoral. (See capitalism, above.)
In 1998 the American Booksellers Association (ABA) filed a lawsuit against Borders and Barnes & Noble, charging that the two companies had exacted special, and hence illegal, deals on prices of books and on cooperative reimbursement. This was supposed to be the capstone of a series of book business lawsuits, the one that would finally give the chains their comeuppance and show the world what kind of stuff the ABA was made of.
The ABA membership was eager to believe that the chains used tremendous leverage to strong-arm publishers into doing business their way. Curiously, at the same time, the ABA appeared to believe that publishers couldn’t wait to jump into bed with the chains, that everything was wink-wink and “let’s fleece the little guys.”
The basic question that was never asked is: What leverage?
When you run a chain of hardware stores, you buy nails by the boxcar-load from manufacturers. The fact that more than one company produces nails is something you can use to bargain with. “We need three boxcar-loads of galvanized roofing nails. The ABC company is giving us twelve for a penny; can you beat it? If you can, you get our business.” This is leverage.
But booksellers have no such bargaining power, no matter how big they are. If you want a book by a particular author you can only buy it from one publisher.
Which prompts the next question: Why would publishers be willing to give up profits? The obvious answer is, they weren’t. “If you want the latest Tom Clancy or P.D. James or Don DeLillo for cheap, go see if you can buy it from some other publisher.”
It was only after years of negotiating, years of building relationships with publishers, years of inventing ways to make it more economical for publishers to do business with them, that the chains began to receive better terms.
It is not illegal to negotiate for better terms, nor is it illegal to get them. And, on the publishers’ end, it is not illegal to sell the same merchandise to different customers on different terms. There are any number of tangibles that can justify charging different prices to different customers, largely based on publishers’ internal costs.

A few specifics on the lawsuit, which went to trial in 2001:

a) The ABA produced an expert witness who testified that the savings extended to the chains by publishers were not cost-justified. But the case was settled before the witness could be either cross-examined by defense counsel, or challenged by defense witnesses.
b) The ABA, whose members comprise 18 percent of the retail, or trade book market, pointed to many injuries allegedly suffered by them due to the competitive free market, but not one injury done to consumers.
c) The ABA spent three years and at least $18 million to press this suit, from which they received a cash settlement of $4.7m, reached after presenting about a third of their case, over six days of trial. The chains, which paid $2.35 million apiece, made no agreement to change their business practices. Aside from cross-examination of all but one of the plaintiffs’ witnesses, there is no record of the defense case, because there was no need to present it. $2.35 million is not paltry, but in plain fact it amounted to a nuisance settlement for each chain, paid simply to save further legal costs in defending against the suit. A Borders executive told me the suit had had no impact whatsoever on the way Borders does business.
d) Avin Domnitz, CEO of the ABA, told me, however, that the suit was “tremendously successful at leveling the playing field.” He meant that the ABA takes credit for the fact that a number of publishers, in the years after the suit was filed and before the trial, made terms and coop programs more appealing to independent booksellers.
Really? The ABA’s litigation was that influential? Mightn’t one reasonably suppose that the cause was the years of negotiation by the chains, now filtering down to the independents?
e) Some ABA dues-payers wondered whether their organization spent their $18 million wisely. So do I. How might the ABA have used that money in a more businesslike way? They might have issued low-interest loans to member stores that wished to expand. They might have organized collective buying and distribution arrangements for their members. They might have developed strategies to negotiate with publishers for coop funds for the collective benefit of the members. Tough work, to be sure.

6. Many chain stores aren’t profitable, but are kept open in order to crush the independents. This one lives on and on. I was in an independent book shop last fall to speak to the owner about my forthcoming novel. During our talk I mentioned that I once worked for Borders. She launched into a tutorial on the sins of my former employer. “The chains,” she told me, “have cash flow, but they’re not profitable. They keep stores open—many stores—in order to drive the independents out of business.”
I said, “Well, Borders stores are profitable. I saw the balance sheets for every store every month until I left the company.” I tried to explain that the chains do not have mountains of cash to hide ongoing failure. They’re expected by shareholders to turn a profit. It is true that Borders and Barnes & Noble regularly post losses. But that is because they are still expanding. If a chain has 200 stores and wants to build 40 more this year, it must show the bank that the 200 are making money, in order to qualify for the loans needed to build the 40 more. Businesses do not get additional funds if they can’t show they are making their business work. The overall financial picture becomes a loss because the expenses of opening 40 new stores outstrip the profits made by the 200 existing. That is why the chains’ stock is regarded by shareholders as a growth stock. If they someday stop growing, their shareholders will expect a continuing stream of dividends, as opposed to an increasing stock price.
I could tell this shop owner didn’t believe me, but she politely changed the subject to the rafts of crooked deals she’d heard the chains make with publishers. When I attempted to refute this assertion too, she reassured me comfortably, “Well, it didn’t happen at your level.” The ABA could, if it wished, have put an end to this rumor-mongering, since it had subpoenaed detailed profit-and-loss statements of both chains during the discovery phase of its case against them.

7. The chains steal/stole customers from the independents by offering discounts, and independents can’t really afford to discount. The Borders brothers began giving 10 percent off most hardcovers when they were a single store. In 1985, the year they opened their second store, they began giving 30 percent off New York Times hardcovers as well. They were able to do this and remain profitable because their business practices were sound.
The charge that the chains sold books cheaply to entice hordes of customers away from indies is yet another self-deception fabricated by the independents. The percentage of total sales represented by discounted books sold by the chains runs to about three percent bestsellers, and 10-11 percent discounted hardcovers. Thirteen to 14 percent of total book sales is hardly enough to have seduced book buyers into buying 86-87 percent of their purchases at full list price from the chains.

8. Remember, some chains stopped selling The Satanic Verses when the fatwa on Salman Rushdie was announced. They can’t be counted on to carry controversial books. This is an oft-repeated, half-baked factoid. Here is what happened. After the Ayatollah announced his fatwa against Salman Rushdie, some book chains were sent bomb threats for carrying the novel. Borders did not pull the book, though I know that the store I was working in at the time received at least one threat by telephone. Waldenbooks, at the time owned by Kmart, sent word to its managers in large urban areas that they could use their own discretion as to whether or not to pull the book from display, but not from inventory. The stores that chose to pull it from display returned it to the shelves after no more than two weeks.
How good are independents at carrying controversial titles? The biggest and arguably most controversial American book of 1995 was Newt Gingrich’s To Renew America. While it was on the bestseller lists, I was surprised to walk into a large Los Angeles independent and be greeted with a prominent sign announcing, “NO NEWTS!” Just to make sure, I asked whether the sign meant what it appeared to mean, and was told that yes, the store had decided not to carry the book.
It shouldn’t be surprising that independent book store owners tend to lean to the left politically. I’ve seen many more instances of independents using their stores as platforms for their political or ideological views, from the posting of slogans and advertisements and opinions, to the choices of front-of-store titles.
The Turner Diaries is by any standard a controversial book. A bizarre reactionary tract vaguely akin to Mein Kampf and portions of Ayn Rand and Swift, it was used as a notional guide by Timothy McVeigh in his preparation for the bombing of the federal building in Oklahoma. It is reasonable to suppose that it is read and taken literally by other wackos. It is also purchased and read by people who are interested in it for other reasons.
I called stores around northern California, where I live, looking for the book, and found that of the three large general independents I called, none carried it as a regular item, though all would order it on request. But the three Borders stores closest to those independents do carry it as a standard in-stock item. Why? Because it sells, to the tune of a thousand copies per year in Borders stores.
Independent booksellers are not champions of controversial titles. They are champions of the correct controversial titles.


The ABA leadership has spent enormous amounts of energy and money fostering in its membership—and anybody else who would listen—the belief that independent booksellers are victims. And the association has cast itself as the avenger, seeking to take away the benefits their competitors worked long and hard for instead of forging its own way.
Is this situation likely to change? After all, the victim role is extremely popular with independent booksellers. Not with all, but with dismayingly many. It makes them feel superior. It buys them sympathy. But the bind into which these independents have firmly strapped themselves, with the help of the ABA leadership, is this: how do they maintain the comfort of feeling blameless for their own troubles, yet gain the gumption for unflinching self-examination, which is the bedrock of being a strong competitor?
If the indies admit that the playing field has been level all along, then if they haven’t prospered, it’s their own fault. Such a conclusion is unbearable for those who have invested heavily in self-pity.
The chains, however, in their efforts to drive their stock prices ever higher, are compromising some of the essential practices that made their businesses great. They have become mammoth corporations, far larger than any of us envisioned in the early days. In organizations of such size, size itself takes on a life of its own, and it will sap the soul of the business if not attended to.
High standards of in-store presentation, which are expensive to maintain, are relaxed, even forgotten. Labor gets squeezed. Home-office departments turn into fiefdoms fighting for prominence. Leadership becomes averse to risk. It doesn’t have to be this way, but when leadership chooses to be driven by quarterly earnings instead of by customers, it does happen. And irresolute leadership will destroy a company—slowly, painfully, and thoroughly.
Yes, when the chains were new and dynamic, many of their weaker competitors fell by the wayside. But the wayside is also where surprises can hide, ready to ambush a competitor who has grown more ponderous than agile.
Both chains and independents have things to learn. It’s a great time to be selling books.

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