January 25, 2005
Category Killers - The Declaration of Indpendents
Competent, creative independent retailers don’t need to use resistance tactics in order to survive. These merchants understand that, to compete successfully, they must provide something that customers can’t get anywhere else. To run a specialty store that successfully competes with category killers, you have to specialize to an even greater degree. Small, independent booksellers are another category of retailers that need to find a niche if they hope to survive.
In the late 1990s, the ABA filed a federal lawsuit against Barnes & Noble and Borders, alleging that the chains used their buying power to get better—and allegedly illegal—deals from publishers, such as cash discounts and better credit terms. The suit was eventually settled out of court, but whatever the result, independents that have not clearly established a reason for being will continue to be on the endangered retailer list.
The problem with many small independents is that they got into the business because they loved books—not necessarily because they loved selling books. One bookseller who both loves books and loves selling books in a creative way is Collette Morgan, co-owner, with her husband Tom Braun, of the children’s bookstore Wild Rumpus Books in Minneapolis. In 1992, Morgan, a veteran of the book business, decided to open a store that would be “something a corporate mind would never dream up and that a large company could never sustain; a place that would sell children a good time along with their reading material.”
Morgan is often asked to speak to fellow owners of small bookstore owners. “I tell them to stop bitching and complaining and get out there and do something different. Too many of them want to do things the same way as the big-box stores; then they’re dead in the water. We do things they can’t do or wouldn’t dream of doing. B&N guys in suits would come into the stores with clipboards taking notes. They were obviously trying to copy things that we were doing but they couldn’t pull it off. They are too corporate minded. We try to do the opposite of what a B&N would do.”
Wild Rumpus is two thousand square feet of bookstore—and zoo. While borrowing its name from a phrase in Maurice Sendak’s book Where the Wild Things Are (the character of Max declares “Let the wild rumpus start”), the store design was inspired by Anne Mazer’s The Salamander Room in which a boy transfigures his bedroom into a place where his salamander would be comfortable. The lad gradually brings into his room trees, frogs, and birds, and opens up the roof to the sky.
The front of the store conjures up images of an English neighborhood bookstore. The front door of Wild Rumpus is really a door-within-a-door—one for big people and a four-foot-high purple door for little people. The ceiling opens to expose the sky above the garden. Children can settle into a little shed where they can curl up to read scary books. Resident animals are all over the store: four cats and two chickens (Dalai and Elvis) roam the floors; a half-dozen occupied bird cages are scattered throughout the store; gray rats are confined to a clear Plexiglas-covered cage, which doubles as the creaky floor of the Haunted Shack, where little boys come to play and to watch the rodent entertainment. Separately caged tarantulas and ferrets hang out by the counter. An aquarium of fish can been found in the bathroom behind the one-way mirror, so that they can only be seen in the dark.
By creating an inviting place, Morgan has found a way to create traffic and make Wild Rumpus a destination store in the urban Linden Hills neighborhood of south Minneapolis, where, within ten miles, there are six Barnes & Noble stores, three Borders, a Target, and a Musicland. On Saturday afternoons, Wild Rumpus regularly hosts a wide variety of typically quirky in-store events to attract its loyal audience of young customers. Drop in some Saturday, and you might see the shearing of a sheep, and a display of books on how to raise sheep or how to card and dye wool or how to knit.
Category killers are forever trying to be part of the community and to show that they are being good neighbors and corporate citizens. The big boxes can do this to some extent, working with local groups on community clean-ups or sponsorships. But small independent stores can also do this because they are truly a part of the community.
Wild Rumpus works closely with community organizations. “We would rather devote our energies to community outreach, rather than opening up another storefront location,” said Morgan. The store has had a long-standing association with local pediatricians, selling them the children’s books that are available in their offices. Learning that schools in the Twin Cities were increasing courses in French classes, she increased the number of French-English titles available in the store.
Reprinted by permission of Harvard Business School Press. Excerpt from Category Killers: The Retail Revolution and its Impact on Consumer Culture by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.
Category Killers - Category Management
For the past couple of years, the term “category management” has entered the retail lexicon in virtually every merchandise category. Category management began in the supermarket business, where big retailers of packaged goods learned that they could improve sales and profits if they could more efficiently administer all their different product classifications. The idea was to oversee the store not as aggregation of products, but rather as an amalgam of categories, with each category unique it how it is priced and how it is expected to perform over time.
One vendor is designated as “category captain” and charged with helping the retailer define the category; determine its place within the store; evaluate its performance by setting goals; identify the target consumer; divine the best way to merchandise, stock, and display the category; and then influence the implementation of the plan. Becoming a captain is obviously an important position because it offers that supplier an opportunity to sway a retailer’s buying decisions.
Sure, you say, category management would work with pet food or shaving cream or lawn furniture, but certainly not books. Gregory Josefowicz, the chairman and chief executive officer of the Borders Group, the parent company of Borders Books & Music, begs to differ with you. As a teenager in the 1980s, Josefowicz started his career in the supermarket business as a grocery bagger at what eventually became the Jewel-Osco Division of the Albertsons chain of food-and-drug stores. That’s where he absorbed the lessons of category management. Twenty-two years later, he became president of Jewel-Osco before resigning in 1999 to join Borders.
In 2002, Josefowicz brought category management to Borders. Publishers were selected to co-manage some 250 categories in their special area—cookbooks, business, children’s, computer, how-to, sports, etc.—to identify the titles that the store would stock, how many of those titles would be in each store; even how they would be displayed, grouped together, placed in the store, allocated space, and so on. Category managers pay about $110,000 annually to help defray the initial costs of marketing research associated with the program.
What’s in it for publishers? A seat at the table at which the major decisions are being made. While category managers can’t pick all of their titles, they have the opportunity to shape a department. Borders insists that it has the final say over the titles it carries and that all publishers will share the benefits of the market research.
As you can imagine, this approach did not sit well with some members of the literary community. In the summer of 2002, Ralph Nader, Noam Chomsky, and twenty-six other prominent authors, signed a letter to Josefowicz, arguing that category management would hurt small publishers and narrow the stores’ selection. “There is a difference between books and Pop-Tarts,” the letter warned. “Leave the category management to the soap merchants.”
But the defenders and stakeholders of category killers and other big-box retailers will tell you that they must closely manage their costs and their prices by whatever means necessary. As consumer products continue to become low-priced commodities, as savvy consumers easily comparison-shop prices on the Internet, and as profit margins become thinner, only the smartest retailers, employing the best systems and technologies, will be able to survive. Everyone along the line pays for the costs of “everyday low prices.”
Reprinted by permission of Harvard Business School Press. Excerpt from Category Killers: The Retail Revolution and its Impact on Consumer Culture by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.
Category Killers - Private Labels
Many category killers are responding by making substantial investments in their own private-label products. Private labels serve several purposes. First, these goods produce a greater profit margin because the retailers don’t have to pay the built-in costs for the supplier’s shipping, marketing, and advertising. With in-house brands, stores typically have no middleman vendor to pay, and they have more control over prices. By generating better profit margins, the retailer can afford to stock the national brands, which produce a thin profit margin. Second, a retailer can use a private label as a distinctive reason for shoppers to visit one of its stores. Third, the best retailers can market and merchandise their own private labels so well that the consumer believes them to be national brands.
Barnes & Noble has been involved in self-publishing since the mid-1970s. After getting numerous requests for out-of-print books, the company acquired reprint rights for a variety of academic and esoteric titles and sold them for $6.99 apiece. In the 1980s, B&N expanded its publishing projects to richly illustrated coffee-table books on gardening, cooking, and lifestyle. In 2002, B&N bought Sterling Publishing Company, Inc., a Manhattan-based specialist in how-to and crafts books on everything from chess to gardening. The acquisition gave the bookseller a potent national sales force and distribution system that enabled the titles to be sold in rival book stores, as well as gift shops and a wide variety of specialty retailers. B&N’s decision to buy Sterling didn’t sit well with competitors; Borders and Costco announced that they would no longer carry Sterling titles.
In 2003, B&N reworked its series of Barnes & Noble Classics with the launch of fifteen titles, including Huckleberry Finn, Middlemarch, Moby Dick, The Odyssey, Dracula, The Red Badge of Courage, Great Expectations, Jane Eyre, The Scarlet Letter, and The Souls of Black Folk, in a variety of formats, including hardcover, trade paperback, mass-market paperback, and eBooks, ranging in price from $3.95 to $9.95. This is an interesting strategy in a category where content and price supersede brand name. Because Barnes & Noble doesn’t have to pay the 50 percent markup that a publisher would normally get, the lower-priced self-published books become more profitable. This puts B&N editions in direct competition with classics published by Modern Library, an imprint of Bertelsmann AG’s Random House Inc. and Pearson PLC’s Penguin Classics imprint. But B&N’s books will have the advantage of being featured throughout its nine hundred stores, displayed with special signs and fixtures.
The bookseller also offers tomes on astrology, food, wine, and popular culture, and co-publishes TV Guide Film and Video Companion, Encyclopedia Britannica Almanac, the MapQuest Road Atlas, and, in a joint venture with Warner Books, Satisfaction: The Art of the Female Orgasm, by Kim Cattrall, star of the HBO television series “Sex and the City,” and Mark Levinson. In the summer of 2002, Barnes & Noble dropped the CliffsNotes study guides, published by John Wiley & Sons, and replaced them with its own SparkNotes, priced at a dollar less than CliffsNotes.
By the end of the decade, B&N projects its own titles will comprise 10 to 12 percent of its total revenue by 2008, up from 4 percent in 2004. This is part of a crucial strategy in an industry in which new book sales grew only 1.3 percent from 1997 to 2002, according to the Book Industry Study Group.
Another reason that Barnes & Noble was compelled to expand into private-label publishing was the demand of book buyers for lower prices, which they can get—particularly on bestsellers—from nontraditional booksellers such as Wal-Mart, Target, and Costco. (Ironically, it was Barnes & Noble that pioneered the idea of aggressively discounting best-selling titles as a way to attract customers.) In 2002, some $450 million was spent on general-interest books at mass-merchandise retailers, according to Ipsos Book Trends, up 7.4 percent from 2000. Such books now account for 30 percent of all general trade book sales.
Reprinted by permission of Harvard Business School Press. Excerpt from Category Killers: The Retail Revolution and its Impact on Consumer Culture by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.
Category Killers - Big-Box Bookselling Rivals
Because they are capable of moving tens of thousands of copies of books a week, the big-box stores have shaken up the publishing industry. Pennie Clark Ianniciello buys books for Costco and is such an important player in book publishing that the Wall Street Journal ran a front-page feature story on her power and influence. Publishers seek out—and follow—her advice on cover designs and marketing plans. Her monthly “Pennie‘s Pick,” which is sent out to millions of Costco customers, is almost as good as a recommendation from Oprah Winfrey.
The warehouse clubs and discounters—which sell primarily popular fiction, cookbooks, how-to books, and children’s books—treat the printed word just as they would toilet paper or AAA batteries. They buy a relatively few titles—two hundred compared with Barnes & Noble’s two hundred thousand—and keep them on the shelves for about six weeks, then send them back to the publisher if the books aren’t moving.
Reprinted by permission of Harvard Business School Press. Excerpt from Category Killers: The Retail Revolution and its Impact on Consumer Culture by Robert Spector. Copyright 2005 by Robert Spector. All rights reserved.
Category Killers - Opening
Category Killers: The Retail Revolution and Its Impact on Consumer Culture
by Robert Spector
Harvard Business School Press - January 2005
219 Pages - ISBN 1578519608