Long live the small independent bookstore: a competitive analysis
Marketing & Sales for Entrepreneurs BMC 373
by Catherine Fisher
From Mac’s Fireweed Books in Whitehorse, YK to Biblioasis in Windsor, ON, to Breakwater Books in Saint John’s, NL, hundreds of independent bookstores continue to spread the love of reading in Canadian communities from coast to coast to coast.
Bookselling has never been a high-margin business, yet small independent bookstores persevere, even in the face of more than three decades of disruption; competition from e-books, online shopping, big-box book behemoths, COVID shutdowns, supply chain issues, and book departments at mega-wholesalers like Costco.
In this competitive analysis I’m profiling a small independent bookstore located in a small mountain community (let’s call it “Mountainville,”) in southeastern British Columbia. Let’s call this bookstore “Indie Books” (not its real name).
Indie Books is a successful and viable business. It has found a niche in its community, and, even though it is vastly smaller than its national and international competitors, it retains a loyal and expanding customer base. In my opinion, it will probably continue to be successful for some years.
I will consider the products that each competitor of Indie Books offers, their market niches and shares, and some of their strengths and weaknesses.
I will also offer general insights into the role that bookstores fill in their communities and the overall health of the retail book industry.
PROFILE: INDIE BOOKS IN MOUNTAINVILLE, B.C.
Indie Books is a locally-owned incorporated company that has operated for more than 17 years on Mountainville’s main commercial street. With more than 30,000 new books and three street-facing windows, it is easily found by locals and visitors alike.
Mountainville is a small urban community in the Selkirk Mountains with a catchment area of 18,000 to 20,000 people. Its growth is slow, but it continues to grow. Its residents are, as a rule, more highly educated than the provincial average, more likely to be self-employed, and more likely to be renters (RDI Institute, 2018). Many of them are dedicated readers and the community also has a strong tendency to “buy local,” which is encouraged by the local chamber of commerce and tourist bureau.
I suspect that local people spend more money buying books from Amazon, and do some of their book purchasing with other local and online retailers, but Indie Books still has a healthy customer base of thousands of people. I estimate that more than 50% of locals have bought something there in the last five years.
Indie Books employs two full-time and three part-time staff. I estimate their gross annual revenue as approximately $700,000 and sales have gone up substantially in the last year since their online bookstore has had more uptake. The store donates books to dozens of local nonprofits each year, advertises on the local (non-profit) community radio station, and donates an annual percentage of their net revenue to charity.
Indie Books is a general interest bookstore that stocks books on a wide range of topics. Store sections include local interest, B.C. interest, Indigenous, local recreation, adult fiction, mysteries, sci-fi and fantasy, true crime, biography, travel, travel stories, history, current affairs, ecology, science, essays, poetry, classics, writing and creativity, self-help, psychology, philosophy, religion, business, cooking, sports and athletics, graphic novels, young adult, teen, kids, educational books, French books, and art.
The store stocks a few copies of each title and reorders frequently. This allows it to keep a large number of different titles in stock. It knows that it is competing on selection and service, not on price, so it does not expect to “make a killing” on the next mega-bestseller.
Audio books have been trending over the last few years and Indie Books has developed a partnership with Libro.fm, an audio service which works with independent booksellers to allows them to offer audio book downloads to customers.
All of Indie Books’ stock is ordered by its owner, manager, and staff. Because five people are empowered to order, it has a stock array that reflects a variety of tastes and interests, supporting its decision to compete on selection.
The area is rich with local authors, and Indie Books adds an average of 30 new books by local authors each year to their collection. They have more than 200 local interest titles in stock and at least 75% of these are self-published. Some of these titles, like Whitewater Cooks, have become national bestsellers and others have won significant literary prizes. Local books sell especially well in Mountainville, and Indie Books’ local book selection gives them a significant competitive advantage with locals and tourists alike.
The staff at Indie Books are highly engaged and knowledgeable and they offer exceptional service; in store, on the telephone, on their online platform, and even a curbside pick-up and local delivery program. They curate an in-store “staff picks” section and also offer a staff picks section on their website. Staff have built up reputations for expertise in various areas (current affairs, youth fiction, sci-fi and fantasy), and many locals know which staff member to ask for recommendations in various book genres. Many dedicated readers (locals who buy dozens of books a year) come into the store to chat about books and book culture (book prizes, industry news, literary events) with staff. This is part of their shopping experience that isn’t replicable online.
Indie Books’ marketing is grassroots and appealing (see window below) and they use social media effectively. They create colour-themed book grids for social media (see later in this analysis), present social media content on particular days (“new release Tuesday,” “book-face Friday”), and use the Instagram “highlights” feature to promote new products.
Retail Bookselling in Canada: A Snapshot
- 83% of Canadians bought at least one book in 2020 (BookNet, 2021)
- Despite the pandemic, Canadian independent bookstores reported an increase of 33% in overall book sales in December 2020, and sales increases at more than 85% of Canadian stores (Peters, 2021)
- 17% of Canadians get most of their books from a physical bookstore and 15% from an online retailer. The remainder borrow them from the library, friends, or purchase them from a used bookstore (BookNet, 2020)
- There are 1,462 businesses that sell books in Canada and 75.8% are profitable (ISED, 2019)
- Canadian bookstores have an average operating profit margin of 7.6% and three provinces accounted for 97.2% of total operating revenue: Ontario (67.2%), Quebec (25.4%), and British Columbia (4.6%) (Stats Can, 2020)
- Canada’s three biggest book retailers are Indigo Books and Music Inc, Renaud-Bray, and McNally Robinson Booksellers. Together these generate about 40% of the sector’s revenues (IBISworld, 2020).
- In 2018, sales of French and other language titles increased by 15.7%, to $255.4 million, while sales of English titles decreased by 1.6%, to $1.1 billion (Stats Can)
- Consumers are buying more books online. From 2014 to 2018, online sales of print books in Canada rose 70.2%, reaching $258.9 million, and e-book sales increased 14.8%, generating $183.2 million. In 2018, just under one-third of all sales of books published in Canada were e-books (13.7% of total sales) or print books sold online (19.3% of total sales) (Stats Can)
- Audio books are the fastest growing segment in digital publishing, at 26% and rising (BookNet, 2019).
- Despite this increase, print books still represented the largest portion of book sales, accounting for over two-thirds of total sales in 2018. This is down from 76.9% of total sales in 2014 (BookNet).
- COVID-19 restrictions hit Canadian publishers and bookstores hard in the spring and summer of 2020, and there was a comparable increase in online shopping (66%) during this period. Online purchases fell slightly in the second quarter (63%), but remained well above the corresponding period from the year before (BookNet)
Industry Products
Products commonly sold by book retailers in Canada include trade paperbacks, mass-market paperbacks, hardcovers, textbooks, magazines and newspapers, stationery, maps, calendars, and office supplies.
Some larger retailers and online retails expand their product lines with other products, including electronics.
And, of course there are non-print book options such as e-books and audio books
Industry drivers and bottlenecks
Here are a few factors likely to affect the retail book industry in the next few years, for good or for ill.
- Per capita disposable income — purchasing books is generally considered an “extra” that is possible when income permits. Per capita disposable income in Canada is predicted to increase by 7.5% in 2022 (IBISworld, 2021). This is likely good news for independent bookstores, who generally do not compete on price.
- Leisure time — leisure time has increased modestly over the last five years (IBISworld, 2020), although there has also been an increase in different ways to spend leisure time. Typically reading increases when people have more leisure time.
- Supply chain —Many brick-and-mortar book retailers had difficulties receiving stock in 2020 due to supply chain issues and increased demand for delivery and warehousing services (Peters, 2021). As online ordering increases, this “delivery gridlock” will probably continue to cause problems for everyone, including independent bookstores.
- Libro-FM is a platform that allows independent bookstores to sell audio downloads to their customers. This allows them to compete with book retailer chains, who have their own proprietary audio platforms.
- E-books are a weakness of the independent book retailing sector. 61% of Canadians read at least one e-book in 2019, an 11% increase from 2018 (BookNet, 2019) and this number likely increased in 2020 with the COVID shut down. Book retailer chains like Indigo have developed proprietary technology (Kobo etc) but independent bookstores do not, at this time, have a way to capitalize on the interest in e-books. However, public libraries already provide easy access to these, and e-book use is in decline (BookNet, 2019) so it may not be worth competing with large industry players for a diminishing share of a market that is not well suited to the sector.
Competitor Profiles
Indie books faces competition from local, national, and international competitors, but they have been able to carve out a profitable niche. Here are ten competitors.
LOCAL COMPETITORS
Indie Book’s local competitors sell or otherwise distribute books to people living in or visiting Mountainville.
Coles Bookstore
Coles Books is an Indigo Books and Music Inc brands that operates small-scale bookstores, mostly in suburban shopping malls. Much smaller than the standalone Indigo/Chapters stores common in bigger cities, the Mountainville Coles is about the same size as Indie Books, but it operates out of the local mall. For this reason, it does not get as much foot or tourist traffic, although it provides better access to parking.
As part of a large chain that operates 88 large stores and 108 small-format stores (Indigo Annual Report, 2020), much of the Mountainville Coles store’s stock is ordered through Indigo’s head office in Toronto, although each store allows management to purchase some stock from local distributors or publishers (Indigo, 2014). Coles purchases a small number of books directly from authors on consignment (Indigo, N.D.) although they pay local authors less than Indie Books does. Indigo stores also sells a selection of non-book products, including stationery, calendars, maps, games, and more. I would estimate that the overlap between Coles’ and Indie Books’ inventory is about 50%.
Indigo’s head office does much of the purchasing (and gets a significant volume discount) stock is kept in company warehouses (meaning that they are less vulnerable to supply chain issues). This creates some advantages for Coles, allowing them to offer bestsellers for very good prices (up to 40% off) and to keep their stock level high on popular titles.
However, with these advantages come disadvantages. The store has less flexibility to order anything it wants for stock (the manager has some discretion, but not complete discretion, as consistency of brand is important in any chain.) This means that if a customer wants something esoteric they may need to special order it (or buy it at Indie Books). It also means that, because its policies regarding carrying local titles are somewhat restrictive, it has less of an opportunity to capitalize on local peoples’ interest in local books, a niche that Indie Books specializes in.
Interestingly, during the COVID-19 business shut down in the spring of 2020, Indigo partnered with three independent Canadian publishing houses and received funding from the Department of Canadian Heritage to create a #GiftAtlantic local book-giving holiday campaign in Atlantic Canada called “Discover Your Community”. The campaign, which promoted 32 local books, was a roaring success, doubling the success of Indigo’s other campaigns (Domet, S, 2021). Clearly they understand that “local” is a market they could be tapping into. Whether they can effectively do that with their corporate structure remains to be seen.
Indigo saw substantial losses due to the 2020 COVID-19 shut down, and closed 20 nonviable or marginal Coles stores in small communities across Canada (Carter, 2020). The Coles in Mountainville, was obviously profitable enough, as it was not one of the stores that was closed. However, the Mountainville Coles was closed during the spring 2020 shutdown. It was located inside a mall and no provision could be made to offer curbside pick-ups. Indie Books, on the other hand, had a street-front entrance on the town’s main street, so it was able to stay open by providing delivery, online sales, and curbside service.
Before book retailing moved online, Coles was Indie Book’s biggest competitor, but this is no longer true. In my opinion, chain “brick-and-mortar” chain stores like Coles won’t fare as well as independent bookstores like Indie Books because they lack the flexibility to respond to changes in the business environment and to changing customer needs.
Used bookstores
Mountainville has several used bookstores and three thrift stores that sell used books. A competitive advantage of used bookstores is that customers can purchase books at 50% or more off the original retail price, with the option of “re-selling” or trading the book back to recoup part of that cost. However, a competitive disadvantage is that used bookstores aren’t entirely in control of what they stock and tend to not have the newest books. Some of their books are also visibly worn, and so they may not be suitable as presents.
Used bookstores often make a marginal profit since their prices are lower, but their product costs are also lower. As independent businesses, they also have considerable flexibility and can choose to buy less stock for resale if they are selling less stock. Used bookstores can also sell books from any era, as long as the book is still readable. This means that books can be 40 years old and out of print, but still be circulating in the community.
In my opinion, used bookstores are here to stay, at least for as long as we have access to physical books. They are practical, and, in addition to providing the “thrill of discovery” they fulfil an important environmental role, recycling items that would otherwise be land-filled.
While Mountainville’s used book sellers draw some customers away from Indie Books, all of the stores have been operating for decades and the local market is fairly static. If another used bookstore moved in, it would likely have a much more severe effect on the other used stores than on Indie Books.
The Mountainville Municipal Library
The Mountainville Municipal Library has 11,000 members and 50,000 items, with access to thousands more through B.C.’s Inter-library Loan program. A competitive advantage of a library is that (barring late fines), one can borrow books for free. A disadvantage is that one is limited in the amount of time you can keep books, and there are limited quantities of popular books available, so there may be a long waiting list for a new release. For this reason, and also because, assuming that they can afford it, many people still like to own books rather than borrow them, there is room in Mountainville for both the library and several bookstores.
NATIONAL COMPETITORS
Indigo Books and Music Inc.
Indigo is Canada’s largest bookseller. In addition to books, they sell toys, home décor items, electronics, stationery, and gifts. I believe that indigo competes on price and selection.
Indigo’s total consolidated revenue for 2019/2020 decreased by 8.5%, partly because of temporary store closures due to COVID-19 and partly because of intensified competitive pressures and lighter customer traffic. The company tried to improve profitability by reducing mass promotions such as ‘Every Book Ships Free’ (Indigo Annual Report, 2020). Their total sales decreased by 7.9%, and, surprisingly, their online revenue also decreased, by $13.2 million or 7.5%. Indigo says that they expect to meet their working capital requirements for at least fiscal 2021(Indigo Annual Report, 2020).
I suspect that Indigo’s viability is suffering because huge online retailers like Amazon are taking their market share. While they have provided some competition to Indie Books, their share of the market does not appear to be increasing and their business model may end up being nonviable. If they were able to leverage truly local bookselling this could present a threat, but I think that, without government funding, it would be difficult for them to have anything other than short-term success with this.
Renaud-Bray
Renaud-Bray is Canada’s second-largest bookstore chain. Based in Montreal and with 29 physical locations and an online platform, they sell French titles all across North America. Institutional sales to libraries and schools make up a big part of their business. This is at least partly due to Quebec’s cultural policies, which created a “made-in-Québec” book supply chain and an accreditation process that has meant that Quebec’s libraries, schools, and government institutions have been required to “buy local” for over four decades. These policies have resulted in a very successful French-language Canadian book industry, and French-language Canadian books outsell English-language Canadian books two-to-one.
Renaud-Bray operates in a particular niche (French-language books) that has little impact on Indie Books, which sells almost exclusively English-language books. In this sense, it sells different products which do not necessarily directly compete with one another.
Direct-to-consumer sales by trade, academic, and other publishers and distributors:
Direct-to-consumer sales have caught on in many industries, and they are a factor (albeit a small one) in the retail book industry. The diagram above illustrates how much simpler direct distribution is, but it hasn’t caught on as one would expect. This is partly because buying books this way isn’t any cheaper for the consumer. In fact, with shipping, it is sometimes more expensive, so they don’t effectively compete on price. Also, the selection offered is the publisher or distributor’s own books, and, as such, somewhat limited.
Medium to large independent bookstores that ship to consumers all over Canada:
Large independents like Munro’s Books in Victoria, B.C. offer shipping all over Canada. A competitive advantage is that their shipping rates are quite reasonable and offer free shipping on orders over $75, but a competitive disadvantage is that many people don’t know that they provide this service.
Direct-to-consumer sales by independent authors (author websites):
Author websites are a great way to sell small quantities of books (although the customer usually pays substantial postage), but they have their limitations in terms of selection, as they are only selling one author’s books.
Supermarkets, retail pharmacies, and warehouse clubs:
Businesses such as Costco sell a LOT of books. They carry a limited selection, and they tend to be books that are (or sometimes were) popular, but they sell them at deep discounts. Their competitive advantage is their price and their utility (the fact that one can find “something to read” while grocery shopping), and their disadvantage is that they have a limited selection of titles and store staff are usually not as knowledgeable about the retail book industry as those who specialize in it. They can’t compete with small independent bookstores other than poaching away some of the bestseller sales, because selection and book knowledge is important to many consumers.
INTERNATIONAL COMPETITORS
Amazon:
Amazon made $280 B in 2020, an increase of more than 20% from the previous year (Fortune, 2020). That same year, representatives from the Association of American Publishers, the Authors Guild, and the American Booksellers Association expressed concern to the House of Representatives’ Antitrust Subcommittee about the “extraordinary leverage” that companies like Amazon have over their competitors, suppliers, customers, the government, and the public; selling 50% or more of the U.S. print market and at least three-quarters of publishers’ eBook sales (Anderson, 2020). This is even though books are no longer their main focus. Amazon has many competitive advantages, including its convenience, market scale, name recognition, the fact that it sells so many different types of items that one can do much of their shopping there, and its ability to sell some items at low prices. Amazon has also gained some real estate in the used book market by buying AbeBooks and in the audio-book market by buying Audible Books.
How does Indie Books compete with that?
To start, it needs keep in mind what it is doing and why it is doing it. It needs to keep “hand-selling” books- finding the perfect book for each customer by instinct, in a way that an algorithm just can’t. It needs to compete by offering varied and unique stock, and to find local niches. It needs to compete on service and keep the right staff; staff that are knowledgeable and friendly and that love books as much as their customers do. It needs to tap into the varied needs of its customers: functional needs, situational needs, social needs, psychological needs, and knowledge needs; and to remember that functional attributes like price are responsible for 37% of the decision to buy, and psychological attributes like responsiveness are responsible for the remaining 67% (Nelson, 2020).
I feel optimistic that, if they do this, local independent book retailers will continue to earn a place in their communities because they offer a real local connection, and customers will continue to value that.
References
Anderson, P. (Aug 17, 2020) US Publishers, Authors, Booksellers Call Out Amazon’s ‘Concentrated Power’ in the Market. Publishing Perspectives. Retrieved from https://publishingperspectives.com/2020/08/us-publishers-authors-booksellers-call-out-amazons-concentrated-power-in-the-book-market/
BookNet Canada (2021) Canadian Leisure & Reading Study 2020. Accessed from https://www.booknetcanada.ca/canadian-leisure-and-reading-2020
BookNet Canada (2019) The State of Publishing in Canada, Accessed from https://www.booknetcanada.ca/state-of-publishing?utm_source=BookNet+Canada+Media+List&utm_campaign=e7b4476411-media_state_of_publishing_08092020&utm_medium=email&utm_term=0_71c57dac98-e7b4476411-321496997
Carter, S. (June 22, 2020) Indigo closes 20 Coles small-format stores amid “seismic” losses. Quill and Quire. Retrieved from https://quillandquire.com/omni/indigo-closes-20-coles-small-format-stores-amid-seismic-losses/
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Nelson (2020). Marketing and Sales for Entrepreneurs. Toronto: Nelson, 3:2
Peters, S. (Feb 8, 2021) Quill and Quire. Sales boomed for indie bookstores in December. Accessed from https://quillandquire.com/omni/sales-boomed-for-indie-bookstores-%e2%80%a8in-december/
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