In late 2011 I wrote a post called ‘Why there may be no major book and music stores by 2015’ in which I looked at how the sales and profitability of the major MBV retailers in the UK, US and Australia had been squeezed since Amazon and iTunes reached critical mass in 2005.
The casualty list has grown since with HMV UK and Blockbuster UK closing in January 2013.
Tower Records – 2006
Virgin Megastores – 2009
Blockbuster Video US – 2010 (rescued from Chapter 11 in 2011)
Blockbuster Video Canada – 2011
Borders – 2011
Fopp Music – 2007
Virgin Megastores / Zavvi – 2008
Borders – 2009
HMV – 2013
Blockbuster – 2013
HMV – 2009
Virgin Megastores – 2010
Borders – 2011
B&N is the last major book chain the US. While the college stores its acquired in 2009 continue to perform, its main retail business is being propped up by its online store. Its bricks and mortar retail business has an estimated operating margin of just 1.5% after stripping out the effect of the online store. Its CEO plans to shrink the store network by about a third.
The network surgery as well as finding co-investors for its heavily loss making Nook e-reader could stave off Chapter 11 for B&N but it may have to retreat physically more than it plans. The company has been loss making since 2010.
Last week Blockbuster announced it would be closing a further 300 stores in response to the declining physical video rental market. That would bring its network reach to 500, down from its all time high of 4,000.
Waterstones bookstores in the UK and Ireland were bought from a distressed HMV in 2011. The turnaround plan included selling Kindles and abandoning ‘3 for 2’ and national bestseller promotions in favour of wider, fuller priced and more localised product ranges. The store network has been shrunk slightly and the company’s traditional branding revived.
When Waterstones went into private hands it was generating just 1.9% operating margin, down from 5% to 6% pre Amazon. I hope the turnaround is working but I suspect the network will need to shrink further.
Sanity Music still operates 150 stores in Australia but it has been withdrawing from capital cities to focus on regional towns where competition is less intense and postal deliveries from online stores take much longer.
There are some MBV retailers that appear to be surviving and they have done so by focusing on niches. The survival strategies outlined above by B&N, Waterstones and Sanity are based on a controlled withdrawal to what is hoped to be a sustainable niche. Here are some others.
Academic bookstores – Barnes and Noble’s college stores and Blackwell’s University Bookshops (UK) recognise that academic and reference books are slower to move online, command higher price points and are sustained by college course requirements.
Cultural bookstores – Small chains such as Readings (selected Melbourne inner suburbs) and Books Inc (selected San Francisco suburbs) focus on communities with a strong cultural demographic. Ultimately I think Waterstones will need to work towards this model.
Recent history is littered with failed or failing businesses that held back new products because they would cannibalise the existing core products (Kodak/Digital Camera, Sony/MP3, Yellow Pages/Online Search, Australian Department Stores/Online retail). Self cannibalisation should therefore be embraced.
JB Hi-Fi, an Australian music, video and technology retailer, continues to confound markets trends through forms of cannibalisation. For several years it has been aggressively pushing streamed music services and its version of iTunes as alternatives to its own CD sales. It quickly swapped CD and video space for the hardware which would accelerate the decline in music and video – first MP3 players, then PCs, tablets, media storage units and phones. Only 23% of its sales are now from music, video and games.
I’m still inclined to think not.
For those that choose to go niche, they may shrink themselves to the point where they are no longer major retailers. For those that cannibalise physical music books and video and diversify, they may cease to be music book and video retailer.