Price Wars Ultimately Bad For Consumers
Amazon has slashed prices of hardcovers in response to Walmart’s price reduction of bestselling titles.
Amazon.com, the world’s largest online retailer, and Walmart, the world’s biggest retailer, are vying for sales of hardcover books scheduled for release in November. Walmart also offered free shipping and price cuts of 50 percent or more on 200 bestsellers, including Dan Brown’s “The Lost Symbol,” according to a statement yesterday by the Bentonville, Arkansas- based company.
“The book price war does not impact every possible book, but it goes after blockbuster titles that drive a lot of volume,” Richard Hastings, a Charlotte, North Carolina-based consumer strategist for Global Hunter Securities LLC, said today in an e-mail. “Walmart is looking to cross-pollinate its online-to-stores business, something that Amazon.com cannot do since it has no physical stores.”
The problem is, such prices are unrealistic and unsustainable. Under the current system, many publishers pay for what’s called co-op. When you walk into Barnes and Noble or Walmart, the books on the shelf ends or in those cardboard cutouts or on the tables aren’t usually there because the staff read them and liked them, or think they’ll be good products suited to their regular customers. No, they’re there because the publishers pay for the spots.
Most books have a standard profit margin afforded to the retailers, and the price Walmart and Amazon have set for select bestsellers means there’s essentially zero profit from the sales. The books are basically lost-leaders, helping these consumer giants retain their clout with publishers who’ll give them extra discounts because of the volume they sell at.
But at the end of the day, the slashed prices could hurt the bottom line for publishers who are already struggling, and can’t afford to continue discounting volumes of stock.
The other problem is that this feeds into a larger problem, one that’s contributed to the current economic crisis. Pricing books at this level makes it seem as though it’s realistic and sustainable. How many consumers walk into a store and think about lost leaders? When I worked at Canadian Tire we used to have door-crasher specials, something that was drastically slashed in price, and available for that price on a specific day and only as long as supplies lasted - no rainchecks. The idea was that people would come in for this one item, and see other things they’d buy, and the profit on the other sales would make up for the loss.
That might be Walmart’s philosophy (I couldn’t say), but it certainly isn’t helpful to the book industry as a whole. Most people walk into a store and, unless they know something about sales and marketing strategies, think things are priced within reason. This is part of Walmart’s power. When you can buy jeans there for $12, why go to the mall and pay $30? You have to look beyond price, to quality, and to manufacturing. Walmart imports cheap products from overseas, made by people who are little more than slaves by our standards, in order to keep costs low, and much of it has a short shelf life. One sweater I bought at the local Walmart last year was threadbare inside of six months. The problem is, many might think it’s worth it to buy a new sweater in the fall for $5 and enjoy it as long as it lasts, discard it in the spring, and buy a new one again the next year… Instead of spending $25 on a sweater that will last for years.
That kind of thinking has directly contributed to the current economic mess, and to a depreciation of product amongst consumers. I can look in my closet and still find clothes I wore ten years ago. I have shirts that are older than my fifteen-year-old niece, from back when we spent a little more to get a quality product that actually lasted.
How does this relate to books? We’re damaging books by inferring that it’s reasonable to sell hardcovers for $9. If booksellers slashed prices accordingly they’d go bankrupt. How, then, can you entice readers to spend even $18 on a hardcover when they can get books for half that price elsewhere? Discriminating readers will understand the limits of selection available for Walmart’s reduced-price offerings, but less discriminating readers won’t. This will never produce a scenario where those unknowing readers begin to purchase books that aren’t being hyped, that aren’t current bestsellers. In order for that to happen, you need to draw people into actual bookstores, where there’s a wide variety of material available… and when bookstores can’t afford to play the price war game, it’s unlikely the Walmart book-buyers will translate into avid readers and local bookstore shoppers.
In the long term, the push on bestsellers and the power of volume purchasing that retailers such as Amazon and Walmart yield could end up meaning fewer books published, with less emphasis on quality and more emphasis on ‘blockbuster appeal’. Ultimately, as consumers are left with only formulaic or mainstream reads to choose from, regular booksellers could be forced out of business because of their inability to compete directly with Walmart and Amazon.
I think booksellers should stop trying to compete for the consumers Walmart and Amazon are targeting through these promotions, and put an emphasis on being a specialty retailer, showing consumers they have more to offer than just the latest ten bestsellers. I can’t see regular booksellers competing head-on, but for the same reason that those who care about the cut and fit and durability of the clothes they’re buying will shop elsewhere, there are consumers who will favor booksellers if they show they have more to offer.
That’s what I’ve concluded, after thinking about this for a bit this morning. Thoughts? Agree? Disagree? What do you see as the future for the book business?
October 19th, 2009 at 5:15 pm
Has there been any mention of returns being affected? As far as I know, books are the only thing in Walmart sold on consignment and simply sent back if they don’t sell.
Publishers have long claimed that the cost of returns (and the large print runs that go along with this expected bestsellers) is one of the biggest factors in the cost of a book.
I expect we’ll see a lot more changes in the way books are sold.
October 20th, 2009 at 12:38 am
I agree with your point about booksellers offering more than the standard consumerism (and a Starbucks outlet). Try asking one of the staff (if you can find one) in a Barnes & Noble about a book — they don’t read! My best book store is a used bookseller run by two middle aged women who know their books cover-to-cover, literally. Brick and Mortar booksellers need a new business model.
October 20th, 2009 at 5:29 am
John, undoubtedly we will. I’m not sure about returns. I’ve always been under the impression that there were steep discounts for retailers like Walmart, and if that’s the case I fail to see the point, as I don’t see how it’s possible for publishers to make any money off the sale of a hardcover there - they don’t do the same deep discounting on paperbacks.
Richard, I completely agree with you about the chain stores. It’s like hiring someone to work in a music store who hates music - having staff completely indifferent the products their selling isn’t good for business. At all. It’s different if you’re selling a necessity, but not when you’re selling something like books. Directing people to the wrong books is a serious problem, because, as John always says, if you see a good movie you want to go see another good movie and if you see a bad movie you want to go bowling. If you read a great book you want another one. If you read a bad book you want to do something else.
October 23rd, 2009 at 11:44 am
I have to agree. It also happens to other businesses as well. I worked in the textile industry for thirty-two years. To keep Wal-mart, the company had to slash prices so much that they began importing jobs, first to Mexico, then to China, to stay in business. It didn’t work. They finally folded their tents a few years back, selling off brand labels and putting about 6,000 people out of work in an already economically depressed area.
October 24th, 2009 at 7:53 am
Wal-Mart is such a dilemma. Pretty much everything is imported cheaply from places where people work like slaves. American minimum wage requirements and benefits can’t compete with that for cost. So places go out of business, forcing more people into a tight financial situation that - ta da! - means they need to shop at Wal-Mart in order to make ends meet.
In some ways, I think Wal-Mart has done more to hurt the economy than any other business out there.