Tuesday, October 20, 2009

This Week in Doom: Walmart.com

Thanks to everyone who left feedback in the comments section of yesterday's post; I'll be checking it for a few more days, so if you've got a question or request, feel free to chime in. Answers soon to come!

As you may have heard over the past few days or weeks, there's a price war going on between Amazon and Walmart in the wond'rous (and occasionally terrifying) arena of cyberspace. Both retailers are vying for the much-coveted title of Lord of the Lowest Prices—otherwise known as The Biggest Loser, since both parties are buying their books from publishers at traditional discounts and selling them at a loss—and with Target now getting in on the action, it's going to be a very interesting fight indeed. Popcorn, anyone?

In all seriousness, though, this series of (perhaps soon-to-be unfortunate) events has just about everyone in the industry worried. While publishers aren't losing any money on books at the moment—on the contrary, increased sales of the selected $8.99 hardcovers are only going to boost publishers' sales—they are concerned about the long-term implications of what Walmart, Amazon—and now, Target—are doing. Here are a few of the problems:

· None of these retailers are specifically book sellers, so they can afford to lose money on books while making an overall profit through the sale of other goods. Major chain stores like Barnes & Noble and Borders, as well as smaller independent book stores, can't afford to do this and may either be substantially downsized or actually driven out of business by these sales tactics.
· Should Amazon and Walmart achieve the majority of the large publishing houses' market share, they will eventually be able to collectively demand that publishers sell to them at a steeper discount (such that they can continue to sell books at low prices without hemorrhaging money). If you remember the Walmart/Rubbermaid debacle of a decade or so ago, this won't seem too far-fetched. This could further decrease publishing houses' already slim profit margins.
· Even if Amazon and Walmart don't push for increased discounting, their potential statuses as the country's largest book retailers will make it more difficult for publishers to secure promotional space on their websites (or, in the case of Walmart, brick-and-mortar stores) simply because publishers will be competing not only with other houses, but retailers of completely different goods and services.

Walmart already has a stranglehold on our tupperware, our Kraft dinners, our small kitchen appliances, our dorm furniture. Will books be next?


  1. I have to keep this anonymous because I work for a Walmart.com supplier. However, I would like everyone to fully understand the implications of "Lower Prices". What this means is that in order for manufacturers to sell their products at the Walmart demanded price, they have to cut quality. I will tell you in all honesty that we make 2 sets of products, the crummy Walmart version and the nice version that everyone else gets, and I am sure we are not the only manufacturer who is forced to do that.

  2. I think this is a hot topic this week. I just blogged about it too!
    Love your input on the situation!

  3. That's an interesting point from Anon. For me, it's just another reason not to shop at Walmart - not that I do anyway. It seems like they're doing the $4 generic thing with books now and who wants to buy a generic book?

  4. Walmart is the devil. What you suggest in not far-fetched at all. It is a tactic Walmart has used for years. They place an order for a product that requires a minimum quantity from a supplier. Said supplier ramps up production (for goods, this means that they may invest in capital equipment and take out loans to do so). Walmart's buying power is such that their order may easily be 40-50% of the suppliers sales for the year. Great.

    Next year, Walmart says "We'll order the same amount as last year but this year we are only going to pay you 60% of what we paid you last year. Take it or leave it." Supplier now has to take a bath in excess inventory or live with it. In a former professional incarnation I saw more than one small vendor lose their shirts doing business with Walmart.

    At least with intellectual property, like books, they can't just get a knock off from China.

    The larger the Walmart corner of the market is, the more Walmart dictates quality and selection.

  5. This makes me wonder if I witnessed the Canadian equivalent of this yesterday.

    Chapters is the Barnes and Noble of Canada. Not the same company, but that's where it fits in market.

    Cosco sells bulk anything. Not the same as Walmart, but they too specialize in high turnover.

    Yesterday, I saw a clerk at Chapters laughing over how the store had run out of a particular book, so a manager had gone to Cosco and bought 20 copies for them to sell.

    If Cosco is selling books for low enough, perhaps that wasn't as crazy as it sounded.

  6. To add to Laurel's comment, the danger to the manufacturer in her scenario is that to meet year 1 demand, they will likely have made a significant investment in resources (facilities, equipment, and people) and they have to take on the multi-year business to continue financing it, or face bankruptcy. There's a lot of other costs aside from the excess inventory.

    The term "loss leader" is the marketing tactic where an item is sold at a loss in order to entice buyers into the store in hopes that they will buy additional products that offer higher margins.

    My hope for the major book retailers is that WalMart et al will not be able to compete with their selection. I don't know what percentage of annual revenue comes from the few mega-titles WalMart and Target would stock vs. all the titles they wouldn't buy...any thoughts on that?

  7. Over here in Western Europistan, retailers May Not sell books for less than the cover price (temporary, limited rebates might be okay, I'm not sure). This is specifically so larger retailers can't asphyxiate smaller bookstores.

    I'm not saying this is either good or bad, mind. I know how people in the New World generally feel about the May Not sort of law. I'm just cautiously grateful in this particular case. I like smaller bookstores.

  8. I think more important than the $9 price tag is the fact that every time you walk into Wal-Mart, a little piece of your soul breaks off. It gets pulled right out by the miserable employees, and thrown on top of the thousand-watt fluorescent lights.

    Which wouldn't be so bad, except they display how many souls they've collected in a giant fundraising-type thermometer by the front door. It's disheartening.

    But maybe that's just how it is here in Northeastern Pennsylvania.

  9. I'll be really interested to see how this pans out in the numbers (presumably we'll hear after Christmas?).

    I have my doubts about the threat to bookstores. Are people who habitually shop at Borders/BN/Other going to stop going there and buy all their books at Wal-Mart?

    Be interesting to watch this battle unfold...

  10. Honestly, there is nothing better than going to a REAL bookstore and just absorbing the atmosphere. It's like going to a church for books. :) Wal-Mart and Amazon, low prices noted, just cannot compete to that feeling.

  11. These low prices de-value books as a product. I think a really good book is worth $25 or $27. Not surprisingly Walmart does not (and they're the ones leading the price war by trying to compete with Amazon as the "everything store" on the internet too.)
    -A sales rep

  12. Amazon has always shown a greater than appropriate interest in establishing itself as the dominant bookseller. Because it started as a bookseller, it still harbors that desire to succeed in its original business. Wal-Mart is expanding into territory while traditional brick/mortar stores are vulnerable, but like all businesses of its kind, it will contract when the belt has to be tightened.

    While I agree with most of your points, I can guarantee you that after Borders folds, if Amazon drives B&N under, all the major publishers (both trade and education) will go en masse to Washington to talk about monopolization (ironic, I know). Much like Microsoft, Amazon needs an Apple OS to its Windows to keep the government from coming down on it. If B&N falls, someone will be propped up to take their place and Amazon will lose all the leverage it's gained (plus the cost of a long-term legal defense).

  13. Has anyone tried to buy a book other than Twilight or The Lost Symbol at Walmart? A few weeks ago I wanted a book for my daughter to read in the car, and Walmart was it. There was NOTHING for kids except Junie B Jones. Which I like, but she'd read all *three* they had.

    My father-in-law went several times to Walmart headquarters and pitched products to them in his previous job. Walmart uses reverse pricing, where they say "we'll buy it if you can make it cost X.XX amount."
    So if the current model costs ($X.XX+$2.00), it is up to the manfacturer (or publisher) to find a way to trim costs. Which has to mean diminished quality. Which would mean what for books? Cheaper paper? covers that fall off? I don't see how any of it can be good for people who like to read.

  14. I don't worry about Wal-Mart and any effect they may have on quality because they won't venture into the ebook market and ebooks will replace paper books as the dominant written distribution method within the next 15 years.

    *ducks and runs away*

  15. People: it's TEN BOOKS that are being sold at $9. It's a stretch to make any predictions about the future of publishing based on this little dust-up. It's just not sustainable for even these three retailers to extend this pricing beyond a few bestsellers.

    In case you missed it, the best commentary on the situation has been provided by SEARS (not exactly known for marketing savvy or irony)which is now offering $9 off coupons to anyone buying one of these titles from Target, Walmart or Amazon--meaning, they are encouraging their competitors to sell more AT A LOSS, then capturing future sales. Just one retailer's way of saying "y'all have lost your minds."

  16. Tim:

    I'm off to google that right now. That's awesome.

  17. *sigh* Yet another reason not to shop at Wally World.

    Wait a minute. Never mind. I don't shop for books there anyway. They refuse to stock most of the stuff I like to read.

  18. Wally World will never carry that broad a selection. Don't they only carry art that is "family friendly"? My future bestseller is dirtier than a pack of mud-covered porn starlets, so I think I'm safe from WalMartification.

  19. Eric, you must have magical powers. After reading your blog post today (obviously), B&N announced the Nook! Once the machine's price drops, this is going to kick the Kindle's ass. It seems Amazon's pricing structure has been accepted as the default. This is the direction of the ebook market, not the Kindle.

  20. Why can't a publisher sell a book with a cover price of $34 to Walmart for $17, go to Walmart and buy up all the copies for $10, then sell them to Walmart again? That should help both the publisher and the industry in general!

  21. I dislike Walmart like so many others, but is this so much different than what B&N and Borders did not so long ago to local book stores? They had the ability to sell more copies for cheaper, and they put many local stores out of business in the process. This is what happens all the time, right?

  22. My issue is that have you seen the book selection at Wal-mart? Sure they are cutting the prices on books, but none of my favorite authors are there. So I won't be shopping for books at Wal-Mart, ever.

    If you like niche books, the major department stores will not carry them, they want the big sellers. Established authors, and the like.

    They are being bullies again, but until they start to sell more of a selection. (where is the sci-fi??) The people that love their books will go elsewhere.

  23. Thank you, aonymous!

    What this means is that in order for manufacturers to sell their products at the Walmart demanded price, they have to cut quality.

    But this might be the answer. Book Club editions
    for the mega non-bookstore sellers.

  24. I don't like Walmart either, but a big problem is that many of the big brand bookstores are catering to the Walmart crowd: the display tables are mega covered with popular titles and coffee carriers (in 20 prints!) so that you can't find any "real" books. I can't say how many times I've went to Borders or B&N for a specific title, nothing too obscure, usually a classic, and they haven't had it. Yet they've had stacks of John Grisham and Patricia Cornwell bogging down the room. So it sends me online to shop where everything is available. Besides fighting Walmart, the big B's need to ramp up their own quality and have more selection, not less.
    Additionally, no matter how low the prices go, no one wants to browse for books at Target or Walmart, it's too painful. So they are probably getting purchasers that are picking up stuff on a whim, rather than serious readers. Ouch!

  25. Robert W. Leonard: Thank you for pointing out that bit of relatively recent bookselling history! For those who don't remember it, it directly addresses Pimp My Novel's point about Walmart, etc., demanding bigger discounts.

    Several years ago, B&N began to expect wholesaler-level discounts from publishers, because B&N claimed (plausibly) to sell numbers comparable to wholesalers. Some publishers agreed and offered larger discounts to B&N than they did to independents or smaller chains, discounts that were not even available to indies or small chains, even if the store or small chain ordered in comparably high quantities.

    In 1997, the American Booksellers Association filed suit against 5 major publishers, and either won, or received settlements, in all cases.

    The rationale: Suppliers may not offer wholesale discounts to retail sellers.

    That's not to say this price war isn't worrisome, because it is, but perhaps this one aspect of it won't come to pass.

  26. I don't think I have EVER bought a book at Walmart. I love going to Borders (there's no B&N in my area). The whole atmosphere is so encouraging to read, brouse, sip a coffee/tea and sit in a comfortable chair and read. Wally is for getting in and out as fast as possible - not for a book person. Besides, I buy all sorts of books, periodicals, all genres for myself and as gifts. But I see books as treasures. Soo old fashioned, I know.

  27. What I'm not noticing here is a dialogue about returns. I worked for a small publisher for a few years and we never worked with Wal-Mart, Costco, or Target specifically because: (1) they order huge quantities with no guarantee to sell (2) they load down the book covers with their stickers that destroy the resale value to any other retailer (3) they can return as many as they'd like. So a small publisher puts half of their budget into one print run of a book to get into the big box stores - most of them require a minimum of 10K books - and then 9K get sent back. That publisher is now underwater. Let the megabestsellers have the big box stores, they're the only ones who can afford it.

  28. Yes, books are next. And with Target entering the fray, they may just become demonized, too.

  29. I hate WalMart. HATE it. I never shop there. I'll go to Target or someplace else even if it costs me more. Also, I've never bought a book at anyplace other than a bookstore (either brick and mortor or on-line). As a few other commenters mentioned, there's a feel about bookstores that a "one-stop-shop" place can't replicate.

    As for the price wars currently going on, I agree with Joseph. I think Amazon needs to have a strong competitor and I think B&N is positioning itself nicely.

    I have a first generation kindle. It's certainly nothing Steve Jobs would have designed, however I love the convenience of carrying around dozens of books with little space. I also love browsing and purchasing books wirelessly. I do not like that the format is proprietary and that you cannot lend books to others.

    With those two caveats, I think B&N was smart in waiting to review the kindle and see the consumer response. I think the design of the Nook looks much nicer than my kindle. They also upped the ante by including a lending option and browsing/reading within a B&N store -- which I think are great additions. I don't think I'll have much use for the color display, but perhaps something else down the road will change my mind about that feature.

    As a dominant bookseller, B&N has just as much pull in the industry as Amazon does, just not on-line. I think they are in an excellent position to go head to head with Amazon.

    I think (and fervently hope) that WalMart and Target entering the realm will have little impact long-term on Amazon and B&N, simply due to variety and expertise. I think there will always be people who buy from the likes of WalMart and Target, but I just can't see either one of them becoming the dominant player amongst Amazon and B&N.

    Or maybe I'm simply in denial.

  30. I primarily buy my books from Barnes & Noble (though I'll browse the trade paperbacks when we visit Costco -- pretty much the only trade paperbacks I buy because they're so close in cost to a mass-market). I love bookstores, and have since I was a kid. I can easily get lost in the shelves (driving my poor husband crazy in the process). I love interacting with the booksellers, who I've found to be very friendly in every B&N I've visited (back in NJ, I was in a first-name basis with booksellers in three different B&N stores; here in Florida, I'm still learning the lay of the land, but as soon as they see me roaming the aisles with my notebook, they come up and offer to help).

    I'm a member of the B&N readers club -- and the way I buy books, I make back the $25 annual fee inside of a month. I buy primarily mass-market -- my discretionary income is limited, since my husband and I are both retired, but I love books too much to stop.

    If I can't find a book I want in a B&N store, my next step is to log on to Mr.Rebates (B&N.com is currently offering a 5% rebate), then click through to B&N.com to shop. I use my 10% discount online and buy enough to get free shipping. I love their bi-annual 'buy two, get one free' DVD sale -- even with their DVD prices, I make out like a bandit and fill in gaps in my DVD collection (I prefer to get DVDs in Costco because of the price point, but they've cut back on the variety of TV series DVDs they carry).

    The only time I buy from Amazon is if their prices are lower than my combined B&N/Mr.Rebates discount (they list on Mr. Rebates, but offer no rebate at all). It was cheaper for me to order the 2009 World Series DVD set from Amazon ($49.00) than from B&N ($61.99 member price -5% Mr. Rebates) or from Best Buy.

    What I love about Amazon is their recommendations based on my ratings and prior purchases. I try to keep good track of the release dates of my autobuys, but Amazon will pop up with books I had no clue were coming out, along with the release date. Those go into my notebook of upcoming releases. I also use them for detailed release dates of the books I scoped out in RT Book Review, which only gives the month of release, but not the actual date.