It will be interesting to see what the landscape of physical retail bookstores looks like a year from now. mark your calendar. we have had over a year of varying degrees of physical store limitations and closures. There is a lot of optimism circulating that a way of shopping in stores will return. but how much and will it be enough?
To help understand bookstore economics, I’ll take a quick look at some of the things that make it hard to sell books in physical stores. so put on your math cap and let’s go for a ride.
You are reading: How much do bookstores pay for books
This article focuses on the bookstore, not the publisher or writer. I spent more than a decade in the Christian bookstore business; and although that was a long time ago, the economic principles are the same.
let’s start with a $10 (retail price) book. I’m using $10 because it will make the math a little easier to follow. [yes, books are retailing these days; but doing calculations for retail prices of $13.99 or $26.99 is harder to illustrate!]
The bookstore buys the book for $6.00 (or 40% off the retail price) from the publisher (which calls that $6.00 net price). Please note that this discount varies between 40% and 50%.
When the book is sold to a customer, the store makes a profit of $4.00 ($10.00 – $6.00 = $4.00).
(are you still with me?)
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If the store discounts the book during a 20% off sale, it has to sell two copies to earn the same $4.00 profit. but often a 20% discount on the sale is not enough to double the sales volume. why? because a high-volume operation like amazon.com is happy to sell that $10.00 book for $6.50 (35% off) every day. they can do this because they plan to sell 10 copies at the discounted price and make $5 in profit. This pricing strategy has a negative effect on the local store’s ability to compete. the industry calls this a “volume” business model.
An operation like Amazon may do this because they have a different fee structure than your normal bookstore.
remember, the publisher is required by law to offer the same discounts to the same vendors based on the volume of your purchases. so don’t believe the myth that amazon is buying the above book for $3 and selling it for $6.50. (This law is the Robinson-Patman Act of 1936).
In my heyday as a bookseller, our store generated nearly $2 million in annual sales. That seemed like a lot until I found out that the local Price Club (a forerunner of Sam’s Club and Costcos) was making $1 million a week in sales. high volume, low prices. their sales crushed local independent stores because they simply didn’t have the sales volume to compete solely on price. And Price Club didn’t rely on just one type of product line to generate its sales. They didn’t care if they sold a bible or a set of new tires. Now we have Amazon selling all the same products found in the bookstore (not just ten best sellers), but also selling just about everything imaginable (including a $31,000 safe). a one-stop shop.
Let’s go back to that store that made a $4.00 profit on the sale of a $10.00 book. Here is a list of some expenses that the $4.00 profit covers: rent, salaries, utilities, telephone, advertising, office supplies, waste, bank charges, taxes, etc.
contraction? that fun line item accounts for about 3% of sales. includes shoplifting, employee theft, and paperwork errors. Believe it or not, one of the biggest “shrinkage” areas in our Christian bookstore was leather-bound bibles.
Bank charges include the percentage charged by the credit card company to process your purchase. this can range from 1% to almost 3% of each credit card sale.
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Our store made a training video to show new hires how this all worked. we start with a $10 bill in the palm of our hands received from the sale of the book we mentioned earlier. when all expenses (cost of book, rent, salaries, etc.) were deducted, there were two dimes left in the palm of his hand. there is very little room for error for the store retailer.
Do you see why your local stores are having a tough time in this online age? a good friend of ours owned her bookstore for 32 years. When the economy soured in 2008 and the city built a light rail track in front of her store, Ella’s Christmas sales plummeted 40% compared to the previous year. she filed for bankruptcy.
To counter online price wars, some stores are turning into boutiques where books aren’t as critical to their profit margin. A store may have a larger section for gifts or greeting cards—items that don’t have to compete with Amazon. others create community spaces with coffee shops and host local events to draw people into the store. but it’s a big fight because it’s hard when profit margins are thin.
Another friend of ours had a store for almost 30 years, but a competitor moved nearby and was part of a large chain. and then the landlord wanted to increase your rent by 30% with increasing rates over the life of the lease. they had survived the economic struggles of 2008-2009, but this lease was the straw that broke the camel’s back; and could not continue operating.
Will the bookstore industry fade away like the computer stores have? Will we find fewer places to search for selections, or will book sales move entirely online?
Time will tell!
But if you see this as a dismal post, remember that book sales themselves are as healthy as ever. publishers have found new places to sell their books. and many authors have found it necessary to be self-entrepreneurs so that their books reach as many hands as possible.
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