Book Retailing - UK

Issues in the Market

Main themes:

Definition

Abbreviations

Market in Brief

Book sales growing but value diluted by discounting

Factors influencing growth in sales

Where people buy books

How people are buying books

Technology creating new opportunities for growth

Future prospects for the market

Industry Insights

The sales picture

Segment performances vary

Children are the future

Lower prices stimulate hardback market

Academic sales vulnerable

Growth potential in audio books

Media coverage usually positive

Discounting - the price squeeze on booksellers

Boy wizard fuels discounting fever

Discounting - restricting choice?

Supply-side pressures also a factor

Publishers hold the reins

Resisting the pull of low prices

Advantages of independence

Independents can offer something special

Moving promotion away from price

Retailer prospects

Multiples stuck in a price war

Mixed fate for independent bookshops

Internal Market Environment

Key points:

Book reading and purchasing

Figure 1: Book reading and purchasing behaviour, 2002-06

Who reads and shops for books?

Figure 2: Demographic analysis of consumers who read a book, bought a book, and visited a bookshop in the past 3 months, 2006

Book pricing

Figure 3: Average book prices*, hardback and paperback, March 2003-March 2007

Online book buying

Figure 4: Most popular products actually purchased online in the past three months, November 2002-February 2007

New technology

Google presents ‘all the world’s information’

Microsoft takes the moral high ground

‘Search Inside’ with Amazon

Publishers rush to digitise their catalogues

E-books and reading devices

‘iPod for books’ required

Audio books may turn into e-books

Print on demand

Use of public libraries

Figure 5: UK public library stocks, issues, borrowers and visits, 2000/01-2005/06

Figure 6: UK public libraries: books, borrowers and visits, index, 2000/01-2005/06

Reading groups and clubs

Inspiring new readers

New releases and book awards

Awards act as a guide to quality

Influence of the media

The ‘Richard & Judy’ effect

Books as a social oil

Broader Market Environment

Key points:

Economic factors broadly favourable

Figure 7: Consumer expenditure and PDI, at current and constant 2002 prices, 2002-12

Interest rate rises aim to curb spending

Growth in female employment could benefit book sales

Figure 8: UK employment and unemployment, 2002-12

More travel provides more reading opportunities

Figure 9: Domestic public transport usage, by mode of transport, 1995/96-2005/06

Figure 10: International travel, by mode of transport, 1991-2005

The rise and rise of the ABC1s

Figure 11: UK adult population, by socio-economic group, 2002-12

The mature reader is key to the market

Figure 12: Structure of the UK population, by age, 2002-12

Growth in Higher Education promotes reading

Figure 13: Students in Higher Education, by level of study, 2001/02-2005/06

Market in Context

Key points:

Retail sales data

Sales through bookshops down in current terms

Figure 14: All retail sales and sales through specialists in books, newspapers and periodicals, at current and constant 2000 prices, 2000-06

Bookshops take a declining share of retail sales

Figure 15: Sales of books, newspapers & periodicals as percentage of all retail sales, at current prices, 2000-06

No Harry Potter magic for booksellers

Consumer spending data

Figure 16: Consumer expenditure on books, at current and constant 2002 prices, 2002-06

Spending on books compared to other recreational spending

Figure 17: Consumer expenditure* on recreation and culture (£ million inc. VAT), at current prices, 2002-06

Figure 18: Consumer expenditure on books, newspapers and periodicals, recording media, and games, toys and hobbies, index at current prices, 2002-06

Strengths and Weaknesses in the Market

Strengths

Weaknesses

Market Size and Forecast

Key points:

Sales grow but margins tighten

Figure 19: UK printed book sales and forecast, at current and constant 2007 prices, 2002-2012

Audiobook sales low but building

Figure 20: UK sales of audiobooks and forecast, by value, 2002-2012

Factors used in the forecasts

Seasonal trends

Future prospects

More channels for book sales

Online bookselling will develop further

New formats and devices

Economic and demographic prospects remain good

Where They Buy Books

Key findings

Outlets used for buying books

WH Smith and Waterstone’s vie for top spot

Figure 21: Outlets used for buying books, April 2007

Book buying - trend data

WH Smith and Woolworths losing out

Tesco grows books penetration

Second-hand channels show highest growth

Online outlets becoming more popular

Figure 22: Trends in outlets used for buying books, March 2005 and April 2007

Who are the book buyers?

Older and AB book buyers prefer specialists

Figure 23: Outlets used for buying books in the last 12 months, by gender, age and socio-economic group, April 2007

Waterstone’s and Ottakar’s share similar customer profile

Prosperous urbanites prefer Borders

ABC1 third agers are keen Amazon shoppers

Supermarkets also win some

Figure 24: Outlets used for buying books in the last 12 months, by ABC1 third age and ABC1 retired Special Groups, April 2007

Supermarket success damaging Woolworths

Time-pressed family shoppers like supermarkets

Sainsbury’s book buyers more akin to those of specialists

Asda converts food shoppers to book buyers

Figure 25: Proportion of shoppers that bought books at their regular supermarket in the last 12 months, March 2005 and April 2007

Figure 26: Outlets used for buying books in the last 12 months, by gender, age and socio-economic group, April 2007

Second-hand sources popular among ABC1s and over-55s

Amazon outshines other home shopping channels

Figure 27: Outlets used for buying books in the last 12 months, by gender, age and socio-economic group, April 2007

Where do younger readers go for books?

Figure 28: Outlets used for buying books in the last 12 months, by ABC1 pre-/no family and ABC1 family Special Groups, April 2007

Number of different retailers used for book buying

Figure 29: Repertoire of stores used to buy books, April 2007

Where They Buy Books - Detailed Consumer Demographics

Figure 30: Outlets used for buying books in the last 12 months, by lifestage, presence of children, Mintel’s Special Groups, working status, region, ACORN categories, media usage, commercial TV viewing and supermarket used, April 2007

Figure 31: Outlets used for buying books in the last 12 months, by lifestage, presence of children, Mintel’s Special Groups, working status, region, ACORN categories, media usage, commercial TV viewing and supermarket used, April 2007

Figure 32: Outlets used for buying books in the last 12 months, by lifestage, presence of children, Mintel’s Special Groups, working status, region, ACORN categories, media usage, commercial TV viewing and supermarket used, April 2007

Channels of Distribution

Key points

Specialists dominate the book market

Figure 62: UK sales of books by channel, by value, 2005 and 2007

Specialists

Suffer little independents

Grocery multiples

Home shopping channels

Other channels

New entrants

Outlet numbers

Figure 63: Outlet numbers, book*, newspaper and stationery retailers, 1999-2005

Retail Competitor Analysis

Key points

Competition for keen readers

Varying strategies on space and range

Building the online channel

Adding family appeal

High street havens for budget shoppers

Figure 73: Leading book retailers, comparison of range, audience, outlets and strategic direction

Margins diluted by discounting

Figure 74: Leading book retailers, financial performance and market share comparison, 2002 and 2006

Tesco surpasses other supermarkets

Waterstone’s in a challenging position

More space for independents?

Figure 75: Leading book retailers, evaluation of prospects

Retailer Profiles

Waterstone’s

Background

Latest strategic initiatives

Waterstone wants it back

Acquisition of Ottakar’s

HMV also a potential bid target

Financial performance

Interims 2006/07

Christmas sales somewhat better

Preliminary 2007 results

Figure 76: Waterstone’s, financial performance, 2002-06

Ottakar’s integration

Current trading

Store portfolio

Ottakar’s acquisition boosts store estate

Figure 77: Waterstone’s, outlet data, 2002-06

Formats and fascia

New ‘Arndale’ format targets families

Further rationalisation likely?

Recent major store relocation

Retail offering

Greater emphasis on children’s books

Serious but sociable image

Lightening up

Prices coming down

Pressure to ‘dumb down’?

Buying autonomy being restored

Operational issues

Advertising and marketing

Targeting loyal customers

Revamp of customer magazine

Digital marketing

Seasonal promotional focus

E-commerce and home shopping

Strategic evaluation

WH Smith plc

Background

Divestment and demerger

Financial performance

Major structural changes skew the picture

Figure 78: WH Smith plc, financial performance, 2002-06

Sales suffer as margins are strengthened

Dismal Christmas due to High Street slump

Interim sales down but profits up

Store portfolio

Figure 79: WH Smith plc, outlet data, 2002-06

Distinct formats and sizes

En route to sales growth?

Specialist format development

Use of space is key to High Street progress

Travel stores rebalanced and refitted

Retail offering

Remixing for better margins

Range authority is a key priority

Product mix for busy travellers

Operational issues

Advertising and marketing

Discounting to stimulate Christmas spend

Fewer profit-damaging promotions

Loyalty card to encourage repeat visits

E-commerce and home shopping

Strategic evaluation

Borders

Background

Financial performance

Figure 80: Borders UK Limited, financial performance, 2002-06

Store portfolio

Latest store numbers

Recent store openings

Figure 81: Borders UK, outlet data, 2002-06

Two distinct formats

New ownership on the cards

Retail offering

Ranges tailored to local markets

Store facilities are paramount

Stronger focus on children’s ranges

Operational issues

Advertising and marketing

E-commerce and home shopping

Strategic evaluation

The Works Retail Ltd

Background

Financial performance

Figure 82: The Works Retail Ltd, financial performance, 2002-06

Store portfolio

Figure 83: The Works Retail Ltd, outlet data, 2002-06

Formats and fascia

Retail offering

Interesting stock refreshed often

Low prices and own brands help maintain value

Friendly service a priority

Advertising and marketing

E-commerce and home shopping

Strategic evaluation

Blackwell UK Ltd

Background

Financial performance

Figure 84: Blackwell UK Ltd, financial performance, 2002-06

Store portfolio

Figure 85: Blackwell UK Ltd, outlet data, 2002-06

Academic and specialist outlets

Recent openings

New model format

Retail offering

Academic range plus local flavour

Operational issues

Advertising and marketing

E-commerce and home shopping

Strategic evaluation

John Smith & Son

Background

Financial performance

Figure 86: John Smith & Son Group Limited, financial performance, 2002-06

Store portfolio

Two historic brands

New openings, new format

Latest store developments

Figure 87: John Smith & Son, outlet data, 2002-06

Retail offering

Operational issues

Advertising and marketing

E-commerce and home shopping

Strategic evaluation

British Bookshops & Stationers

Background

Financial performance

Figure 88: British Bookshops & Stationers Limited, financial performance, 2002-06

Store portfolio

Figure 89: British Bookshops & Stationers Limited, outlet data, 2002-06

Retail offering

Operational issues

E-commerce and home shopping

Strategic evaluation

Other specialist multiples

Specialist independents

Non-specialists

Tesco

Overview

Retail offering in books

Online offer much wider

Rapid expansion in book sales

Book pricing

Promotional methods

Recent developments

Asda

Overview

Retail offering in books

Recent focus on children’s chart titles

No online books channel

Promotion aimed at young book buyers

Recent developments

J Sainsbury

Overview

Retail offering in books

Higher sales after more books promotion

Recent developments

Other supermarkets

Department and variety stores

Other non-specialists

Online and direct sellers

Amazon UK

Background

Financial performance

Figure 90: Amazon UK, sales performance, 2002-06

Retail offering

Pricing and promotions

Website facilities for book buyers

Improved ‘browseability’

Other technological advances

Expanding product offer

Taking a cut of third party sales

Easy money?

Operational issues

Advertising and marketing

Strategic evaluation

Other online specialists

Bookgiant.co.uk (formerly BOL)

Overview

Retail offering

Recent developments

AbeBooks.co.uk

Overview

Retail offering

Recent developments

Audible.co.uk

Overview

Retail offering

Recent developments

Bookdepository.co.uk

Retail offering

Recent developments

Other online sellers

Direct sellers

BCA Limited (formerly Book Club Associates)

Overview

Retail offering

Recent developments

The Book People

Overview

Retail offering

Other direct sellers

Retail Advertising and Promotion

Advertising spending by bookshops

Figure 91: Main media advertising expenditure by bookshops, ranked by top ten spend, 2002-06

Press advertising dominates

Figure 92: Main monitored retail advertising spending on books, by media category, 2006

Major retail advertising campaigns

Stacks of Xmas offers from WH Smith

Animated alliteration for Waterstone’s

Borders takes softly softly approach

Amazon sets the pricing pace

Price pressure prevails in 2007

Independents get in on the act

Major launches provoke activity

Generic advertising benefits all

Sponsorship increasingly popular

In-store promotion remains important

Other means of promotion