The book: the ultimate luxury item?

REDGroup, owners of Borders Australia and Angus & Robertson called in the administrators on Thursday, a move seen by many as the demise of Australia’s largest book chain.  The administrators Ferrier Hodgson  are confident that restructuring shall save the chain but the question reminds for how long?

REDGroup’s economic woes have been attributed to soft consumer sentiment, the rising Australian dollar, the shift to online monoliths Amazon and Book Depository and the Government’s decision not to repeal Parallel Import Restrictions.  

But as others have commented a hard look needs to be taken at the business model employed by Borders and A&R’s owners. In particular private equity’s penchant for asset striping and gearing the balance sheet to the hilt.  Poor management as manifested by erratic pricing (charging above the RRP then offering deep discount online), appalling inventory control and poor customer service.

Everyone who has ever walked into their stores has a story to tell. (And we are not referring to the interim policy of gift cards during the administration).  The last time we interfaced with A&R staff was to order a book.  We provided the ISBN, the publisher and explicitly stated we did not want the American imprint as we were trying to complete the set.  They ordered the very edition we did not want.  The book in question was eventually procured from an Independent.

If Borders was to disappear from the Australian retail landscape it will be little missed but with A&R and its corporate history dating back to 1886  may be a different story particularly with older Australians.  Sure, its publishing arm has long absorbed into the Murdoch empire but it is depressing that over the past twelve to eighteen months A&R has descended into a sad parody of a book store selling predominately remaindered stock and occasional cooking utensil to cash in on the Masterchef craze.  The decision to complete with the discount chains of Woolworths and Wesfarmers (who have 1/3 of the book market between them) was foolhardy.  As was the decision to charge smaller publishers for shelf space and the attendant bad publicity that  that brought. It is the back list not the front list that distinguishes a good book store from the bad.   

Still the question reminds are Australian consumers being ripped off?  Books are too expensive to be brought new on a mere whim.   The Productivity Commission recommended in 2009 that the restriction on parallel imports be lifted so booksellers could import books in Australia at a cheaper price than they can be published domestically.  The Government declined to adopt this recommendation for among other reasons to protect culturally significant books.

Would the lift on parallel imports have translated into cheaper books?  The answer is probably not.  Retailers have higher costs than their overseas counterparts.  Labour cost are much higher including worker comp and superannuation but most crucially is the exorbitant rent retailers are charged particularly if they are in a Westfield centre which many of the REDgroup outlets are.

Nor would the lift on parallel imports protect retailers.  There would be nothing stopping an overseas vendor come in rent retail space over the summer to sell remaindered stock.  Stock on which the authors would receive no royalties.  Surely, Australia deserves to be more than the world’s dumping ground.

Perhaps the Australian subsidiaries of the International Publishing Houses need to revisit their pricing policies.  If rumours are correct that the Australian price is set as a fixed ratio to the UK/USA price regardless of where the foreign exchange sits then the consumer procuring directly overseas albeit via can not come a surprise.

Will the book store go the way of the record store?  Sure the e-readers will become ubiquitous but reading is a tactile experience.   The VA of the REDGroup perhaps demonstrates how tight the profit margins are in book retailing in Australia. 

UPDATE: The administrators have announced that 38 stores will close.  Full list can be found here: 

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