Walmart, Target, and Amazon drop book prices -- and distributors get spanked

When a price war erupted last month among Amazon (AMZN), Wal-Mart (WMT), and Target (TGT) on select anticipated blockbuster books -- new titles by Sarah Palin, James Patterson, Stephen King, and Barbara Kingsolver -- it seemed like independent bookstores would be taking a beating. But the real victims may turn out not to be those mom-and-pop shops but their wholesalers and distributors.

The big-box retailers have been playing a game of limbo this fall, pricing hardcover editions for as little as $8.98. It's textbook loss-leader economics, the theory being that pricing these few titles so low should entice customers to buy other products at full price.
The most obvious collateral damage would seem to be independent book retailers, a group that's long battled declining fortunes and online retailer ubiquity. Indeed, the American Booksellers Association sent a letter of complaint to the Department of Justice late last month, seeking an investigation into the big retailers' massive price reductions.

The ABA's position was echoed by Vroman's, a bookseller in Los Angeles. "We have a bad taste in our mouths about the whole incident, and we hope that our customers realize that there is a far greater cost to these price wars," Vroman's owners said in an email statement. "They may be saving a few bucks, but they're losing a lot more."

Independent Stores Take Advantage

But in a strange twist -- one that undercuts the ABA's complaints -- some independent booksellers have started to use these deep discounts to their unexpected advantage.

Publishers ordinarily offer current titles to retailers at a discount of between 40% and 50%. A bookstore spends up to $12.50 to sell a $25 hardcover, which it buys directly from the publisher or through distributors like Ingram or Baker & Taylor. But the price war dropped selected titles to prices far lower than that standard discount -- and some bookstore owners discovered they could save even more on inventory -- and make bigger profits -- by sidestepping the distributors and ordering books from Amazon, Walmart, and Target.

Booksellers sometimes order from Amazon in a pinch -- "guerilla book buying" titles when publishers and distributors don't send orders in a timely fasion. But some store owners would like to dismantle the middleman altogether.

Cutting out the Middleman

Arsen Kashkashian, head buyer at the Boulder Bookstore in Boulder, Colorado, told The Wall Street Journal he intended to order as many as 70 copies of Barbara Kingsolver's new novel, The Lacuna, from the price-warring retailers, who would sell each copy for $5 less than publisher HarperCollins would.

A Baker & Taylor representative said only, "Pricing is a customer decision." News Corp. (NWS)'s HarperCollins did not comment for this story.

Martin Scmutterer, a staffer at Common Good Books in St. Paul, Minnesota, told that he likes the idea but cautions, "It's a short-term solution to a long-term problem, and there are some practical problems, like limiting the number of copies you can order."

Rationing Orders

Indeed, the giant retailers' latest salvo last week began foiling the plans of independent booksellers by rationing copies per customer. Want to stock up on $9 copies of Stephen King's thousand-page Under the Dome (list price: $35), you'll be limited to buying 10 copies: two from Wal-Mart, three from Amazon, and five from Target.

Small bookstores probably didn't give the retail giants much of a fright; their share of the retail market is somewhere around 10%, and the number of independent stores plummeted by nearly two thirds, from 4,700 to 1,600, between 1993 and 2008. Indeed, Amazon and its rivals may have been just as concerned about preventing eBay sellers from snatching the profits they'd voluntarily given up.

A Short-Lived Strategy

Before the big retailers breathe a collective sigh of relief that they've prevented a bank run on Stephen King books, they should pay attention to what industry newsletter Publishers Lunch pointed out: a lone bookseller may be capped at 10 copies, but multiply that by several staffers. "They can order dozens of copies for the store with no problem (and free shipping)."

Kashkashian says that when he learned about the new ordering cap, his staff tried to order three books a day from Amazon. "When that didn't work, we quit." But he saw his small act of rebellion "as a way to jab" Amazon, Target, and Walmart "for their pathetic business practices. They won't stand behind their sale."
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