Bookstore Economics 101

by Steve Laube

Understanding the economics of your local brick-and-mortar bookstore should help you understand the upheaval that is happening in our industry. So put on your math cap and let’s take a ride.

This article focuses on the bookstore not the publisher or the writer. I spent over a decade in the Christian bookstore business, and while that was a long time ago the economic principles are the same.

Let’s start with a $10 book (retail price). I’m using $10 because it will make the math a little easier to follow.

The bookstore buys the book for $6 (or 40% discount off the retail price) from the publisher (who calls that $6 the net price). Note that this discount varies between 40% and 50%.

When the books sells to a customer the store then makes a $4 profit ($10 – $6 = $4).

If the store discounts the book during a 20% off promotion they have to sell two copies to make that same $4 profit. But often a 20% off sale is not enough to double the sales volume. Why? Because a high-volume operation like Amazon.com is happy to sell that $10 book for $6.50 (35% off). They can do this because they plan on selling 10 copies at the discounted price and clear $5 in profit. This pricing strategy has a chilling effeBooct on the ability of the local store to compete.

An operation like Amazon can do this because they have a different expense structure than your normal store-front bookstore.

Remember that the publisher is obligated by law to offer the same discounts to the same vendors based on the volume of their purchases. So don’t believe the myth that Amazon is buying the above book for $3 and selling it for $6.50.

In my hey-day as a bookseller our store did nearly $2 million in annual sales. That sounded like a lot, until I discovered that the local Price Club (a per-cursor to Sam’s Clubs and Costcos) did $1 million PER WEEK in sales. High volume, low prices. It crushes the local independent store because they simply do not have the volume in sales to compete solely on price. And Price Club was not reliant on a single type of product line to generate their sales. The did not care if they sold a Bible or a set of new tires. But now we have an Amazon that carries all the same products found in the bookstore and also carries other products too. A one-stop shop.

Let’s go back to that store who made $4 on the sale of that $10 book. Here is a list of some expenses that the $4 in profit covers: Rent, salaries, utilities, advertising, supplies, shrinkage, bank charges, taxes, etc.

Shrinkage? This fun line item is about 3% of sales. It includes shoplifting, employee theft, and paperwork errors. Believe it or not, one of our store’s biggest areas of “shrinkage” was leather-bound Bibles.

Bank charges include the percent that the credit card company charges to process your purchase. This can range form 1% to nearly 3% of every credit card sale.

Our store did a training video to show new employees how this all worked. We started with a $10 bill in the palm of a hand received for the sale of the book we mentioned above. When all expenses were deducted (cost of the book, rent, salaries, etc.) there were two dimes left in the palm of the hand. There is very little room for error for the store-front retailer.

Now do you understand why your local stores are having a tough time in this online age? A good friend of ours had her bookstore for 32 years. When the economy soured and the city built a light rail track in front of her store her sales at Christmas plummeted by 40% compared with her previous year. She went bankrupt.

To counter the online pricing wars some stores are becoming boutiques where books are not as critical to their profit margin. A store may have a larger gift or greeting card section…items with which they do not have to compete with Amazon. Others create community spaces with coffee shops and hold local events to draw people to the store. The survivors have successfully adapted to the changes in the market.

In the same way traditional publishers and independent authors and forward-thinking agents are adapting to this ever changing industry.

11 Responses to Bookstore Economics 101

  1. Amy Boucher Pye March 25, 2013 at 3:13 am #

    Excellent blog, Steve. And Amazon in the UK hasn’t paid the fair amount of corporate tax – another reason to support bricks and mortar. I will share this with my UK friends…

  2. Connie Almony March 25, 2013 at 5:39 am #

    It’s hard for me to imagine how bookstores are competing. I rarely use them because whenever I look for books in them, they never have what I want. Whereas Amazon always does. And usually for lots less. I try to go back, but become disappointed once more. Recently, I visited a number of local stores to see if they were interested in hosting group book signings with our local ACFW authors. I did not get any interest. I couldn’t believe it. I thought that would be something where they had the edge over Amazon—live events! But if they were not already selling that book, they would not host that author. The odds were against us since they’d been reducing their book inventory already. It seemed they’d given up on selling books and were focusing on gift items instead.
    In today’s fast-shifting publishing business, all players will have to keep their eyes open and prepare to be innovative. They need to ask, “What can we provide that on-line markets cannot?” Then provide that. Otherwise there will be no business left. It’s sad because I always loved the feel of a bookstore.

    • Sally Bradley March 25, 2013 at 7:35 am #

      Connie, I’m with you. I now don’t have a bookstore near me, so I’m not able to go often. And when I do, they often don’t have what I want. I can order it there–and sometimes do–but that means a wait and another long drive back.

      I wish things were different, but times have changed. I’ve worked in bookstores and I loved having all the books and options, but those days really are gone. For publishers and authors, it’s now more about how to be discovered online rather than in bookstores.

  3. Ann Shorey March 25, 2013 at 8:18 am #

    Good article, Steve. I shared it on my page.

  4. Jeanne T March 25, 2013 at 8:22 am #

    I confess, I like numbers, but I’m not a math whiz. Thanks for breaking down the numbers for us. didn’t realize how low the actual take-away profit is for bookstores. It’s a double whammy for them to have to price items higher than online markets. Expanding what they sell makes sense. One store in our town sells jewelry and other items. The Christian bookstores in our city sell wall art, which I’m guessing helps bring in more profit.

    I hope the brick and mortar bookstore doesn’t go the way of the type writer. I like going in and browsing. And buying. I have a better understanding of the struggle stores fight each day to stay in business.

  5. Ron Estrada March 25, 2013 at 9:00 am #

    I will lament the vanishing small bookstore, and even the vanishing large bookstore, but there’s no doubt that Amazon and future versions of it are the new reality. For us, this should be a good thing. Without physical stores and large inventories, books become more accessible. And not just for the U.S. There are probably billions of people around the world who suddenly find books within their economic grasp. Whether or not our books translated into the varius dialects will gain us readers remains to be seen.

    Something else to be gleaned from this post is that few Americans understand what it takes to make and sell a product. I often hear “There’s now way that piece of steel is worth $xxxx.” People simply don’t understand how many hands have to touch each product, and how much you have to pay each set of hands. America would be a different place if every high school graduate had to run his or her own business for a year.

  6. Barb Raveling March 27, 2013 at 3:45 pm #

    This is sad. I try to order books from my Christian bookstore even if it’s more expensive and more of a hassle just because I appreciate them so much. I confess i break down and buy the book from Amazon though if there’s a huge difference in price.

  7. richard sands April 2, 2017 at 4:50 pm #

    You all have such a negative attitude…But in respect you’re all right. In our preSocialists existence we all look for the easy way
    to make a living..get that disability check or SSI from government
    and I can do it..Take those $ items away and it becomes a task, but add a dream with risk and determination, it will work. Fact is if you interject LOVE in the business..success will follow. My shop will have a connecting link with Amazon where we will have priority delivery system, you know work with the system. I deliver used books to hospitals and nursing home. I pick up patient for Saturday readings, we have a tea shop with 300 different teas at a reasonable price. Children’s readings on Tuesday nights with a free Ice Cream for each. Writers club meetings. and instructions from local authors. Instructions for drama and theater students from Wife with Masters.
    I’m 80 , just dreaming but its’still possible….dont’t ever give up.

    • Destiny July 10, 2017 at 12:59 pm #

      you have such great ideas! i’m working on a business plan now for a book cafe 🙂 I hope I will be able to fill the gap in bookstores in my area.

Trackbacks/Pingbacks

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