Bookstore Economics 101

It will be interesting to see what the physical retail bookstore landscape looks like a year from today. Mark your calendar. We’ve had over a year of varying degrees of physical store closures and limitations. Much optimism is circulating that a form of shopping in stores will return. But how much and will it be enough?

To help understand the economics of bookstores, I’ll take a quick look at some of the things that make selling books out of brick-and-mortar stores difficult. So put on your math cap, and let’s take a ride.

This article focuses on the bookstore, not the publisher or 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. [Yes, books retail for more these days; but doing math for retail prices of $13.99 or $26.99 is harder to illustrate!]

The bookstore buys the book for $6.00 (or 40% discount off the retail price) from the publisher (who calls that $6.00 the net price). Note that this discount varies between 40% and 50%.

When the book sells to a customer, the store then makes a $4.00 profit ($10.00 – $6.00 = $4.00).

(Still with me?)

If the store discounts the book during a 20% off promotion, they have to sell two copies to make that same $4.00 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 $10.00 book for $6.50 (35% off) every day. 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 effect on the ability of the local store to compete. The industry calls this a “volume” business model.

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

Remember, 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. (This law is the Robinson-Patman Act of 1936.)

In my heyday 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 precursor to Sam’s Club and Costcos) did $1 million PER WEEK in sales. High volume, low prices. Their sales crushed the local independent stores because they simply didn’t 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. They did not care if they sold a Bible or a set of new tires. Now we have Amazon that carries all the same products found in the bookstore (not just ten bestsellers) but also sells nearly everything imaginable (including a $31,000 safe). A one-stop-shop.

Let’s go back to that store that made a profit of $4.00 for the sale of a $10.00 book. Here is a list of some expenses that the $4.00 in profit covers:
Rent
Salaries
Utilities
Telephone
Advertising
Office supplies
Shrinkage
Bank charges
Taxes
etc.

Shrinkage? That fun line-item is about 3% of sales. It includes shoplifting, employee theft, and paperwork errors. Believe it or not, one of our Christian bookstore’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 from 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 storefront retailer.

See 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 in 2008 and the city built a light-rail track in front of her store, her sales during Christmas plummeted 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. But it is a huge struggle because it is hard when the profit margins are thin.

Another friend of ours had a store for nearly 30 years, but a competitor moved close by that was part of a large chain. And then the landlord wanted to increase their rent by 30% with escalating rates during the life of the lease. They had survived the economic struggles of 2008-2009, but this lease was the last straw; and they could not continue operating.

Will the bookstore industry fade away as the computer stores have? Will we find fewer places where we can browse for selections, or will book sales move entirely online?

Time will tell!

But if you see this as a downer of a post, remember that book sales themselves are just as healthy as ever. Publishers have found new places to sell their books. And many authors have seen the need to be authorpreneurs to get their books into as many hands as possible.

14 Responses to Bookstore Economics 101

  1. Avatar
    Sheri Dean Parmelee, Ph.D. May 3, 2021 at 5:15 am #

    Thanks for the breath of fresh air at the end, Steve. It was a Downer Debbie moment until you got to the good news. That said, thanks for the insight and for showing us the need to support our local bookstores. There’s nothing like browsing through shelves of brand new books and having the chance to take a look before you buy. (Yes, Amazon lets you look inside, but there’s a difference in actually holding the book.)

    Best,
    Sheri

  2. Avatar
    Jeannie Delahunt May 3, 2021 at 6:27 am #

    Thank you for the insightful information, Steve.

    I’ve seen so many bookstores fold to where there doesn’t exist any locally in my area whether Christian or combination. Online buying isn’t the same at all as walking amongst the rows of book-filled shelves and browsing titles. Then finding an empty chair to peruse a handful of books begging for a purchaser.

    Personally, I wish the old ways would reappear. It’s kind of a culture thing, too. There’s probably a couple of generations who don’t know this experience.

  3. Avatar
    Roberta Sarver May 3, 2021 at 8:48 am #

    We need your perspectives more than ever. Thanks for keep us posted on current trends. It all appears pretty overwhelming at times when you’re trekking up the mountain and just peeking over the crest at the top.

  4. Avatar
    Elliott Slaughter May 3, 2021 at 9:57 am #

    It would help (in my opinion) if local bookstores could sell ebooks. Personally, I’d rather not spend my money at Amazon, but ebooks are physically more convenient for me, and often I just can’t get them anywhere else. (Outside of a few mainstream publishers, like Tor, who make their books DRM free and available from independent online sellers like dragonmount.com.) If you could solve this problem you’d bring back at least one sales channel for independent bookstores to lean on.

  5. Avatar
    Kristen Joy Wilks May 3, 2021 at 11:34 am #

    Phew! I see why our little Christian bookstore has changed hands three times since I’ve lived here. We have two bookstores in our area. One small general market shop in a tourist town about 30 minutes away from us and one small Christian bookstore about 45 minutes away. I noticed that they are giving more and more floor space for mugs, tea, cards, and fudge. Now I see why. Thank you for this glimpse into the bookstore life.

  6. Avatar
    Kay DiBianca May 3, 2021 at 12:05 pm #

    I hope bookstores can stay alive. There’s nothing quite like browsing in a bookstore. Amazon may be efficient, but it can’t be tactile. That may sound silly, but the ability to lift the book off the shelf, turn the pages, and get the feel of it is part of the experience.

  7. Avatar
    Carol Ashby May 3, 2021 at 1:53 pm #

    If you want to buy a specific book or author while supporting your local physical bookstores, you can do that through Indiebound.org (https://www.indiebound.org/) The website can tell you which indie bookstores in your local area will order in a print book you want. That works for traditionally published and indie-published print books. All my hardcovers and paperbacks are listed there. It lists locations and online order links for most of the 12 indie booksellers in the Albuquerque area who are part of indiebound. Any of those will order my print books in, and I set a 50% discount off list to booksellers so we both make a nice profit. It’s a win-win for everyone.

    It’s a super easy way to support both booksellers and authors.

  8. Avatar
    Peggy Booher May 3, 2021 at 3:41 pm #

    Steve,

    Thanks for your perspective. From years of working in retail, though not in management, I know keeping an independent brick-and-mortar store open is difficult. Profit margins for many independent stores are very low, even in a good year. Throw in a pandemic or anything that messes up deliveries and inventory for a long period of time, and there’s not a lot of room to cope with that, as far as profit.

    The closest bookstore I know of to my area is 20 miles away, in a heavily traveled area, and it’s a Barnes & Noble. Libraries and thrift stores with used books for sale are a lot closer. I can’t really afford to pay $20 for a new book, so I look at the used books. Sometimes I can get a like-new hardback book for $2 or $3. If the one I want is just recently published, I see if one of the local libraries can borrow it for me, and I pick it up there. I did this recently with one book.

  9. Avatar
    Dennis L Oberholtzer May 3, 2021 at 5:02 pm #

    Thank You for that realism. Since I write and research things that few people are interested in, I doubt I will be selling big volumes.

  10. Avatar
    Michele Weisman May 3, 2021 at 5:42 pm #

    My family and I moved at the end of 2020. A visit to our local Barns and Noble brought me back a few years. They have about three times the selection that we were used to. I have been delighted by books in craft and other genres that Amazon never referred me to. Thank you for this thoughtful post about the realities of book stores. Feeling a bit guilty as I get a percentage off most books due to having a teacher discount. #Homeschool

  11. Avatar
    Terri L Gillespie May 4, 2021 at 4:23 am #

    Oy! Well, I’m feeling guilty about the books I could have purchased at the local B&N. Great info. Printing.

  12. Avatar
    Andrew Budek-Schmeisser May 4, 2021 at 4:47 pm #

    Amazon just does not smell
    like bookstores known of old;
    no fading paper, just hard sell,
    a redolence gone cold.
    Ebay’s eyes search far and wide
    for that title, so desired,
    but algorithms? You can’t chide
    the ignorance they’ve hired.
    The human touch can’t be replaced,
    the murmured, “Well, let’s see…”
    by which your old-book quest is graced
    in serious mien, for love, for free,
    with kindness and fine-honed respect,
    a human pledge to do one’s best.

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