Why Johnny Doesn’t Read Anymore

Sector Spotlight: The major U.S. book retailers are facing a future in which consumers text, Twitter, blog, download and Kindle, but they don’t buy books.
Posted April 27, 2009

In the 1998 movie “You’ve Got Mail,” the Tom Hanks character managed a Barnes & Noble-type Manhattan superstore, the kind of behemoth that was gobbling up the book retailing industry. The Meg Ryan character operated the endangered species: a small, independent bookstore.

A decade later, the behemoth has become the endangered species. In the first quarter of 2009, both Barnes & Noble and its principal U.S. superstore rival, Borders Group, closed stores, reduced expansion plans, replaced key management and laid off thousands of workers. In March, Borders had to agree to a reverse stock split to keep from being delisted on the New York Stock Exchange.

“Bookstores are in danger of becoming dinosaurs if they don’t pay attention and respond to consumer changes,” says Ken Nisch, chairman of JGA Inc. (Southfield, Mich.), which has done consulting and design work for Borders. “There are fewer and fewer books in bookstores, just as there are fewer CDs in music stores and fewer DVDs in movie rental stores.”

The cause: a proliferation of new media that are replacing the printed page in people’s lives. More and more people today read their newspapers on the Internet and download their reading materials onto Blackberries and iPhones. So two months ago, to get into the game, Barnes & Noble paid $15.7 million to buy Fictionwise, an online retailer of electronic books.

It’s not the first time the superstore chains have had to peer into a future being reshaped by technology. In the 1990s, Amazon.com changed the face of book retailing when it began selling books online. Today, the technology that threatens bricks-and-mortar bookselling is the dissemination of digital books and other electronic reading devices. And once again it’s Amazon, which makes and sells the Kindle electronic book reader. Sony also sells a version, but the Kindle reader doesn’t need to be connected to a computer. Rather, users can purchase books right on the device, which downloads them over a wireless network. At press time, Amazon reported it had 230,000 titles for sale in the Kindle format, many of them exclusive to Amazon.

Fictionwise is expected to help Barnes & Noble compete with Amazon and others in the digital world. But where does that leave all those stores? Even with cutbacks, the two major retailers operate nearly 2000 units in the U.S. Those stores began undergoing major changes when book sales started flattening out in the last decade. Comfortable lounge chairs and reading tables were installed to give stores the feel and utility of libraries. Full-service coffee counters, often franchised by brand names such as Starbucks and Caribou, made them places to gather, socialize and spend an afternoon. Public spaces and private rooms were introduced to make the stores educational, entertainment or public-service venues. But the market keeps changing and more reinvention will be necessary.

Paddy Karve, who was until recently Borders’ manager of architectural services, feels the retailer made a big mistake a couple of years ago when it added and then quickly dropped the words “books, music, movies and café” from its logo because it felt the signage was becoming too cluttered. “Our message of repositioning became lost,” Karve says.

Borders has also dropped the entire music department in some locations, Karve notes, because people have stopped buying CDs. “We had expanded that department over the years,” he says. “What are they going to do with all that empty space?” Nisch envisions a store of the future that fills empty spaces like that with educational seminars, travel services, product demonstrations, cooking classes and new-product launches, research tools, financial advice, movie screenings and musical concerts.

“The bookstores’ most valuable asset is their customer base,” he says. “There may be fewer customers, but they tend to be well-educated, affluent, loyal and intellectually curious. Their bookstore dwell-time is above average and they see books as a way to actualize their lives. So they may read fiction in some digital form, but they’ll likely continue to buy coffee table books or reference books on cooking, travel, arts, design, etc.”

They also tend to nurture and encourage their children. Children’s books are one of the few growth areas, though that might have been part of the now-ended Harry Potter phenomenon. Independent children’s bookstores have been resilient. They’ve been smart in tying their book offerings to movies, TV shows and video games with which children are already familiar. They have large selections of foreign-language books, a nod to the increasingly multi-cultural U.S. population. And they fill their stores with colorful, fun reading areas. Both Barnes & Noble and Borders have been increasing the size of their kids’ books departments and introducing reading programs and movie videos.

“It’s a worthwhile activity that parents and children can share,” Nisch says. “And while the parents are in the store with their children, the retailers hope they’ll wander over to the books, or greeting cards, or calendars or gift items, or just get a cup of coffee.”

As for the children themselves, Nisch says children’s books are highly visual, so the browsing and tactile experience is particularly relevant. Even in the age of e-commerce, it is an environment that cannot be duplicated in an online experience. But, he says, it’s also a quickly evolving market and retailers have a small window in which to strike. Children from pre-school to age 7 are still interested in books, he says. After that, they become technology-savvy, get their iPhones, laptops and PDAs and begin to leave books behind, just like their parents have.