Monday, June 11, 2007

Potteronomics not magical for booksellers

Reuters reports that stiff competition coupled with a generous 12 million copy print run means that Harry Potter and the Deathly Hallows could be a money-loser for many retailers. Besides explaining Potteronomics, the article provides a glimpse into the state of affairs facing booksellers in general:

Online retailer and Wal-Mart Stores Inc. have slashed nearly 50 percent off the book's $34.99 list price, forcing many independent booksellers to follow suit to stay competitive. Barnes & Noble Inc. and Borders Group Inc., the world's largest booksellers, are selling it at 40 percent off.

Such price cuts drive sales, but usually result in minimal profit margin, something Jefferies & Co analyst & Co. analyst Tim Allen said typically happens on every bestseller. "It's so discounted, there's minimal, if any, gain," Allen said. "Retailers try to make up the shortfall by marketing loyalty cards, which they hope will entice shoppers back into their store."

Industry data I've seen suggests that book retailers have it pretty bad, and the net margins (4-5%) for even the mega-chains are usually below those of publishers. Evidently it's difficult to make much money when you combine the high overhead of operating a store with the cost of providing choice in this "long tail" world. (See here and here for more on this topic.)

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