Lessons from the Borders collapse

Stephen Bartholomeusz

 2 Jun 2011 - Business Spectator

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One of the unanswerable questions about the collapse of REDgroup and the inability of the administrators so far to negotiate deed of company arrangement that might salvage something substantial from the wreckage is whether its fate might have been different had the recommendations in a Productivity Commission report two years ago been in place.
The question is given added (and unpleasant emphasis) by the announcement by the administrators, from Ferrier Hodgson, that the nine remaining Borders stores will close. The fate of the Angus & Robertson chain remains uncertain.
The Productivity Commission’s 2009 report into the parallel import restrictions that provide territorial protection for book publishers in Australia recommended that the restrictions be repealed. A campaign by publishers and authors, however, was successful in getting the report shelved.
Under the restrictions, if the Australian holder of the publishing rights to a book releases it within 30 days of it being published elsewhere in the world, book retailers aren’t allowed to import it.
The commission found that analysis of a sample of so-called ‘’trade’’ books (books other than educational or professional texts) revealed that on average the Australian prices, even after excluding the effects of the GST, were 35 per cent higher than the same editions sold on the US, with some titles more than 50 per cent more expensive.

 The key argument for the restrictions is that by giving local publishers higher returns it enables them to produce bigger publishing portfolios, creates greater investment in local authors and encourages faster releases of foreign-authored books in Australia. The commission, however, concluded that most of the financial benefits of the protection flowed to offshore publishers and authors.

Whatever the merits of the restrictions, their effect is to increase the prices of books in Australia and to concentrate the supply of books within the hands of a relatively small number of international publishers.

 As discussed earlier this week (Why did Borders lose the plot? May 31), there is a structural change occurring rapidly – and given further momentum by the strength of the Australian dollar – as consumers globally buy an increasing number of books online, either physical books from internet retailers like Amazon or even more cheaply as e-books downloaded onto e-readers.

Even in markets where there are lower levels of protection for publishers than Australia, the big book retailing chains have been destabilised by the success of the net-based retailers. The even higher cost of books in this market as a result of the restrictions, with the strength of the dollar, ought to have an increasingly significant impact on bricks and mortar retailers.

Bricks and mortar book retailers, or at least the big chains like REDgroup’s Angus & Robertson and Borders brands, are inherently high-cost and low-margin. They are located in expensive shopping centres and big retail strips and are employee-intensive. They need to move a lot of books to generate a profit.

Internet retailing, the retail recession and inevitably some poor management no doubt all played roles in the downfall of REDgroup. There is rarely a single or simply reason for a corporate collapse.

Read the rest of  Stephen Bartholomeusz piece at Business Spectator.

Photo above - Georgia Waters.