Tuesday, September 25, 2007

This fascinating story from The Bookseller 24.09.07

It is almost 10 years to the day that the giant US bookseller Borders bought the small London chain Books Etc, bringing "unbridled" joy to publishers across the UK.

"The future is not what it used to be", the Bookseller pronounced (click the image on the right to read the original report). Borders paid £40m for a chain that had 21 shops and an annual turnover of £31m. Last week the US bookseller announced the sale of a business more than seven times larger for roughly half the original price.It would be fair to point out that Borders will retain a 17% stake, worth about £4m, but that doesn't look like much when compared to the $115m loss it is taking on sale of the business.It was all very different back in 1997. Booksellers Association president Jonathan Chowen, then managing director of Sussex Stationers, said: "The UK book trade has changed overnight."

UK publishers were joyous. Tim Hely Hutchinson, then Hodder Headline chief executive, said: "I am delighted to see a high quality superstore operator move to the UK." Nigel Newton, then as now chief executive of Bloomsbury, said: "I have a very high opinion of Borders, based on the empire it has built in the US."Rival retailers were less happy. James Heneage, then managing director of Ottakar's, provided a note of caution, warning that its large superstores could struggle in the UK: "I would be amazed if they worked here." Heneage also warned of "price cutting". Alan Giles, then managing director of Waterstone's, said: "Publishers must be concerned whether the UK book market is going the same way as the US book market, where the chains' expansion has been reckless."The Bookseller's Leader column said the deal would have a "monumental impact on the UK book market".

But it warned: "The entry of the US giants will be successful only if they help to bring about a substantial increase in the size of the UK book market. Unless that happens there will be much blood on the floor, spilled for no better reason than a desire for increased market share."

The Bookseller got it half right. Sales rose, but somehow the bottom line failed to follow.In 1997 the UK consumer book market was reported to be worth £2.3bn. Ten years on the value of that market is now said to be £3.3bn. Borders UK has clearly contributed to that growth: it now has UK sales of £223m, and operates from 69 stores.
But it made a profit of £2m–a figure scarcely different from the £2.2m profit reported by Books Etc back in 1997.

As David Roche chief executive of the new Borders said today: that is a lot of effort for little reward.
Luke Johnson is likely to receive a similarly warm reception. He is already saying all the things publishers love to hear.

As The Bookseller of 1997 might have commented, the future is not what it used to be–again. But Paul from Books Etc probably has it better: "For the first time in a long time, the future looks exciting."
As an addendum, I cannot resist referring to another story we had in the magazine that week. It began: "The board of W H Smith has rejected an audacious bid to buy the company led by Tim Waterstone." It seems that we might have had it wrong about the future after all.

1 comment:

Anonymous said...

fascinating comparison with borders entry and exit from the UK market.
i predict that the new owners will have an uphill battle to turn this around even with stationeryand toys incl in their stock mix.
ten years of losses hidden within their balance sheet! amazing that shareholders never exited and drove the share price down. how did they hide it for so long from the trade?. we suspected but never ever realised the true extent of their losses over the years.
the new owners will need the same deep financial pockets but less time to prove themselves.
i predict that whitcoulls will buy the borders group in australasia to flesh out their balance sheet and try and confuse prospective buyers of their share in the ensuring float in 2008.