Just six months after forging a partnership with the American Booksellers Association (ABA) to help independent bookstores sell ebooks, Canadian upstart Kobo has shown that it can crush the competition – even when the competition is one of the world’s largest and most admired companies.
In fact, it only took a month.
According to the ABA, Kobo has helped indies sell more ebooks in its first month working with them late last year than Google did in more than two years in a similar partnership.
“Where content is concerned, we swiftly exceeded our Google ebook experience right out of the gate,” said Neil Strandberg, director of member technology for the ABA. “From our point of view, it’s soundly beating the Google ebook program.”
Why? The difference is devices, said Strandberg and booksellers from all over the U.S. Unlike the Google partnership with the ABA and bookstores, which ended in Jan. of this year, the Kobo partnership, which was launched in Oct. of last year, gives stores the opportunity to sell Kobo’s line of e-readers and tablets, which makes it easier to sell ebooks.
At this point, Kobo says that 460 stores have signed up for the program and that it plans to have 1,000 signed up by the end of the year. That’s much more than Google ever had and it’s a vote of confidence in the industry for the strategy: sell the e-reader, sell the ebooks. Confidence in the strategy, however, might not be enough.
While neither Kobo nor the ABA would share specific numbers on total device or ebook sales, candid conversations with bookstore owners, Kobo and the ABA suggest that there might be trouble beneath the veneer of impressive but relative success this new partnership has shown in its early days.
Slow Sales, Store-by-Store
What does far exceeding Google ebook sales look like?
The Harvard Book Store in Cambridge, Mass. has sold “a couple hundred” ebooks since Nov. when the store first started, according to Carole Horne, the store’s general manager. Main Street Books in Lander, Wyo. has sold “maybe 20,” said the owner Amanda Winchester. Greenlight Bookstore in Brooklyn has sold about 100, according to the store’s co-owner Jessica Bagnulo. The Green Apple bookstore in San Francisco is selling about 75 ebooks a month, said its co-owner Kevin Hunsanger.
The list goes on and in much the same fashion: on the high end, some stores have sold several hundred ebooks; on the low end, it goes as low as it can go.
“I don’t know why they would necessarily buy them from us,” said Michael Stuppin, the owner of Alexander Book Co. in San Francisco, who told us that he has sold no ebooks yet, despite having sold over a dozen e-readers.
Sales of the e-reading devices are just as varied, with some stores able to sell a few hundred and others having sold just a handful. The Books Inc. chain of a dozen small shops in the Bay Area has sold about 200 e-readers (130 Kobo Glos and half as many Minis) and 300-to-400 ebooks, according to its owner and CEO, Michael Tucker. The Talking Leaves bookstore in Buffalo, NY has sold just two devices.
Why is it that Talking Leaves has sold so few e-readers and The Book Inc. has sold so many? Location could be one factor, said Bagnulo, the Greenlight owner.
“We’re in Brooklyn, an urban setting with a lot of tech-savvy consumers,” she said. “They’re reading Wired and curious about new ways of reading, and we’re able to be there to offer a new e-reading option.” Greenlight has so far sold about 50 Glos, 50 Minis and a handful of the Kobo Arc tablets.
Another reason the store has had success is that it decided to “take a stand” with the e-readers. With e-reading cutting into the physical book business in general, many of the store owners we spoke with felt that by selling Kobo e-readers and ebooks that they were fighting back against the encroachment of Amazon and Barnes & Noble.
“Ebooks aren’t going away and it’s nice to know we have an alternative to the Nook and Kindle, something that can bring people back to a community store,” said Derek Harmening, a bookseller at The Book Cellar in Chicago, which has sold seven e-readers so far.
Stores like Greenlight and The Book Cellar have done much to promote their participation in the program and the availability of the devices. In small retail locations (Greenlight is just 2,000 square feet, for instance), they dedicate valuable space to cardboard displays provided by Kobo. Like many other stores, they also have spent marketing efforts on promoting the devices – both at the retail location and through digital means – and spent time learning about the devices to be able to pitch them effectively.
Pricing promotions by Kobo have also given sales a boost, according to John Kwiatkowski, publicity manager at Murder by the Book in Houston. Black Friday and Valentine’s Day promotions helped the store sell about a dozen devices.
Customer loyalty could be another factor, said Tucker of The Books Inc. chain in Calif., “You go into any Best Buy and you have rows of devices lined up. The fact is that we have customers that are supporting what we are doing.”
And, of course, many of the participating stores advertise the partnership on their websites, where readers can purchase Kobo ebooks.
The Margin Problem
Despite the optimism around a new strategy and swifter sales versus Google, there is a problem for indies selling ebooks: the margin.
The margin on e-reading devices for the bookstores is 5%, worse than almost anything else sold in the stores. The margin on ebooks varies between books, depending on Kobo’s pricing and discounts, but it usually falls between 8% and 20%, said booksellers.
When compared with no income on ebooks, these numbers don’t seem so bad, but it would be hard to imagine that the actual dollars they amount to pays rent, salaries or electric bills yet.
Take the biggest sales numbers we saw in our survey of stores, The Books Inc. The company has sold 200 e-readers and nearly 400 ebooks. Calculating for the breakdown in pricing and sales between the Glo (retails for about $130) and the Mini ($80), that’s about $1,105 in profit – between 12 stores in about six months; or, put another way, about $23 per store, per month. Not exactly a windfall.
At the same time, the store has sold about 400 ebooks. Taking the current average price of an ebook best-seller ($8.27) and assuming a generous average profit margin of 15%, that’s $496 over six months and a dozen stores.
Greenlight, another of the more successful stores, has sold about 100 e-readers and four tablets to gross $539 in profits on e-readers and 100 ebooks for about $124 in profits. With only one location, the per-store profit is about $110 per month, a bit better than The Books Inc.
Admittedly, back-of-napkin calculations like these are flawed but they do give some idea of the level of income and profit that indie bookstores realize selling ebooks in early 2013. Even in the most favorable scenario, the money made selling ebooks by these stores is negligible in many cases at this point.
Making things more complicated is that everything else in the bookstore has a better margin and makes more money for the indies. These bookstore owners are as savvy as any Fortune 500 CEO when it comes to managing their store inventories and accounting for every inch of retail space.
“The margins are miserable,” said Horne of The Harvard Book Store. “If this were not a technology that we feel like we have to offer to our customers, it’s not a margin we would accept for any other product.”
Margins for everything else in a typical independent bookstore range from 20% to 50%, according to Jonathan Welch, the owner of The Talking Leaves in Buffalo, NY. This was echoed by the other owners we spoke with.
“We all heard that it was going to be 5% and there was a collective intake of breath. At our store, I don’t know that selling them at the margins has been necessarily worth it,” said Harmening of Chicago’s The Book Cellar.
More Problems on the Horizon?
While many ebook observers lauded the recent announcement from Kobo that it was starting to sell its devices directly to consumers through its websites in the U.S. and Canada (long after its competitors have had the same service), the news may not have been as welcome for indie bookstore owners.
“It seems premature to say too much before I have a chance to talk to the folks at the ABA and Kobo about this new model and what it might mean for us,” said Greenlight’s Bagnulo. “But yeah, we’re feeling at the least a little baffled by this change, which runs counter to our understanding of how Kobo has always operated. I have hopes they’ll find a way to make the indie channel still a destination for e-reader buyers, as they’ve worked hard on building this relationship with indie bookstores.”
One way in which Greenlight has had success selling Kobo devices is when locals interested in Kobo but unaware of the bookstore sought out the closest place to buy one and found the Brooklyn shop. Even if one lives next-door to Greenlight, what’s closer than an address that starts with “www”?
Still, Optimism Reigns
Despite the relatively slow sales and minuscule margins, the overall sentiment of the bookstore owners quoted in this article was overwhelmingly positive. They feel like this is their best chance to be a part of the ebook revolution rather than be swept away by it. They feel like they can now fight back against the multi-national firms – Amazon, Apple, Barnes & Noble – that have mercilessly cut into their businesses. And, perhaps most importantly, they feel like they are doing what they have always done – giving their customers their next great reading experience.
“Ebooks have hurt the store to a degree,” said Kwiatkowski at Houston’s Murder by the Book. “We’re definitely excited that the ABA was able to find another avenue once the partnership with Google ended. We have a lot of customers that want to support the store.”
The ABA’s membership has been reduced to about 2,000 stores today, down from its peak in 1995 when it had some 5,500 members with 7,000 stores (for the first time since the 1990s, membership has been growing in recent years). It is intimately aware of the challenges indie bookstores face – regardless of whether they devote precious retail space and marketing muscle to Kobo.
“We’re extremely pleased to be working with Kobo to make e-readers and content available,” said the ABA’s Strandberg, who is the point-person for the organization when it comes to the Kobo partnership. “We absolutely think that ABA members need an ebook and e-reader option. What’s important here is that we do not alienate customers who want to read digitally. The success of the program cannot only be measured in ebook sales but in retaining and serving the needs of our customers.”
When it comes to metrics of success in all corners of the book business, sometimes it seems like sales and profits aren’t even in the top-five for some in the industry. It’s a love of books and reading that sustains authors, agents, publishers and stores when they struggle. Despite the challenges to indie bookstores presented by ebooks, some are finding ways to kindle their book-loving passions for the paperless medium.
When asked if there was anything else she wanted to tell us about Kobo and ebooks, Christy Wiskeman, the owner of Gulliver’s Books in Fairbanks, Alaska said, “Many of our long-time loyal customers of this bookstore have been incredibly resistant to the entire ebook culture. They have refused to participate. They will go into the store and get on their soap box and talk about how they want a real book. With Kobo coming on the scene for us and being able to work with us, people are looking at ebooks in a different way. We’re seeing some folks open up to the idea of an ebook, whereas in the past they were completely against them. For better or worse, it has really impacted people’s opinions about the entire culture of ebooks and what’s available to them as readers.”
An in-store display, trained staff and a concerted online marketing campaign has helped Gulliver’s sell 26 e-readers so far. The store has no plans to abandon its efforts.
In response to this article, Kobo released this statement by Wayne White, the executive vice president and general manager of devices for Kobo to Digital Book World:
“Our partnership with the ABA has proven very successful and we continue to experience steady growth with independent booksellers throughout the U.S. There are currently more than 460 member stores participating in the Kobo program, and we expect to have more than 1000 participating locations by the end of the year. To further engage with the true booklover, we have partnered closely with select independent booksellers such as Powell’s in Oregon to create unique in-store Kobo experiences.”
Powell’s, which has been cited by Kobo and others for its aggressive tactics in selling Kobo devices across its stores, did not respond to request for comment for this article.
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