How Franchise Book Chains Can Survive Disruption

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

bookstores, barnes & noble, data, amazon, publishersIn 2010, the well-known movie rental franchise chain Blockbuster filed for bankruptcy—a sad ending to an otherwise very successful venture that, at its peak, in 2004, had more than 9.000 stores around the world. Unfortunately, some bookstores will suffer the same fate. But which ones will they be?

Bookstores face inevitable challenges and changes in the years to come, including what is now known as the “Blockbuster Dilemma,” or what in business school they call a “disruptive dilemma.” If we take a step back and look at what happened to Blockbuster, we can understand the dilemma these stores must confront.

After having declined purchase by Netflix for $50 million in 2000, Blockbuster was confident in its expansion strategy and underlying business plan that they felt was invincible. But with the emergence of improved TV technology, it became not only possible, but easy, to get content directly to consumers’ TVs, making instant delivery of content the new norm. This made going to a brick-and-mortar store like Blockbuster to rent physical copies of movies seem like a waste of time.

Blockbuster was mostly structured as a franchise chain with a majority of small independent stores. This strategy had worked effectively in a time of expansion, but became difficult when the time arose for the company to build a centralized online presence in order to compete with online streaming solutions. Blockbuster found it exceedingly difficult to convince the franchise owners that they should invest their money in something that was ultimately going to put them out of business.

Eventually, Blockbuster’s headquarters launched a US-based streaming solution to go head to head with Netflix. Unfortunately, they failed to secure enough funding for the business to cope with the competition, and it was simply too late for them. The services were revived a couple times through new partnerships before the Blockbuster chain ultimately filed for bankruptcy.

Blockbuster’s business model was structured around getting people into the stores to rent movies and games as well as shop for related products. Netflix, which at the time was a mail order movie rental service, had the main objective of getting its products to customers as fast as possible. Therefore, the company welcomed the ability to deliver products to its customers instantly through the Internet while Blockbuster fumbled with its belated attempt.

Many franchise book chains are structured in the same way as the Blockbuster franchises were. It therefore follows that these bookstores are experiencing many of the same threats from subscription services and online ebook sellers that Blockbuster did in the late 2000s. The attitude of these bookstores is that money can only be made in the stores and not through a centralized website.

The Future for Franchise Book Chains

Bookstore chains are likely to be restructured in a way that helps them survive the diminishing revenue from books. However, this requires some hard prioritization of resources to be able to grow new digital business models. This is exceptionally difficult when the business is already struggling to remain afloat.

The attempt to increase their product offering and sell supplementary products to books might have a positive effect in the short run, but this is not a long-term solution, as it does not change the fact that the bookstore market is under pressure and will continue to be under pressure in the future.

If franchise bookstore chains are to survive and flourish, they must be willing to risk lowering the revenue of their franchised stores for the greater good of the chain. Unfortunately, this has been a hard nut to crack for any franchised chains—and the statistics are not on their side.

On a positive note, these chains possess a major advantage, which is their strong brand recognition. This should enable them to be able to create an online presence that also encompasses other product categories. An exploration of the synergies of having both offline and online channels might actually be the saving grace that helps them beat the competition in the long run.

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