Performance Analysis of UK Book Retail Industry

The UK book retail industry has been confronting a diminution in gross revenues every twelvemonth for the past twosome of old ages. It has continued to alter and e-books continue to derive credence and grow in importance. The technological inventions in how media is consumed by the consumers have changed the landscape in this industry. Big box shops like Barnes & A ; Noble, Waterstones, WH Smith, Borders and others in the UK and USA are scrambling to acquire in the game every bit shortly as possible and strike the Fe while it ‘s still hot. Iron being the e-books in this instance. Some shops have successfully managed a strategically smooth passage or inclusion of the electronic resources for books, while some merely ca n’t look to maintain up. Books, newspapers and magazines make up the sections of the publication market. Harmonizing to Datamonitor profile, UK printing market has been slowing since 2006 and fell into diminution in 2009. “ However, the market is likely to speed up somewhat in the prognosis period, although growing will stay weak ” ( Datamonitor 2010 ) . Books gross revenues proved the most moneymaking for the UK publication market in 2009, with entire grosss of $ 5.7 billion, tantamount to 45 % of the market ‘s overall value. Relatively for the US printing market in 2009, the entire grosss were of $ 26.1 billion, tantamount to 52.2 % of the market ‘s overall value.

The public presentation of the market is forecast to slow, with an awaited CAGR of 0.2 % for the five twelvemonth period 2009-2014, which is expected to drive the market to a value of $ 12.8 billion by the terminal of 2014. ( Datamonitor 2010 ) Harmonizing to Datamonitor 2010 for the US Counterpart, the public presentation of the market is forecast to slow, with an awaited CAGR of 1.2 % for the five twelvemonth period 2009-2014, which is expected to drive the market to a value of $ 53.3 billion by the terminal of 2014. ( Datamonitor 2010 )

1. Analyze the strategic state of affairs confronting incumbent houses within the UK book retail industry. Your treatment should besides pull upon the extent to which events in the USA book industry may or may non impact here in the UK?

Five Forces

The strategic state of affairs faced by the UK book retail industry can be analyzed utilizing Porters Five Forces. For the large box retail merchants, such as Waterstones, WH Smith, Borders, Barnes and Nobles have surely been historically successful and achieved economic systems of graduated table via majority buying and big consumer base. The benefits of majority buying have nevertheless decreased due to an addition in on-line gross revenues and debut of e-books. For newer engineerings, the cost of entry have been comparatively low hence Amazon, Apple, e-books have come into the image and changed the book retail industry landscape wholly. The distribution channels are easy accessible and non sown up by the large retail merchants. Supermarkets and independent retail merchants have finite shelf-space dedicated to published media, so consumer penchant is even more important in relation to what is stocked ( bookshops will give a batch more infinite to provide for different consumer demands ) , and this selectivity increases purchaser power to an extent. On-line distributers are non affected by this issue of ‘shelf infinite ‘ and therefore rubrics can be sold to order ( including back-issues of magazines and newspapers ) significance that client trueness has increased in this sector. ( Datamonitor 2010 )

The menace of new entry is comparatively high in this industry as there are merely a few big participants, although their power is diminishing. There is besides a possibility of providers incorporating frontward, for e.g. some book publishing houses themselves might make up one’s mind to sell straight to consumers via their web sites than through the book retail merchants. With cyberspace, cost advantages are non related to the size of the company any longer. At this phase, distinction is really of import.

The menace of replacements is really high in this industry. Menace of replacements = cyberspace, Television, CD-ROM, e-books etc. The Internet allows for a permutation to the physical format of books, newspapers and magazines, with the option of on-line versions and e-books, with the advantage of updated versions and alterations being much easier and cost-efficient to implement. Thus client penchant has changed. Overall, the menace of replacements is considered to be moderate. Datamonitor ‘s Analyst sentiment on 9th September 2010 article – HMV: where do they travel from here? ( hypertext transfer protocol: // ) has stated that, the relaunch of HMV Digital and its compatibility with Apple ‘s iTunes is a reasonable move, but one which was long delinquent. This and the growing in eBooks, which will profit Waterstones, are potentially strong countries for future growing which however will non extenuate the failing in shop based gross revenues and it is here that HMV must give farther idea to its hereafter scheme. Harmonizing to the Association of American Publishers, e-book gross revenues in the U.S. were $ 313 million in 2009, a 177 % addition over 2008.

Since the menace of new entries is likely in this industry, the Competitive Rivalry is most likely to be high. There is the menace of replacement merchandises, and providers and purchasers in the market effort to command. For illustration several online sites allow anyone to upload digital versions of books, research studies, and other printed stuff to portion across the Web. Document-sharing web sites such as Scribd ( ) have 60 million visitants a month, and is the most popular of several such web sites.

Due to the increased popularity of on-line resources and e-books, the book publication industry is confronting even more competition. The chief participant in this market is the consumers whose disbursement is dependent on the demand and the rubrics stocked at the retail mercantile establishments, thereby seting force per unit area on the retail merchants to stock rubrics that are in demand, provided they have shelf infinite. It ‘s besides dependent on factors such as economic growing and employment degrees, which will impact on how and what they buy.

The principle for the American concatenation shop has non translated to the UK, says Paul Smiddy. There are tough lessons to be learned. “ One used to be able to rationalize Borders ‘ being as a format in the United states: inexpensive shed infinite enables a category-killing offer. But in the UK it was forced to utilize not-so-cheap caducous infinite. Indeed, inexpensive sheds in this state are merely located in those parts where few members of the page-turning categories dare to step. So Borders had to plummet for your mean retail park, with rents to fit. ” Mentioning to the Datamonitor studies attached in the appendix, the hereafter seems black for the publication industry. The UK publication market has been slowing since 2006 and fell into diminution in 2009. However, the market is expected to speed up somewhat in the prognosis period, although growing will stay weak.

2. Identify the chief rivals within the book retail industry, and organize them into strategic groups. Discuss both the cardinal success factors and mobility barriers refering to each strategic group. Do you believe these factors and barriers will alter within the following five old ages? If so, how and why? If non, why?

Harmonizing to Wang & A ; Kumbhakar ( 2009 ) the construct of strategic groups was foremost introduced in the work of Hunt ( 1972 ) , Caves and Porter ( 1977 ) , and Porter ( 1980 ) , and it was used to explicate the ascertained heterogeneousness of houses ‘ behavior and public presentation within industries.

The industry ‘s major booksellers include WH Smith, Waterstone ‘s,, Blackwell and Book Club Associates. There is one spread in the list of bookstores – Borders – which closed at the terminal of 2009. Gross saless of mass market books are now dominated by three types of retail merchant: supermarkets, high street bookselling ironss and on-line booksellers ( Keynote, 2010 ) .The supermarkets such as Tesco, Sainsbury ‘s and ASDA besides play a important function in this sector ; there remain many independent bookstores, but their figure is undertaking year-on-year. ( Beginning: OverDrive, Inc. , Cleveland, 216/573-6886 ; hypertext transfer protocol: // )

Harmonizing to Keynote Bookselling 2010 study there are nine types of bookseller. ( Industry Concentration from Keynote 2010 Report in Appendix ) . Three strategic groups can be identified in the book retail industry.

One group consists of the flag retail merchants. These are big and medium sized book retail merchants with established trade names, some of them strong. Historically they have dominated the book retail market and have competed utilizing services, huge choice and confederations in the book retail industry. The big participants within this group are Waterstones, WH Smith in the UK and Barnes and Nobles, Borders in the USA. All are historically strong but enduring late due to deficiency of gross revenues and impact of e-books and cyberspace concern theoretical account shops like the Amazon.

Second strategic group is of independent book retail merchants, java stores, and superstores etc that besides sell books. They offer low monetary values and other complementary merchandises and services. In the US, Borders and Barnes & A ; Nobles are Value pioneers who have tapped concealed chances by specifying the entire solution that purchasers seek. They ‘ve “ created book superstores that focused on womb-to-tomb acquisition and find where the merchandise includes the pleasance of reading and rational geographic expedition every bit good as the book itself. These superstores provide a big choice of books, every bit good as knowing staff, armchairs, reading tabular arraies, couchs, java bars and classical music to heighten the purchasers entire book purchasing experience ( see their book retailing value curve below ) .

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Third consists of low cost cyberspace concern theoretical accounts such as Amazon. They offer rock underside monetary values, convenience of non holding to go forth place, sometimes free transportation and option of purchasing cheaper used books via 3rd party Sellerss. Online bookselling is turning, so is the merchandising of books by supermarkets. E-books and e-readers are deriving in credence. In scheme footings they are really aggressive rival and monetary value wars are the norm. Harmonizing to Dinlersoz and Li ( 2006 ) illustrations of strategic usage of transportation options are omnipresent in online markets. “ For case, in an effort to enticement and lock in consumers, started a new plan in 2005 called “ Amazon Prime ” , which gives consumers limitless two twenty-four hours transporting for a fixed one-year fee ” . ( Dinlersoz, Li 2006 )

Key success factors for these strategic groups:

Datamonitor Reports province that although the trade is enduring in 2010, there are some evidences for optimism for e.g. two price reduction ironss, The Works and British Bookshops & A ; Stationers, are turn outing profitable. Many booksellers are encompassing more advanced schemes and merchandise formats to guarantee the viability of their concerns.

Harmonizing to ( Dinlersoz, Li 2006 ) Enbysk ( 2005 ) refers to a study by JupiterMedia Metrix, which found that 45 % of the e-retailers studied made net income on transportation fees, 45 % incurred a loss, and 10 % broke even. Therefore apparent for internet book retail merchants, transportation is one of house ‘s features that they can bank on. Harmonizing to Clay, Krishnan et Al ( 2002 ) , because of the rise in monetary value comparing hunt engines, it would be impossible for e-retailers to non bear down the same monetary value, therefore houses will prefer non to vie straight on monetary value which will ensue in low net income but instead differentiate themselves.

Mobility Barriers are structural factors that protect successful houses from invasion by next rivals ( Caves and Porter, 1977 ) . They are internal ( to the industry ) entry barriers which delineate boundaries between different strategic groups, and they may be contrasted with the external entry barriers discussed in traditional economic theory which deter outside houses from come ining any portion of the industry. ( Harrigan 1985 )

In the book retail industry most bookshops have successfully managed to integrate e-retailing into their concern theoretical account, while still besides holding brick and howitzer concerns. The articles below shows WHSmith besides traveling into e-retailing format: “ OverDrive, Inc. has announced that its spouse WHSmith Online, a division of U.K.-based book and magazine retail merchant WHSmith, has launched an eBookstore that is the first online bookseller to offer e-books in the Palm Reader format. More than 4,000 Palm e-book rubrics from taking U.K. and U.S. publishing houses, including HarperCollins, Random House, Simon & A ; Schuster, McGraw-Hill, St. Martin ‘s Press, and Time Warner, are available for immediate purchase and downloading from the WHSmith eBookstore ( hypertext transfer protocol: // ) . “ – ( WHSmith Online Launches Palm Reader eBookstore. Information Today, 87556286, Sep2002, Vol. 19, Issue 8 )

The switch for many book retail merchants from merely a brick and Mortar concern theoretical account to e-retailing is inevitable. “ The digital book industry is turning at a record-breaking rate. Gross saless for 1Q 2010 were $ 91 million, which is a 200 % growing rate. ” ( EBooks Coming of Age as Digital Gross saless Skyrocket. Information Today, 87556286, Jul/Aug2010, Vol. 27, Issue 7 ) One of the issues that book publishing houses face is obtaining insurance screen, which besides proved to be the start that broke the dorsum of many retail merchants including boundary lines coming into the UK market, hence book publishing houses unable to obtain insurance means no providers for the retail merchants. ( BORDERS SKIRMISH By: Smiddy, Paul, Bookseller, 00067539, 8/14/2009, Issue 5395 )

Diversification can barely be the reply. Harmonizing to Paul Smiddy ‘s Article titled “ Boundary lines Skirmish ” Across the UK, album gross revenues are down 8.3 % twelvemonth to day of the month, DVDs down 7.7 % . One wonders what suited merchandises, other than java and salutation cards, can be inserted into Boundary lines.

Organizations such as International Digital Publishing Forum ( IDPF ) supports unfastened criterions to assist the publishing houses go digital. The group is well-known for the XML-based EPUB that has been the chosen criterion for many e-books. ( Ebooks Coming of Age as Digital Gross saless Skyrocket. Information Today, 87556286, Jul/Aug2010, Vol. 27, Issue 7 )

Another issue confronting the book retail industry and will later impact their pricing scheme is concern footings and pricing with the large publishing houses such as Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin Group, Random House, and Simon & A ; Schuster. The publishing houses have now instituted what is now called the bureau theoretical account, replacing the decades-old sweeping pricing. Harmonizing to the above article, “ the sudden displacement to the bureau pricing theoretical account, these six publishing houses is puting the gross revenues monetary value and has taken away the distributers ‘ originative pricing border. Monetary values are now fixed, and all distributers must sell the rubrics at this fixed rate. To farther add load to distributers, they must besides go revenue enhancement aggregators. ” ( EBooks Coming of Age as Digital Gross saless Skyrocket. Information Today, 87556286, Jul/Aug2010, Vol. 27, Issue 7 ) This move to the bureau theoretical account was in direct response to Apple acquiring into the concern with iBooks.

Another factor impacting the industry is the eBooks and international rights, as eBooks have no geographical boundaries. As the talker from OverDrive stated, “ a big eBook content distributer, pointed out, on a everyday twenty-four hours, eBooks are delivered to more than 170 different states. Once an ebook is loaded on a waiter, that book can travel anyplace in the universe ” .

4. Measure the chances of Kindle to win in the UK market, given the multi-purpose usage of the iPad.

Product design portfolio picks of houses are a cardinal factor for entry into new markets and the incumbent reactions are critically dependent on it. ( A. Giloni et Al. 2008 )

Harmonizing to Steve Smith ‘s Eye on digital Media: The iPad ‘s “ IN-BETWEEN-NESS. “ , the main ailment with iPad along with “ no camera or voice capableness ” is that a consumer ‘s iPhone/BlackBerry/Android phones already have similar applications and maps and “ and that the “ in-between-ness ” of the iPad ( neither cell phone nor laptop ) is a cardinal barrier. ” But “ Because of its size and superb in writing quality, the iPad is a near-perfect bringing mechanism for magazines and newspapers. ” ( Rebecca McPheters – Why, Short-Term, The iPad will reign 24/1/2011 )

Harmonizing to Rebecca McPheters in the above articles has stated that E-readers ( e.g. Kindle ) are much better suited to books than they are to magazines and newspapers. Apple has one immense advantage over Asus, HP, and other Personal computer shapers. The iPhone OS, iTunes, and the App Store provide an ecosystem that makes it easy for users to purchase and devour content seamlessly. ( THE IPAD CHANGES EVERYTHING. By: Copeland, Michael V. , Fortune, 00158259, 3/22/2010, Vol. 161, Issue 4 )

Kindles cardinal properties and positive functionalities include readability, comfy to utilize, and fast page burden and many more. Although selling 7 million kindles, relatively less than Apple ‘s 15 million iPad gross revenues, kindle has allowed Amazon to interest out an early lead in e-books. Since 2010, it has sold three times as many e-books as hardbacks, and it dominates the aggressive new market. ( How Amazon Keeps Cranking. By: Cendrowski, Scott, Fortune, 00158259, 2/28/2011, Vol. 163, Issue 3 ) . “ By making the hardware, they about created the industry, ” says Morgan Stanley analyst Scott Devitt. Harmonizing to the above article, what might assist Amazon outsell iPad and rule the eBook industry via its Kindle is its Innovations, onslaught rivals head on ( In a Morgan Stanley study of 50 merchandises, Amazon sold points for 6 % less on norm than Wal-Mart and 9 % less than Best Buy ) and Focus on Service.

Amazon ‘s Entire Gross in one million millions:

Electronicss and other general ware [ appliances, dress, place goods, etc. ]

Media [ books, DVDs, music ]


2005 $ 8.5

27 %

70 %

3 %

2010 $ 34.2

54 %

44 %

3 %

Gross CHART SOURCE: Company FILINGS. PERCENTAGES ADD UP TO MORE THAN 100 BECAUSE OF ROUNDING. ( How Amazon Keeps Cranking. By: Cendrowski, Scott, Fortune, 00158259, 2/28/2011, Vol. 163, Issue 3 – First: WORLD ‘S MOST Admired COMPANIES | TOP PERFORMERS- NO. 5 )

Although Amazon does n’t unwrap company ‘s fiscal information, its best merchandising merchandise harmonizing to the company has been Kindle. Harmonizing to describe published by Richard K. Miller & A ; Associates, driven by the popularity of the Kindle radio e-book reader, from Amazon, the e-book format has now started to take clasp.

Chatterjee and Sugita ( 1990 ) have discussed that the innovator faces the hazard of dearly-won new merchandise failure because the possible demand is non known with certainty. ( Chatterjee, Sugita, 1990 ) Therefore the iPad could be a floating-point operation. There are good grounds tablets have n’t caught on ( retrieve Apple ‘s Newton? ) , and already many perceivers have dismissed the iPad as an overgrown iPod Touch. ( THE IPAD CHANGES EVERYTHING. By: Copeland, Michael V. , Fortune, 00158259, 3/22/2010, Vol. 161, Issue 4 )

The innovator versus follower issue has received extended research attending in economic sciences, selling

and concern scheme ( Bain. 1956 ; Levitt, 1966 ; Porter, 1980 ; Scherer, 1980 ) .Kindle come ining the UK market is a possible gamble. The innovator enjoys an initial period of monopoly, until rivals enter. ( Chatterjee, Sugita, 1990 ) More significantly, there are theoretical statements, every bit good as empirical support, in favor of long-term first-entrant advantages that, in consequence, station barriers to subsequent entry ( Chatterjee, Sugita, 1990 ) . Chatterjee and Sugita have stated beginnings of these advantages include the chance to place the merchandise to appeal to the most profitable sections, lower cost in the presence of experience curve effects and the benefit of superior consumer information under discriminatory uncertainness ( Chatterjee, Sugita, 1990 ) .


However Trends and Studies have shown that readers have endorsed the eBook platform and are demanding more rubrics. Harmonizing to “ EBooks Coming of Age as Digital Gross saless Skyrocke, Jul/Aug2010, Vol. 27, Issue 7 ” Serious readers may remain with the Kindle for the E Ink and the simpleness while others are taking the iPad alternatively. No affair which platform a reader selects, the credence of the eBook as a format is here to remain.