Book Industry Struggles with Slow Growth

Market presents multiple challenges

You find yourself with some time to relax. What do you do? Flip on the television set or computer? Do you go to a movie, cook, shop, or head out with family or friends? Or do you find a nice, comfortable spot and curl up with a book?

These days it seems that either there are far fewer opportunities to hang out and read, or people simply are choosing to do other things. The end result? The U.S. book market is flat. Annual growth for general trade print books has been barely keeping pace with population growth rates. Growth was somewhat better during the early to mid-1990s but has trailed off over the past five years.

Why has growth been so weak? There was a long-standing view that the book industry reacted counter-cyclical to the economy. However, this hasn't panned out over the rough economy experienced since late 2000. The publishing industry has steadily lost customers over the past several years. Only a lift in the buying rate and spending among the existing customer base has prevented the industry from slipping into a negative growth trend.

What might seem surprising is that the primary slow-down in demand began just as buying books online reached critical mass in 1997. During this period, the two leading bookstore chains, Borders and Barnes & Noble, were on a building frenzy. In some areas of the country, it was not unusual to have both chains on opposite sides of the street and alongside other retailers that also sold books. The unit expansion among these large chain bookstores came at a time during which other brands (Crown, Lauriat/ Encore) struggled to survive - and ultimately did not. Also, many independent booksellers closed their doors finding it too difficult to make ends meet. The net result of this was a form of musical chairs - market share shifting rather than market expansion.

Historic buying base eroding

Finally, book sales historically have counted on well-off, highly educated customers. Over time, the importance of these customers has declined. Typically, a larger proportion of U.S. households fall into higher income brackets each year - the result of raises and other sources of income. However, book-buying patterns have not kept pace with this. In 2002, the percentage of books purchased by households with annual incomes above $50,000 continued to be above their representation in the population - though to a lesser degree compared to 1995. In short, these households have been shopping for books less often and have cutback on their spending.

Education levels also play a pivotal role in book buying behavior. Closely linked with household income, cutbacks in book buying have also taken place among the most educated American households. Both of these demographic trends have hurt the publishing industry's bottom line as affluent, highly educated households spend the most on general trade books over the course of a year (up to 40% above the market average).

Challenges Abound

The trade book industry needs to excite customers and get them buying again. Programs need to be put in place that will attract the affluent, educated customer without alienating the remaining customer base. Well-off customers are more likely to shop at bookstores, price clubs and online. Less affluent households tend to meet their needs at mass marketers and used bookstores. Interestingly, however, our data show that even the affluent are doing more of their book buying at mass merchandisers.