Indies debate removing r.r.p in face of soaring overheads

Independent booksellers face a potentially toxic cocktail of pressures as the new National Minimum Wage (introduced in April), business rates rises and looming changes to pension contributions could force some to close and others to shed staff. The warning comes after the Booksellers Association (BA) released its annual membership figures, showing that for the 10th year running, the number of independent bookshops in the UK has fallen: it now stands at fewer than 900.

In 2015, 23 indie bookshops opened in the UK but 46 closed, bringing the total to 894. The number of indie bookshops in the UK has almost halved since 2005, when there were 1,535. Overall membership to the BA has grown, though, after Morrisons joined the trade body in 2015: total membership now stands at 4,583 outlets, up from 4,139 in 2014.

As April approaches the pressure on the retail sector shows no sign of easing, with the National Living Wage coming into force at a rate of £7.20 per hour for over-25s, replacing the present minimum wage of £6.70 per hour. New minimum levels of pension contributions are also set to increase before April 2019, and large companies will have to contend with a new Apprentice Levy: a 0.5% tax on all UK firms with annual payrolls in excess of £3m.

The changes could lead to 900,000 jobs being lost and 74,000 shops closing over the next decade across the retail industry, according to a report released this week by the British Retail Consortium. In the book trade, indie bookshops fear they will be the hardest hit, along with “economically fragile” parts of the UK.

To counter the changes, a small group of prominent independent booksellers have suggested the industry should consider removing the recommended retail price (r.r.p.) from books to give vendors “flexibility” when it comes to making up the fiscal shortfall by raising prices.

Patrick Neale, owner of Chipping Norton indie Jaffé & Neale, said: “My sales have remained strong through this period of recession, but my bills keep going up. One customer tells me, ‘you are not a bookshop, you are a tax collector for the government’—and that is sometimes how it feels. I have always been for printed prices on books, but now everything is shifting and I think it’s time for the industry to look at it again. I know for a fact there is a model for my business where customers are willing to pay a few more pennies for a book because they enjoy shopping in a nice boutique environment, but at the moment I don’t have that option open to me.”

Ros de la Hey, owner of The Mainstreet Trading Company in St Boswells in the Scottish Borders, agreed it was time to debate the removal of r.r.p., adding: “No bookshop I know has that large a net profit margin. If you add to that the perfect storm of pension contribution changes and the living wage [being introduced] on a large, rapid escalation to 2020 . . . any independent retailer will tell you, while we all believe in it, it eats in dramatically to your net profit and it will cause some to question their business sustainability and the number of people they can employ.”

De la Hey continued: “I have never wanted to bring up the r.r.p. issue before. It’s a hassle for shops [to price books themselves] and I’m not cut and dry about it . . . but we have to discuss it. It’s unique to our industry and is potentially going to do damage now, which it didn’t before. There’s a cause for debate now.”

Nic Bottomley, owner of Mr B’s Emporium of Reading Delights in Bath, said the industry should think through the “implications and opportunities” of removing r.r.p., but said he supported the increased minimum wage. “There are lots of elements of our industry that we can’t control due to the distorted market we’re operating in,” he said. “Therefore, we are surely duty- bound to consider whether being the only retail sector that prints a price ceiling onto its products is hampering our ability to adapt and compete in that distorted market.”

However, Bottomley added that he didn’t think the subject was linked to the raising of the minimum wage, which he said was “tricky to grumble about as a matter of principle. Whatever business you are in, it’s going to be tricky, but as a question of social responsibility it’s some pain that we all need to endure if we are not paying people enough to live on.” He added: “That doesn’t mean it’s not going to be difficult for some businesses as they adjust their pay structures, mind you.”

However, some chain retailers The Bookseller spoke to are unanimously against removing the r.r.p. on books to offset increased overheads, arguing it would make it even easier for Amazon to undercut bricks-and-mortar retailers and that it would be damaging for the industry in the long-term to pass rising costs on to customers.

Waterstones m.d. James Daunt said it would be “catastrophic” to remove book prices “for many reasons”. He said: “It would impose a huge and inevitably expensive operational burden on busy shops to price every book themselves. Only a bookshop with idle time on its hands would not suffer and we have very few of those.

More importantly, customers would have no reassurance as to the ‘fair’ price. It would plant the pernicious seed of thought that they are being ripped off—as many would feel to be the case by those who inflate their prices. In this respect, it would play especially into the hands of Amazon . . . as if it is not formidable enough a competitor as it is.”

Daunt added: “If there is no r.r.p., why should there be any fixed selling price? The playing field is quite distorted enough as it is with, inevitably, independent booksellers getting the roughest of deals—it would be utter foolishness to open themselves to worse.”

On the subject of wage increases in April, the Waterstones chief said the higher National Minimum Wage “evidently has a significant impact”, and would affect not just lower- salaried staff. “There is the cost of those directly impacted and then the consideration whether the differential with those paid more should be maintained,” he said. “In our case, by far the greater financial impact comes from the latter. This said, I have maintained from the outset that one of my priorities is to raise the pay of our booksellers. Fortunately, this legislative requirement coincides with our ability to do so. Looked at this way, in fact it has no impact, we are making the increases anyway.”

Peter Gray, c.e.o. of the J S Group, said his company was prepared for the wage increases and said it was a “key metric” of the company to try and ensure employees on lower salaries were given priority when it came to pay rises. However, he added: “I do not subscribe to the idea that salaries should be increased by increasing the price of your products. I don’t therefore support the idea of the removal of the r.r.p. as a means to enable employers to charge customers more. I think this has two negatives, firstly, in the world of selling books, price is now more determined by the ‘Amazon price’ than the r.r.p and secondly, it is just not right to think that our industry should be looking to the customer to pay more.”

Gray added: “What we need to do is work on efficiency within the supply chain, which includes employers’ own efficiency, investments in technology and costs of doing business. Customers’ perception is that the internet is cheaper and, in many cases, it is, and I think increasing prices will only drive more consumer spending to the giants of online retailing.”

A spokesperson for W H Smith told The Bookseller that wage increases would cost the company an additional yet “relatively small” sum this year, at a little over £1m. “Going forward, it will amount to an annual increase of around 0.5% of our cost base, or £2m to £3m per year,” the spokesperson said. “Clearly, we will be looking to offset the costs using our existing pipeline of cost saving and efficiency initiatives, so it’s very much business as usual for us. We fully support keeping r.r.p.s.”

Tim Godfray, c.e.o. of the BA, said the organisation supported the National Living Wage, but said that if booksellers had to pay this surplus on top of increased auto-enrolment pension costs, the Apprenticeship Levy and business rates, “something has to give to avoid job losses”. He added: “That could be proposals to reduce the business rates burden. Why should one of our members pay 63 times the membership business rate that Amazon pays? With the responsibility of business rates being passed from central to local government—and the latter being under such financial pressure due to austerity measures— the prospect of local government reducing their business rates, however, seems unlikely”.

Bookselling for Britain

Alongside its annual membership figures, the BA launched a manifesto entitled “Bookselling for Britain”.

The document is a bid to lobby the government on the importance of addressing the “unfair, anti-competitive advantage” it claims multinational companies have over high-street bookshops.

The manifesto pulls together the BA’s previous campaigning work on pressing for a regulatory investigation into amazon, and asks for the government to initiate an inquiry into the impact of what it calls a “distorted market” for bookselling, caused by “the routes to market for e-books” being “too narrow and too few”.

The association submitted a dossier to the competition and markets authority in November 2014 about Amazon’s “domination” of the UK market, and the European Commission began formal anti-trust investigations into the retailer in June last year.

“Bookselling for Britain” also campaigns to keep the 0% VAT on print books in the UK; calls for business rates to be reviewed; underlines the need for the government to support Intellectual Property; and calls for a library to be in every UK school.