Bookselling Britain report reveals retailers’ challenges

Bricks-and-mortar booksellers have an extra weapon in their arsenal when it comes to persuading the UK government of the importance of addressing the “unfair” playing field on which they and rival online retailer Amazon operate, after a report released today by the Centre for Economics & Business Research (CEBR) has shown their objective worth to the economy. However, one chief executive, Paul Currie of Foyles, has warned publishers that independent retailers will “disappear” unless the “uneconomic levels of margins” they have to survive with are addressed.

The full CEBR report, entitled Bookselling Britain, was commissioned by the Booksellers Association (BA). It was released this week (27th October), after highlights from the document were revealed at the BA Conference in Birmingham last month. The report shows that bookshops contribute £1.9bn to the UK economy every year, and pay 11 times more corporation tax than Amazon, support 46,000 jobs, and contribute £415m in wages and staff costs, according to the research. UK bookshops also pay £131m in tax (including £12m in corporation tax), equating to 91p per £100 of turnover, which is 11 times the amount of tax paid by online retailer Amazon, which contributes 8p per £100 of turnover.

The report also calculates BA members’ direct turnover was £1.33bn for the 2015/16 financial year, 1% up on 2014, after two years of decline and a fall since 2010 of £200m.

The south-east of England, meanwhile, has been revealed as the region that contributes the highest revenue to the bookselling sector: £187m in 2015, some 23% more than the second highest region, London (£152m). Northern Ireland generates the least turnover, £36m a year, with the North East producing £51m and Wales third from bottom on £68m (see graph, right).

Many chiefs of the bookselling world have welcomed the report, with David Prescott, c.e.o. of Blackwell’s, saying: “We’ve long argued that bookshops have a wider beneficial effect on the economy than just the direct financial contribution they make, so I’m delighted to see that the CEBR report supports that view so clearly.”

Tim Godfray, c.e.o. of the Booksellers Association, said it demonstrates “in black and white” the value and long-standing importance of the bookselling sector to the UK economy, and urged the government to take note of it when bringing forward changes to business rates and the digital economy. Godfray also stressed the need to create a retail environment that would better enable physical retailers to compete with Amazon. “We are an important sector,” he said.

Two copies of the report are being sent to all BA members so they can use it as a powerful lobbying tool to send to their MPs and local politicians.

Rosamund de la Hey, BA president and owner of The Mainstreet Trading Company in St Boswells, said: “It is going to be part of our lobbying arsenal, now we have this in our armoury. For me, the report really helps to underline that imbalance in tax and rates between high-street bookshops and Amazon. The fact that bookshops pay 11 times more than Amazon is quite shocking.”

James Daunt, m.d. of Waterstones, said that while he did not “look for subsidies or special treatment” for bookshops, the report underlined the challenges high street retailers face when compared to “Amazon’s highly aggressive tax management” and lower business-rate demands.

He added that with the current political turmoil surrounding Brexit adding to economic instability, now could prove a good time for the government to address the matter. “Desperate times require desperate measures, and this report is effectively saying we need to look after bookshops, they are an important part of the fabric of society, and that is true of all high-street retailing, especially indies,” he said.

The erosion of margins was prominently highlighted in the report, with bricks-and-mortar retailers also facing rising utility bills, new policy changes such as the National Living Wage and pension enrolments, as well as Amazon’s ability to undercut publishers’ r.r.p.s and offer highly convenient methods of delivery.

Foyles c.e.o. Currie (pictured left) agreed with Daunt that creating an artificial subsidy for booksellers was “not the answer”. Amazon, he said, “acts on commercial opportunity” and was “doing something that is in demand”. Instead, bookshops should become “amazing experiential places with great service, eventing and places that are natural third spaces [i.e. not home or work],” he said.

However, Currie did warn that “the biggest issue” facing the sector as far as he was concerned was the “uneconomic levels of margins that independent booksellers have to survive with”.

“Having fixed prices and low margins that don’t reflect the true cost of operating stores is a fundamental issue facing book retailers,” he said. “The more progressive publishers are receptive to this, but blended as a whole it is difficult for book retailers that do not benefit from volume discounts to cover their operating costs. This includes the ability to pay salaries that are competitive in the retail industry . . . being locked
in at both ends of the model by the single source of goods, [publishers], who set the selling price and cost prices, has its challenges, and doesn’t equate with a healthy and successful independent bookselling category.”

He added: “If this isn’t addressed, then independent retailers will disappear in a market-driven economy where price and customer reach is the power.”

More pressure on margins could hit bookshops in the future, the CEBR concludes, arising from upward pressure on wages as the economy continues to approach what some commentators would refer to as “full employment” and Brexit, which could result in trade tariffs on imported publications and also in upward pressure on r.r.p.s.

“It is not difficult to see how this combination of factors, and the impact they are having on bookshop margins, threatens the very existence of Britain’s local and national booksellers,” the report says. “But this report demonstrates to policymakers what could be lost if the financial sustainability of the nation’s bookshops continues to be threatened.”

The Bookselling Britain report is available to download from the website of CEBR, the company which conducted the independent report and owns the copyright. Hard copies are available from the BA. Read the CEBR's executive summary of the report here.