Friday, March 23, 2007

Book Industry Value Chain

One of my on-going interests is in the dynamics and strategic implications of the value-chain; and, in particular, the book publishing industry's value chain. A recent Wall Street Journal article about the Borders Group, one of the two big book retailers in the North American market, indicates some big strategic choices on their part in an effort to respond to changes in their Competitive Terrain and Value Chain. Discount retailers, who sell books as part of their broad portfolio of product offerings (including toys, clothing, foods, etc.) have emerged as a big source of pressure, as barriers to their entry were insufficient to keep them out of the industry. In addition, while bookstore sales have continued to decline [down 2.9% last year], online sales have continued to increase [13% of total booksales in North America, last year]; while Borders, as a player in this industry, had made strategic choices to emphasize store sales rather than online.... not a successful strategy, it turns out. One interesting piece of this story is a graphical comparison of the relative importance of various channels of North American book distribution, comparing 1998 with 2006. What is amazing, is the magnitude of changes in channel importance over a very short [8 years] time: Online sales jumped from 2% to 13%, Bookclubs shrank from 16% to 5%, and traditional retail shrank from 42% to 38%. This is a vivid warning of the instability than can be found in competitive terrains, even in tradtionally slow clockspeed industries, and should be a good time to recall the wisdom to be found in Andy Grove's message that Only the Paranoid Survive. Strategy is all about choice [& execution], and among the choices that Borders will now be making are: re-launching an online sales site, refreshing its fidelity program, closing smaller [Waldenbooks] outlets, reducing its music business [as CD sales in that sector continue to slump globally], launching its own private-brand publishing business, and reducing its international retailing presence.

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