January 9, 2011
Traditional Bookstores are Doomed
Traditional Bookstores are Doomed-Becker
The traditional bookstore is doomed by e-readers and online sales of hard copy books. I use the word "doomed" in the same sense that online digital sales of movies and music have doomed movie rental stores, movie theatres, and stores that sell albums of music. Doomed does not mean that these stores will quickly, or ever fully, disappear, but that they have received deadly blows from Internet competition.
Joseph Schumpeter, an outstanding economist in the first half of the 20th century, originated the term "creative destruction" to describe new technologies and other forms of new competition that wreak havoc on older and established industries. The process is creative because it provides consumers and producers with more effective ways of satisfying their wants. The process is at the same time destructive because it greatly reduces the value of services and products provided by older industries.
Extreme examples of creative destruction from the 20th century include the complete substitution of cars for horses and buggies, movies with speaking for silent movies, and computers for typewriters. Less extreme are the large reduction in clerical and secretarial staffs caused by the development of computers and the Web, and the sizable reduction in demand for milk and eggs induced by better information on the health value of low cholesterol diets.
A similar creative destruction process began for bookstores with Amazon's development of online book sales that offered huge inventories of books, convenience of purchase, speedy deliveries, online reviews of books, and various other services that made it more efficient and often cheaper to buy books online rather than in bookstores. Sales of books online started slowly, but they have accelerated as consumers became more familiar with the process of buying books (and other goods) online. I first started using Amazon at my summer home since it is not near any bookstore. Discovering the convenience of buying books online, I now buy online all year, although I still enjoy visiting bookstores.
Effective online readers, like Amazon's Kindle, and Apple's iPad, are only a few years old, but they have become big hits since they can be used both to purchase books online, and to read books in digital form. Hundreds of books can be stored digitally in a single Reader that weighs less than a couple of pounds. They are especially valuable when traveling, but are useful when reading in bed or eating, and also with traditional reading when seated on a comfortable chair. They are particularly useful for individuals with weak eyesight since print size can be easily adjusted. This is why digital readers will appeal eventually even more to older persons than to others, although mainly younger persons are the ones who so far have bought digital readers because old persons are less familiar with digitalization.
I do not expect bookstores to rapidly disappear the way the production of silent movies virtually ceased once talking movies were created. However, I do expect an accelerating decline in the number of bookstores as many close down due to bankruptcy and excessive losses. Some bookstores will continue to exist to cater to men and women who like to browse among physical copies of books, and because some owners of bookstores get great pleasure out of selling and being surrounded by books. Many bookstores that survive are likely to combine selling hard copy books with that of other products. For example, university bookstores usually also sell clothing that have the university logo, computers, greeting cards, snacks and coffee, and other goods that cater to students and faculty. Other surviving bookstores might combine selling of hard copy books in physical facilities with online sales of hard copy books, and online sales of digital books.
The decline of bookstores, theatres, laundries, and other retail industries with physical facilities illustrates a trend that runs counter to older ideas about the effects of economic development. The process of development has been presumed to cause a substitution of market activities for home production. For example, households in poor rural societies have not only grown their own food, but also made much of their clothing, washed their clothes, baked their bread, and cooked from scratch their other food. As countries underwent economic growth, many of these productive activities left the home and migrated to the marketplace. Factory-made clothing was substituted for clothing made at home, and bakeries and laundries developed to make bread and sweets, and to wash, clean, and dry clothes.
Further technological developments,however, such as small motors used in home washing and drying machines, and small machines that cooked bread easily at home, shifted many activities back into the home, and thereby saved on time and energy spent in the shopping process. The online digital revolution is a further major step in this trend of returning activities to the home. Time and effort are saved, for example, when instead of going to movie theatres, consumers both order and download films online to be viewed at "home", either on television sets, or increasingly on computers.
From this perspective, what is happening to bookstores is not unusual. "Books" are still read at "home", but increasingly they are also purchased at home, and not only in hard copy form. Digital books are a true revolution, but their effects on bookstores are only a small part of a broader technological development that has brought important activities into the home.
Can Bookstores Survive? Prospects and Consequences—Posner
Two of the largest bookstore chains—Barnes & Noble and Borders—are in danger of being forced into bankruptcy; their plight raises the broader question of whether bookstores will survive in any significant number, and, if not, what the consequences will be.
There are two clear threats, both Internet-related, to the bookstore. The newest is the e-book, in which the contents of a book are transmitted over the Internet to an electronic reader owned by the book's buyer. No bookstore is involved. Slightly older is the sale, as opposed to the delivery, of a book online; Amazon is the principal seller in this market. No bookstore is involved unless Amazon doesn't have the book in inventory; in that event the customer is referred by Amazon to a bookstore that has the book and will sell it online and deliver it to the buyer; the purchase is made through Amazon. Most of the books that Amazon and the other online booksellers don't carry in stock are out of print, and bookstores that stock such books tend to be small (though there are some exceptions), because the market for such books is tiny.
A possible third threat is diminished appetite for books. I haven't been able to find good statistics on annual sales of books in the United States (and anyway "books" is an extremely heterogeneous product category), but it would seem that the amount of entertainment and instruction available online is so great that online substitution for reading books must have reduced the demand for them. At the same time, however, the demand for books should be stimulated by the fall in cost when books are bought online, cutting out the middleman—the bookstore—a point to which I'll return shortly.
It seems inevitable that the number of books sold through bookstores will plummet. Books bought through bookstores are more costly not only in price (to cover the costs of the bookstore), but also in customers' time—the time required to travel to and from the bookstore, find the book one wants to buy, and complete the purchase (which takes more time than an online purchase). The only offsetting advantages of the bookstore are the opportunity it provides for browsing and the fact that the customer can see and handle the book before buying it. But these advantages are offset to a considerable extent (doubtless more than offset, for many customers) by the use by online sellers of artificial-intelligence programs to recommend books to their customers, by the much vaster inventory of an online seller like Amazon, by ease of search, by the reader reviews that the seller presents, and by the seller's ability to allow customers to look inside the online book before ordering it, much as if he were leafing through a printed book in a bookstore.
It is true that Amazon's book-recommendation program is primitive, and is no substitute for browsing in a well-stocked bookstore, but it will improve; one can foresee the day when customers will furnish (and Amazon store) comprehensive information about their age, sex, education, occupation, and reading tastes, which Amazon will use to create an initial list of recommended purchases, which it will refine as it receives orders from the customer plus supplementary information from the customer as the customer's tastes and interests change.
At present fewer than 30 percent of all books are bought online (either in hard copy or as an e-book), but I have seen an estimate that this figure will grow to 75 percent within a few years. Very few bookstores will have enough customers to survive if bookstore sales fall from 70 percent to 25 percent of all book sales, except those bookstores specializing in out of print books—whose customers will largely be online. In time, moreover, with more and more publishing electronic, there will be fewer and fewer "out of print" books.
The substitution of online for bookstore distribution of books will provide a substantial social saving and, as I said, increase the demand for books by reducing their retail price. As for the effect on publishers and authors of books, there is concern that it will be adverse, but that seems unlikely. A seller tries to minimize his cost of distribution, just as he tries to minimize his other costs; the publisher is the ultimate seller, and the bookstore part of the chain of distribution. But there is an important, and potentially relevant, exception, and that is where a distributor provides point-of-sale services that increase the demand for the product. This is the rationale for resale price maintenance: manufacturers of some goods place a floor under the retail price of the goods, thus deliberately increasing the retailers' margin, but hoping by doing so to induce them to engage in nonprice competition that will increase the demand for the goods. Bookstore staffs, by decisions they make concerning choice and display of books to carry, and by making purchasing suggestions to customers, can, in principle, increase the demand for books. But these services cannot guarantee the survival of many bookstores, because unless the services are valued by a greater margin than seems realistic to expect, there will be too few customers to defray the bookstore's fixed costs at acceptable prices.
The question then becomes whether the loss of point-of-sale services that bookstores provide will hurt publishers (and therefore authors, whose prosperity is linked to that of publishers) more than it will help them by reducing their distribution costs. That too is doubtful. As technology continues its forward march, online booksellers will find it increasingly feasible to duplicate and indeed improve on the point-of-sale services that bookstores offer. Bookstores will decline, and perhaps vanish when the current older generation, consisting of people habituated to printed books (as to printed newspapers), dies off. Yet this may well represent genuine economic progress, just as department stores and supermarkets represent progress though they cause the demise of countless small retailers.