Virtual online tactics mean actual bookstores fight for survival

Many bricks-and-mortar bookstores in China have closed down in recent years after falling victim to price wars among online booksellers. As these stores are crucial to the protection of cultural diversity, publishing industry leaders have reached an agreement that it is important to protect quality bricks-and-mortar stores.

I believe price control is an effective long-term way to protect traditional bookstores and to help the whole publishing industry to run in a broadly beneficial manner.

Price control would use legislation to stipulate that books, especially those that have been on bookshelves for less than a year, could not be sold at a discount. In that way, bookstores would not need to attract customers with reduced prices, but with other cultural ways of adding value.

As online stores have unlimited virtual shelf space, they are considered to be a good way to guarantee a wide variety of books. But this is a misunderstanding. We've done research on the sales of online stores in the past decade in China, and we found the books that sold the most were obvious best-sellers, while what the websites recommend are also best-sellers. When online consumers buy other books, they usually already know what they want and are merely searching for them.

Actual bookstores provide browsing space, so often readers come to buy a certain book but leave with another. In this way, new or lesser-known writers have more opportunities to reach readers. These stores also offer excellent space for cultural communication activities, which are important for diversity.

Many people open bricks-and-mortar stores because of their cultural ideals, rather than just to make money. They are happy as long as they sell enough books to be able to maintain the daily management of the store. But the fact that this basic need has now become difficult to fulfill means that the book publishing industry as a whole has some problems.

Most of the sales at actual bookstores have moved to online stores, because the latter can afford to offer lower prices. And what sales actual stores do make are now often at discounted prices because of the continuing price wars they fight with their online rivals. This cuts further into the profits of bricks-and-mortar bookstores.

For some online stores, books are just a means of attracting clients. They don't expect much profit from selling books, but the presence of books helps them to attract clients who might then spend money on other merchandise.

E-commerce website JD.com is a typical example. It once spent 100 million yuan ($16 million; 12 million euro) to start a price war. The result was better than what would have been achieved by spending that amount of money on advertising. The company's core business was electrical equipment, but now it sells general merchandise. Books were merely part of the company's marketing strategy.

Fierce price wars not only harm bricks-and-mortar stores, but also damage online stores' businesses and even the whole industry. Li Guoqing, president of dangdang.com, China's largest online bookseller, has called on industry insiders to stop price wars. Last year, the average retail price of books the company sold was 60 percent of marked prices. The company now accounts for a 20 percent share of the books market, but still cannot make a profit. But if it didn't participate in price wars as other online retailers do, it would even lose sales.

Price wars don't even benefit readers, as most stores preparing to offer discounts increase their prices in advance. On average, a new book now costs more than 50 yuan.

Wang Zhongyi, chairman of Zhejiang Xinhua Group, says that price wars cost about 10 percent of gross profit. According to figures provided by Beijing OpenBook Co Ltd, a Chinese information services provider for the book market, last year online and offline sales of books reached 46 billion yuan, so price wars cost the industry about 4.6 billion yuan, which is 920 times the 5 million-yuan subsidies the Shanghai government provided to help bricks-and-mortar stores regain some vitality.

I think the reason for the violent price wars is that we don't have strict price regulation. Although Chinese books have price tags, they can be randomly discounted in the retail market. Some online stores use lower book prices to attract traffic for the sale of other commodities, and bricks-and-mortar bookstores have suffered greatly from that.

Many European countries, such as France and Germany, attach great importance to a strict book-selling system and price control. They use laws to regulate the market price of books, but also offer tax incentives and financial subsidies so that good bricks-and-mortar stores can survive and the whole book industry can develop in a healthy way.

Laws to introduce price control in China are urgently needed. Otherwise, all the supporting policies for bricks-and-mortar stores will achieve very little.

The author is senior researcher at Bookdao New Publishing Institute, a Beijing-based consultancy on China's publishing industry.

(China Daily European Weekly 10/04/2013 page9)