Saturday, February 19, 2011

Book chains' troubles 'not a book issue'

Photo Andrew Gorrie/The Dominion Post
The Borders outlet in Lambton Quay, Wellington, will trade on while the administrator looks into the company's financial state.

The placing of Whitcoulls and Borders into administration by its financially troubled Australian owner REDgroup Retail does not sound a death knell for New Zealand's book industry, say competitors.

Paper Plus chief executive Rob Smith, like many commentators, pointed to REDgroup's private equity owner, Pacific Equity Partners, and the businesses' consequent heavy debt as the real issue undermining the book chains' performance. "This is not a New Zealand book issue."

About 1000 New Zealand staff face an uncertain future after Whitcoulls and Borders were put into administration late Thursday in New Zealand and Australia after their owner called in voluntary administrators.
The administrator, Ferrier Hodgson's Steve Sherman, said it would be business as usual while the businesses' financial status was urgently assessed.
The first creditors' meeting was likely to be held early next month.

The possible demise of the two bookstore brands here wouldn't be good for business, Mr Smith said. "We don't want them to go under, for no other reason than they have 1000 employees."
Paper Plus increased its book sales last year, recording a $412,000 profit on $21 million turnover, a 12 per cent increase.
Mr Smith said the company, which operates as a co-operative franchise, was planning on adding stores and was halfway through a $22m refit of 28 stores.

Trade Me website operations manager Mike O'Donnell said REDgroup's troubles could be partly attributed to a changing industry landscape. Book retailers were now in a global market because of internet companies such as Amazon and The Book Depository. In addition, the high New Zealand dollar was encouraging consumers online.
Mr O'Donnell said retail chains were finding it hard to combat the likes of Amazon, which had itself struggled early on.

"Amazon were launched around 1995 and didn't turn a profit until, I think, 2000. Even now they're predicted to do about US$36 billion (NZ$48b) gross sales for the current 12-month period but they'll only turn about US$1b of profit on that.
"When you think about those numbers and how a normal business in New Zealand runs on 8 per cent profitability, these companies run on [about] 3 per cent profitability.
"That is a very different model to someone that has a set of stores up and down the country, huge overheads and a declining market and needs the greater profit margin to be able to trade."

Mightyape chief executive Simon Barton said book sales on his website were up more than 100 per cent in the past year after entering the market only two years ago. Books were now the website's fastest-growing segment, accounting for 30 per cent of sales.
"Books make sense as a business online but not in the real world," Mr Barton said.

Niche bookstores and second-hand outlets would disagree.
Book Haven's Don Hollander said the recession has been great for his Wellington book store. "We have grown. I've just signed up for some more warehouse space when everybody else is downsizing."
He said the price of new books were too high, making second-hand a much more attractive proposition. The cosiness of small, independent book stores was an attraction for customers, he said.

Managing director of publisher Hachette New Zealand Kevin Chapman said REDgroup had made it clear to the industry it was in trouble and was trying to negotiate better terms.

REDgroup's accounts for the year to August 2010 show the New Zealand books and entertainment media segment lost A$3.5m (NZ$4.6m), compared with a A$1.7m loss the year before.
Overall, the company's losses increased 191 per cent, from A$14.7m in 2009 to A$42.9m in 2010.

The latest accounts from Whitcoulls' local entity, WGL Retail Holdings, show a 6.5 per cent increase in sales revenue but a 69.4 per cent decrease in after-tax profit for the year to August 2009.

More:
- The Dominion Post

No comments: