At the same time, the rise of Amazon, and of online bookselling more generally, created new dangers for publishers and exacerbated some old ones. For one thing, the online environment proved to be particularly well suited to the selling of used books, as online retailers like Biblio, AbeBooks and Alibris could operate as clearing houses for hundreds of small used-book merchants who were spread across the country and, indeed, the world. When Amazon and b&n.com entered the used-book market, acting as clearing houses for used-book merchants and listing used books alongside new books in the search results, this brought much larger customer bases into the used-book market – not just individuals who were specifically looking for used books and were familiar with the specialist online booksellers who supplied them, but anyone who was buying books online. While college textbook publishers in the US had been accustomed to dealing with the used-book market for many years, used-book sales were now becoming a matter of growing concern for trade publishers as well. And there was some evidence to suggest that their concern was not without foundation: a survey carried out in 2005 suggested that sales of general trade used books reached $589 million in 2004, up 30 per cent from 2003.20 Total used-book revenue in 2004 exceeded $2.2 billion and while textbooks and other course materials represented the largest share (73 per cent), most of them sold through college bookstores, the most dramatic growth was in the area of general trade-book sales and in sales through online channels. At a time when overall sales growth in the industry was very modest, a growth of 30 per cent in used-book sales was very worrying indeed, since used-book sales, while very profitable for booksellers, contributed nothing to the revenues of publishers or the royalties of authors.
A second concern for publishers was that, as Amazon grew in size and became an increasingly important channel to market, so too it became more powerful and more able to use its size as a bargaining tool to try to extract better terms and conditions from publishers – higher discount, more co-op advertising money, better payment terms and so on. Publishers were accustomed to facing pressure from the large retail chains for better terms and conditions, but now they were faced with similar pressure from a new player that was rapidly becoming one of their most important customers. ‘Whether it’s payment terms or co-op or freight, there are lots of ways that 800-pound gorillas can force you into things,’ reflected one seasoned sales director. ‘Do I worry about that? Sure I do. The bigger they are, the more power they can wield.’ His worry was reflected in his behaviour: he hesitated to talk about these issues, my questions were followed by pregnant pauses while he carefully weighed up his words, and he asked me more than once for reassurance that his comments would not be attributed. No sales director would wish to fall out with what has become one of his most important customers. And there is always the fear – not entirely groundless, as we shall see – that Amazon might use its ability to remove books from its site or disable the ‘buy’ button as a weapon in the struggle to improve its terms of trade. The fact that Amazon is a large and growing customer for most publishers, that it is much bigger than any other online retailer and that it is also a very visible site, in the sense that many readers will look for books on Amazon and many authors will go to Amazon to check the availability of their own books, has put Amazon in a strong negotiating position. It could be very damaging for a publisher if its books were no longer listed on Amazon, or if they were listed but not available for purchase: being available on Amazon has increasingly become the litmus test of availability per se.
The growing role of mass merchandisers
Bookstores, whether independents or chains, were never the only outlets for books: as noted earlier, they were also commonly sold in non-specialist retail outlets like drugstores and department stores. In the 1980s and 1990s, publishers found new outlets for books in the expanding chains of large discount stores, like Wal-Mart, Kmart and Target, and in the emergence of the warehouse stores – the so-called Price Clubs. Sam Walton opened his first Wal-Mart Discount Store in Arkansas in 1962; within five years it had become a chain with 24 discount stores across the state. From the 1970s on, Wal-Mart expanded its chain, first by opening stores in neighbouring states and then by expanding across the US and overseas. By 2005 Wal-Mart had 3,800 stores in the US and 2,800 elsewhere. Wal-Mart had become the largest retailer in the United States, Canada and Mexico; it had also become the second largest grocer in Britain, thanks to its acquisition of Asda in 1999 for $10 billion.21
Wal-Mart opened its first warehouse club, called Sam’s Club (after Sam Walton), in Midwest City, Oklahoma, in 1983, but the origin of the warehouse store is usually attributed to Sol Price, an attorney from San Diego. Having inherited a vacant warehouse in the early 1950s, Price encouraged a number of wholesalers to fill it with an assortment of goods ranging from jewellery and furniture to alcohol, which was sold at wholesale prices to a membership which consisted of government employees. The business, which he launched in 1954 under the name of FedMart, was a success, and when Price sold it in 1975 it had grown into a chain of 45 stores. Building on the success of FedMart, Sol Price and his son Robert founded the first Price Club store on the outskirts of San Diego in 1976. The retail concept was simple: sell a broad range of goods in high volume and at low prices, usually at around 10 per cent mark-up from the wholesale price. In order to maintain low prices, overhead costs were kept to a minimum: products were stocked on pallets or high shelves on the warehouse floor, the warehouses themselves were located on cheap industrial land on the outskirts of cities and staffing was minimal. Restricting the membership reduced the risk of bad cheques and shoplifting, and modest membership fees helped cover the overhead costs. After an initial disappointing year, the Prices broadened the membership to include employees of hospitals, financial institutions and utilities, and this proved sufficient to enable the business to grow. By the mid-1980s, the Prices had opened 20 warehouses, most of which were in California, and the company was generating profits of $45 million on sales of $1.9 billion.
The success of Price Club spawned many imitators, including Costco Wholesale Club, Sam’s and BJ’s. Costco was co-founded by James Sinegal, who had worked with Sol Price at FedMart and the Price Company before leaving to form Costco with Jeffrey Brotman in 1983. Costco was based on principles very similar to the Price Club, and from its original base in Seattle it quickly became a major competitor. Sam’s Wholesale Club was established by Wal-Mart in 1983 and grew rapidly; by 1993 Sam’s had pulled ahead of Price Club and become the largest wholesale club in the US, with 434 stores and nearly half the market. Partly as a response to the threat from Sam’s, the Prices decided to merge with Costco, which then ranked third among the wholesale clubs in terms of overall revenue. The new company, PriceCostco, proved to be an unstable union; Robert Price left the company in 1994, and in 1997 it changed its name to Costco Wholesale. Costco and Sam’s are now the leading wholesale clubs and are of roughly similar size; with a turnover of $64.4 billion in 2007, Costco has the highest sales volume, though Sam’s, with 713 stores, has more retail outlets.
The rise of the mass merchandisers, including Wal-Mart, Kmart, Target and the wholesale clubs like Price Club, Sam’s, BJ’s and Costco,