Why Your Pension Will Kill Your Bookshop

The current model of high street bookselling cannot sustain itself. The cost base of any high street shop is part of a complex economic web that involves many other parties. I'll try to give the easy version. Most high street properties are owned by pension funds. The under performance of pension funds is well documented and the fund managers are forced to try to work all of their investments harder just to get close to the sort of returns that they enjoyed 20 years ago. This means that retail rents are being ratcheted up in order to provide that return. The result of this is that retailers who work from a relatively low margin base (booksellers, CTNs, record shops) are the first to feel the pinch. They cannot, in the current environment, put prices up. Indeed, their suicidal discounting and the supermarkets strategy of loss-leading on books has lead to a perception that books ought to be cheaper. There is no way for these retailers to squeeze their other costs much more. Their staff are already badly paid; their stores are, in many cases too big; there are often too many of them in any given town or city. Put this in the context that I've already discussed and you have imminent store closures on massive scale. Waterstone's and Ottakar's only overlap in 30 odd locations but I'm willing to bet that, if that merger goes through, we'll see more than 30 stores close down in the next couple of years.

Other retailers, with a higher margin base (food , clothes, electronics, - i.e. supermarkets) can partially absorb these increased costs via their high margins. (A book is, on average marked up by 100% so a £6.99 paperback costs the bookseller roughly £3.50. A pair of jeans is marked up by anything up to 500% so it's possible that the £60 pair of jeans only cost the store £10.) They are also able to put up prices on own branded products in a way that is just not available to a bookseller. You can only buy a Gap shirt in Gap so how would you know that it is costing you more than it used to?

Which of us, in all honesty, wants our pension fund to not strive for a maximum return on our nest egg? Which of us wants the goods we buy to be more expensive? We can't have better pensions and cheaper goods at the same time. Put another way, the better pensions we enjoy as a result of these hikes in shop rents will be eaten up by a rise in the cost of living.

It is this conundrum at the heart of retailing that will put the final nail in the coffin for high street bookselling as we know it. Sure, the supermarkets and the internet are threats but Amazon has an 80% market share of online book sales. A market share that high is easy to attack from below. Both of the major chains have announced plans to launch their own transactional web sites. It's the right strategy. It may be a bit late (duh!) but it's right. Yes they are threats but it's the threat to the cost base posed by rental hikes that will be the killing blow.