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One of my greater pleasures is to walk around in a bookshop and browse books in topics of personal interest, picking a book from a shelf for a short read, then choose another one, etc. If fortunate, I would find a book or two that are worth purchasing for a full read. A bookshop should be a place where one feels comfortable to examine leisurely books he or she considers buying . Even if one enters a bookshop only to purchase a book he found in an earlier visit or on the Internet, he would likely take the opportunity to look around for some other books before exiting.

Steimatzky is a leading chain of bookshops in Israel, established as a family business in 1925. It operates more than 130 stores across the country. Like a solid rock, nothing would seem to be able to shake or break it. The chain of bookshops appeared to hold firmly even in the face of competition from a new chain (“Tzomet Sfarim”) in recent years. Steimatzky could usually brush off new independent bookshops and small chains quite easily. Therefore, when Steimatzky announced it was in dire financial difficulties last month, the news were received with surprise. Not that challenges were missing, but the chain was tackling them (e.g., renovating shops and changing the concept of its front window displays), and there were no visible indications of a fatal threat to the business.

However, another important event occured in the past decade. In 2005 the family sold its bookshop retail chain to an investment fund, Markstone Capital Group. Difficulties were building up with the rise of online shopping and changes in the behaviour patterns of younger generations for passing time, plausibly convincing the veteran owner and CEO Ari Steimatzky not only to retire personally (after 40 years in management) but also to hand over the business to new owners. The new CEO appointed came from the insurance industry, highly experienced in that field, but, like the people at Markstone, she was not familiar with the book market. Hereon, it is suspected that  the problems with the chain’s management have started, or aggravated.

Markstone and Steimatzky both contributed to the crisis in their actions. It appears that Steimatzky has had cash liquidity difficulties for quite a while and relied on cash infusions from Markstone for financing their high operational costs. It is estimated that the losses of the retail chain accumulated to 84 million shekels (~$24 million) in 2011 and 2012 together. Markstone, on its part, used to take loans and register companies it owns as beneficiaries that would share the debt; for example, Steimatzky was in debt of $20 million as part of a $65 million loan Markstone took from Deutsche Bank, on which Markstone’s executives may have not properly updated the retailer’s management(1). The difficulties were somewhat complicated following a tragic road accident in which one of Markstone’s co-owners was killed while riding his bike. Thereafter, the last cheque from Markstone bounced and the debt of the retailer was exposed.

A deal was made in April with Keter publishing house and the office supply and stationary retailer Kravitz to buy Steimatzky in equal shares (pending approval by the antitrust state regulator). Markstone reportedly bought Steimatzky for about 200m shekels (~$50-55m) whereas it is expected to receive for it around 40m shekels (~$11-12m). Negotiations with another publisher failed earlier. It may be noted that Steimatzky took part in establishing Keter in 2005 but the new management decided shortly to quit its partnership in the publisher.

The relatively young chain of bookshops, Tzomet Sfarim, was founded in 2002. It is owned by two publishing houses (Kineret-Zmora-Bitan and Modan) and its CEO (Avi Shumer). If the acquisition of Steimatzky goes ahead, it would mean that high stakes in the two major chains of bookshops in the country will be held by publishing houses. Steimatzky was known for aggressive dealing with publishers; its tactics were often viewed unfavourably. The negative experience of publishers with Steimatzky is considered a key driver for those two publishing houses to start their own chain of bookshops, as they no longer wanted to be dependent on the dominant book retailer. It soon raised, however, new concerns about the privileges Tzomet Sfarim might give books they publish on display and in advertising and promotions. A new law on the publication and trade of books introduces a measure to correct such unfairness by prohibiting a bookshop from allocating more than 45% of shelf space to books from publishers it is linked to.

Tzomet Sfarim has turned within a few years into a serious challenger. It paved its way into the market primarily through discounts it offered on books. Deals like “two for the price of one” or “3 for 2” are not strange to chains of bookshops worldwide. But Tzomet Sfarim provoked everyone when it offered for instance “four books for 100 shekels” (i.e., each book for about £4). The discount is not necessarily deeper than the 50% one gets per book in a deal of “2 for 1” yet it induces consumers to buy many books, more than they may probably have time to read, and thus boosts sales volume quickly. Steimatzky responded angrily but nevertheless reciprocated with similar deals. This readily started a vicious price war. In contrast to expectations that Steimatzky as the senior and dominant retailer and brand will win, it was at disadvantage. The board of administration of the new competitor was modest whereas that of Steimatzky was expansive, and hence expensive, eventually less fit to tolerate the loss of income from extensive discounts. The deficits and cash flow problems of Steimatzky have been attributed in the business press to the price war on the one hand and its excessive administrative and operational expenses on the other hand.

  • The pervasive discounts evoked criticism about lowering the value of literary work. They outraged authors who complained their income (royalties) from their new books was squeezed and diminished. The law on books recently legislated in response sets new limits on discounts for new books during an “introduction period” and afterwards.

The retail chain of Steimatzky grew mostly in the 1980s and 1990s. New bookshops often replaced independent ones, taking them in as franchisees, and by forcing them out of business. But since 2006 the number of their bookshops actually decreased from 150 to 134. The size of the chain may have created a burden of supervision and operational costs that contributed to its difficulties, requiring to close some of them, but it does not seem to be an immediate cause of the recent crisis. Meanwhile, during the same period Tzomet Sfarim expanded from 42 to 87 bookshops and became a much more significant player in the book market (annual revenue of 300m shekels vis-a-vis 380m shekels for Steimatzky). This time it was Tzomet Sfarim that through their discounts grew at the expense of independent bookshops. Now the two retailers control, about equally between them, 70%-80% of the market.

Steimatzky and Tzomet Sfarim sell books online on their websites, as well as some publishers do. The retailers may have lost some of the local market to overseas online booksellers like Amazon, but that is likely to be only for books in foreign languages, especially in English. First, Amazon and others like it have very little if any to offer in Hebrew. Second, both retailers already concentrate their business on Hebrew books, which Israelis read the most, and offer a relatively small selection of books in English (e.g., some bestsellers, history and politics, art and design). Thus, the overlap between the Israeli retailers and foreign e-tailers should be relatively small. There is a need for Steimatzky, however, to develop and enhance the linkage between its online store and physical bookshops (e.g., buy online, collect in-store; celebrating the design of bookshops with photographs on the website) in order to protect both channels locally but primarily secure traffic of customers in its physical stores.

Under its current management, Steimatky bought a music and video chain of stores (“Tzlil”). Soon after, however, the stand-alone music and video stores were eliminated and their products (mainly CDs and DVDs) were incorporated as a sub-category or department within existing bookshops, though in a small-scale and -scope of offerings. The music & video branch of retail is knowingly in trouble around the world and one may question the justification of adding these product categories to their main business. Yet, joining books with music and video and other entertainment products has become an accepted logic by retailers in different countries to compensate for loss in demand in one category or the other, and expand their variety of products under the same roof (e.g., the French retailer Fnac that offers a range of culture and entertainment products, including books, CDs & DVDs, and electronics like mobile devices and related gadgets). That move can work in favour of Steimatzky rather than against it in this era.

Joining the businesses of books and music & video within the same company can bear risks. The most remarkable story in this regard belongs to the British chain of bookshops Waterstone’s. In that case it was the music & video chain HMV that bought the bookshop chain and put its survival into great risk. The stores of these chains were kept separate but the financial difficulties of HMV in its original business inflicted on Waterstone’s, and certainly did not help it to tackle its own challenges. At first they started closing bookshops to finance some of HMV’s debt and to lower costs, but that was not enough. Eventually, and mainly in hope to save HMV, the Waterstone’s chain was sold  in May 2011 to Russian investor Alexander Mamut. Notably, the new owner appointed as its managing director the owner of a small chain of traditional Edwardian-style bookshops (James Daunt) who has been well entrenched in the book retail business. The bookshop chain appears to be doing well in its process of recuperating and is thinking forward about the design of bookshop environments for the future. It is opening these days its first new bookshop since 2008.

Steimatzky does not have today a flagship library-like bookshop as found in many Western cities. These are usually multi-storey, multi-category bookshops that occupy buildings on main streets or in central shopping districts. Even cities similar in size to Tel-Aviv have such a bookshop (e.g., Waterstone’s bookshop on Deansgate St. in Manchester). A flagship bookshop in Tel-Aviv could occupy two or three floors (e.g., 200-300sqm each) and offer a variety of book titles in Hebrew and English, and perhaps in French, along with a section for music and video (particularly classical and jazz music). The scope of book selection across categories and variety within categories is crucial to the quality of customer-reader experience and increasing the likelihood that shoppers don’t leave without purchasing or ordering books. Operating such large bookshops can be expensive, but a flagship bookshop of this type should also be viewed as an investment in the retailer’s brand equity. It demonstrates prowess of the retailer, richness and professionalism. Tzomet Sfarim recognised the importance of such an asset and opened its “Library” bookshop in the centre of Tel-Aviv, although it occupies only one level and is “hidden” in a shopping centre rather than visible on main street.

The final issue addresses the new form of electronic books (e-books) that can be read on e-reader devices. It has been predicted that the future of reading lies there, and thereof it poses a major threat to physical books. Steimatzky has invested and participated in the launch of an e-reader that specially supports also the display of books in Hebrew (called “e-vrit”) but left the venture in just a year. Book retailers in other countries offer their own-branded e-reader: Barnes & Noble (Nook), Fnac (Kobo), as well as e-tailer Amazon (Kindle).

Tim Waterstone, founder of the British bookshop chain, recently criticised and even ridiculed the projections about the expected death of physical books; he supported his claim that physical books are here to stay on figures that suggest that e-books may be reaching saturation and his confident belief that people in the UK who love reading will continue to prefer books in print. He noted that consumers in Britain spent in 2013 £300m on 80m e-books but £2.2bn on 320m physical books (2). Managing director Daunt agrees and relies on a report by Enders Analysis and Bain & Co. which predicts that the share of e-books out of total book sales will reach 35% in two years but will grow “very slowly” after that. Daunt comments: “An equilibrium has been reached. The place of e-reader within people reading patterns has been established. That figure leaves us perfectly able to survive with the 65%.” He further expressed his belief that the physical book is more pleasurable to hold and read (3).  Steimatzky’s decision to quit its engagement with a Hebrew-support e-reader may have been pre-mature but it is plausible that they won’t need it. Still, they should re-examine their approach to e-readers because e-books will continue to hold a substantial stake in consumer reading.   

The conduct of top executives at Steimatzky and Markstone in the past eight years exhibits a mixture of complacency, over-confidence, and nonetheless confusion. They took upon themselves to improve and develop a business in a domain in which none had deep familiarity and experience. The CEO wanted to make changes in the company, and show the way to the whole market, without the endorsement of a credible and respected figure in the field and industry. Consequently, it was easier to attack and dismiss her as an outsider. Steimatzky under her leadership initiated strategic moves, and then abandoned them after a relaively short period. It also appears that she has set the wrong priorities for the company to deal with. The actions of Markstone at the same time suggest that they treated Steimatzky as a “financial asset” in their portfolio with disregard to the substance of the business in which they invested.

The future of Steimatzky would not be guaranteed without confronting a crucial question: What should the bookshop of the future look like in order to be inviting and attractive to book readers to hang around? Steimatzky may concentrate on books and reading or take the broader view that spans culture, education and entertainment. Three routes to enhancing shopper experience should be examined: (1) a space that makes patrons feel comfortable to stay and explore the shop; (2) a place to meet and socialize (incl. an in-store coffee shop); (3) connecting physical and digital products and services in a larger space: physical (bookshop) and virtual (Internet and mobile).

Ron Ventura, Ph.D. (Marketing) 

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Academic books are part and parcel of academic studies and research. This general class may include textbooks (+tutorial materials), readers (compilations of articles), and a variety of many more books that present the products of academic work (e.g., theory development, empirical research). Academic book stores usually work side-by-side with departments at academic institutes to provide to students copies of books used each term in courses. These stores are often located on-campuses or nearby. Wide selections of academic books in different fields can also normally be found in large book stores, some occupying several floors, at city centers. Definitely these are hubs of knowledge and learning.

Students may come with bibliographic lists from their lecturers to look for books required for their courses which are worth purchasing and keeping. Occasionally, students are looking for additional books in their fields of study to assist them in their academic work. Research students and academic staff members may look for books in very specific areas that are essential for developing their knowledgebase in their fields of research. The visitors can browse books available on the shelves, consult with librarians, or order books that they specifically seek but are not regularly in stock. Even people who have long graduated yet value continued learning may easily spend an hour or two browsing and choosing books that will help them enrich their knowledge and be better informed about most recent developments in their areas of profession and beyond.

A peculiar process that has been rolling-on in the past few years at Dyonon, a small chain of academic bookstores associated with Tel-Aviv University (TAU), raises concerning questions about its identity and direction in the future: books are gradually disappearing from its main and original store adjacent to the campus of Tel-Aviv University. Should we see in this a sign of lack of economic sustainability for the academic book store? Are there other factors contributing to this process? And how should the university deal with the situation?

A brief backgroud: Dyonon is owned in partenship by the University of Tel-Aviv and the Student Union at the university. For more than 40 years the original store was managed and operated by the student union. In later years it opened branches at private and public colleges and academic centers. However, in the early 2000s TAU has run into financial difficulties, the Dyonon has yielded less net income, and the student union could not maintain the retail operation alone. Eventually the owners reached an agreement to license Office Depot (Israel), a retailer of office supplies and equipment, to manage the stores of Dyonon on their behalf.  The local chain of Office Depot has been run at times as an independent franchiser or a direct subsidiary of the international Office Depot company. In September 2006 Office Depot launched the rennovated store at TAU with an investment of two million shekels (~ $0.5 million). The chain of Dyonon now has 5 stores including the original store at TAU (at least until 2006 they have had 8 stores).

At an early stage of Dyonon under management of Office Depot the books were migrated to a back wing of the ground floor and in the basement floor in order to make space for office supplies and equipment. Soon after, the migration of the books to the lower floor was completed. Positively, the books were awarded a whole floor as they deserve. On the negative side, a customer who enters the store can no longer tell this is an academic book store.  Now it resembles more a computer-related technology store. Nonetheless, gradually the books in the lower floor have been losing more shelf space in favour of other products typical of Office Depot. In recent months several sections of the lower floor dedicated to psychology, political science, history and other fields of the humanities and social sciences were given up for other products. The academic books left remain in a back wing of the floor and they now occupy about 20%-25% of the whole store area.

The business of academic book stores worldwide is facing some significant challenges that have only aggrevated in the last decade and could be of risk to the economic sustainability of the stores. Here are three salient factors worth conisdering in this regard:

    • Textbooks have been relatively expensive for students to purchase for decades. They may cost anywhere between £30 to £120 (when available, students can save considerably by buying paperback volumes that cost 50% of the price of hardcover volumes). Hence students would rather try to borrow their required textbooks from the library or acquire used books. Yet some books may be more essential and fundamental to the student’s field of study so that a new book is worth buying to have in hand during the period of studies. (The problem in Israel is more complex because of language issues).
    •  Academic books are widely available to order online. One may sit in the comfort of his/her home in front of the computer’s screen, search for required books in e-tailing websites, even read sample pages, and then order some chosen books. This course of action is especially efficient and attractive for acquiring books that are more difficult to find in stores at any given time. The best known e-tailer of books is Amazon but is not the only option. To counter this threat, many of the chain booksellers also operate an e-tailing channel in their Internet website. This business extension may canniabalise sales in stores to some extent, but it can be designed to improve service to their customers. That is, customers may search for books more conveniently at home, and they may even order some books online, and then come to the store to buy or pick them up, and then possibly look for some other books while on premises.
    • A growing variety of academic books is becoming available in a format of eBooks, including graphics-rich textbooks. The e-books can be viewed with electronic reader software applications and devices. One may read e-books on an electronic reader device, a tablet or a laptop. The e-book version may be priced 10% to 20% lower than the print version (one still has to pay for content). This is still a young field in book distribution and as a mode of reading but it can be expected to become a more serious challenge for stores to confront in the near future.

These challenges pose different levels of risk and difficulty. The problem is that a retailer like Office Depot is neither prepared nor motivated to take the challenge. It is not in its core business and mission, and thus it is not likely to be committed enough to face those challenges. The easier solution for a retailer who does not genuinely see his place in this area is to remove the books and replace them with products its management is more familiar with and expects to be more profitable, as Office Depot does. A professional staff qualified to advise customers and sell books cannot be sufficient if the management is not ready and qualified to tackle the strategic difficulties and challenges of the academic book market.

Moreover, Office Depot in Israel has run into operational and finanical difficulties in the last 18 months for reasons that are beyond the scope of this post, making the situation more complicated. Unsurprisingly, at the time of critical test Office Depot is seemingly acting not in the true interests of Dyonon. In retrospect, it seems that early on Office Depot has “kidnapped” Dyonon for its own line of business and now we see just the culmination of this process in an apparent crisis for Dyonon.

But Office Depot is not the only party that bears responsibility. The University and the Student Union reportedly agreed in licensing Office Depot that it would display its usual products on the ground floor and books on the lower floor. This is not without logic and benefit to both students and faculty and to the retail business. If Office Depot in any way “kidnapped” Dyonon as suggested above, it was rather in later stages of its operation when it let its usual trade become more dominant at the expense of books, and the store’s owners did not interfere to curb this activity in time. The more intriguing question remains: Why did the owners choose an operator without desired skills and experience in the book market?

Recognizing the economic burden on students to purchase new books and their preference to find used copies, academic book retailers entered this scene and are engaged in mediating between buyers and sellers. More momentum is now given to the transition to eBooks and the means to view and read them. For example, the American book retailer Barnes & Noble  is more focused in the past few years on advancing its Nook programme of eBooks and electronic reading applications and device. It offers special library and service (Nook Study) for students and professors online, and is particularly specialising in offerring lower cost eTextbooks. Some described features of the application seem particularly useful for studying (e.g., search, mark-up, notes).

Exectuvies at Tel-Aviv University and the Student Union should be planning for the days after Office Depot to restore Dyonon as an academic book store. A possible path to follow is return to a model more similar to the past. The store may be governed by the university and student union but managed and operated by a professional team directly hired by the owners. The team may be organised as a business unit. This type of arrangement can be found at the University of Washington in Seatle — over the years they have built a model where an incorporated body of professionals is running the academic book store (and other stores) under supervision and control of a Board of Trustees of the university’s academic and admininstrative staff and the student union representatives. Other examples for stores controlled by student unions and universities include the Union of Toronto in Canada and the Co-Op Bookshop in Sydney, Australia (fully named “The University Co-operative Bookshop Limited”, a not-for-profit bookseller). It is further noted that another chain of book stores in Israel, Academon, is affiliated with Hebrew University in Jerusalem (12 bookshops, four of them in Jersualem).

If this model, however, seems no longer feasible or practical for the university, and they need to lower their level of involvement, they should be renting or leasing the store space to an established book retailer. A convenient solution may be adopted for instance from the United Kingdom where the bookseller Blackwell operates its own academic book stores in 45 locations on-campus of academic institutes or nearby (see also the Student section on its website).

  • The book retail scene in Israel is controlled by two chains of book stores (“Steimatzky” and “Tzomet Sfarim”), possibly distancing the university from dealing with them. In fact, negotiations were held with “Tzomet Sfarim” but terminated by the owners in 2005 in favour of Office Depot. The former lost its case in court against this action. From a position of strength, it is likely the book retailer has made high demands for control of the business the owners would not accept. The alternative solution the owners chose with Office Depot, however, was not any more viable.

An academic book store is one of the most valuable services a university is ought to provide its students and faculty in one form or another. However, in order to protect and enhance the economic sustainability of the book stores, they should be supported with an “envelope” of complementing value-added services, employing also advanced technologies, thus making the stores more attractive, interesting and useful.

Ron Ventura, Ph.D. (Marketing)

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