Seeing REDgroup – Part 3 – A Tale Of Two Brands

8 03 2011

A Tale Of Two Brands

Angus & Robertson have been around way over a century (albeit with a litany of former owners in its more recent decades), with a long and respected reputation for selling quality books in a demure manner by demure middle-aged ladies wearing sensible shoes in demurely designed book stores.  From cities to countless regional towns, they brought quality books to every corner of Australia, the Everyman’s bookseller.  They’re classic Old Media, and they sold just one product category, and – until the last several years – did it fairly well.

Borders, the hip young USA brand that Gen-X & younger oozed over in the 90s and early 00s for its multimedia retailing tour de force – not just a massive range of books, but music (pressing a few buttons to sample any CD on headphones was a revelation!), DVDs, glossy magazines & more, in large, plush, comfortable stores with its very own cafe, seemed to take the book retailing world by storm.  Clearly Borders was commoditised American economic imperialism propagating across the world like a virus, but unless you were wedded to your local indie bookstore and studying a double arts degree, visiting Borders was like a guilty pleasure, but without the guilt.

The only way these two could be less different would be to compare them to Woolworths or KMart, or an indie one-store bookshop up the proverbial street, whose rickety floor-to-ceiling shelves feel like they’re about to collapse in a plume of dusty old-school dignity.  But despite their obvious differences, two pillars – the oldest and the newest – of the Australian book retail world have suffered the same fate at the same time.  What on Earth went wrong?

When Borders entered Australia in the late-90s, the two were genuine competitors with unrelated owners, and quite different business models.  But for individual reasons, both came under the ownership of Pacific Equity Partners (PEP), who formed REDgroup Retail to hold them, alongside Whitcoulls in New Zealand (and other sundry non-book entities).  By this stage, the wheels were already wobbling.

My guess is these two very different businesses were originally seen as complementary; A&R serves the Everyman, and Borders served lattes to the hipsters.  Unfortunately the devil is in the detail.  Borders AU/NZ/Sing were already in serious debt when snapped up by PEP, and A&R were headed down the same path.  Not surprisingly, two negative cash flows do not make for a positive cash flow, and under this growing mountain of debt (now totalling some $130M !!!) some truly horrible things have been done to both brands in a desperate futile attempt to stem the flow of borrowed money.

There’s been a bookshelf of words written this past week about REDgroup entering voluntary administration & who’s to blame.  Some of them hold water, some of them are utter nonsense, and some I’m really not remotely qualified to comment on.  Fell free to tell me which ones I got wrong!

  • Much hoohar has erupted over the claim by REDgroup’s CEO that the parallel import restrictions were a significant contributor in REDgroup’s demise.  However, given that (a) many of their books were marked ABOVE the Australian RRP (ie. they can’t have been too concerned about discounted books from offshore retailers), and (b) REDgroup’s own submission to the Productivity Commission in 2009 recommended KEEPING the PIRS, this is all clearly bumkum smokescreening.  According to Henry Rosenbloom from Scribe Publishing, the US and UK don’t allow parallel imports either, and if Australia were to do so it would have severe implications for local publishers, authors and printers, to the benefit of their overseas counterparts.
  • That GST should be applied to offshore imports, or be exempted from certain domestic retail categories, to “level the playing field”. This one’s gotta be the ultimate scapegoat, and Gerry Harvey had his hat handed to him in the court of public opinion in January this year trying on this furphy.  Suggesting that some select few endangered species of the Australian retailer genus should be GST-exempt is mind-boggling.  AS IF the Australian Government is about to do away with a major component of its GST income – the GST targets the retail level!  Online retail – from both national and offshore retailers – has steadily grown in the last decade from obscurity to significance.  In 5-10 years when I can try on a digital pair of jeans on my digital avatar and check for proper fit & see what they’ll look like from a virtual mirror on my high-resolution monitor, or point my smartphone at the corner of the room to project an image of a new sofa to see if it’ll fit in my room, and click a button to have it delivered, clearly the scope of what can practically be bought online is only going to grow, so why on earth would the Government set a precedent for slitting its wrists & slowly bleeding to death?
  • That too much of Borders stock was inappropriate for Australian readers’ tastes.  Maybe.  As Patrick Carr says on Newmatilda.com, Borders “sacrificed profitability for market share. They poured huge money into extensive stockholdings. Their hope was that if they stocked everything, shoppers wouldn’t look elsewhere.”  Unfortunately that didn’t work out so well, and I’m guessing that’s behind a lot of the $130M about to be written off by banks, publishers, and other creditors (everyone except their owners, PEP).  Whilst it was a correctable problem, paying off the debt from that catastrophic error when it’s already a tough market obviously wasn’t possible.  But it doesn’t explain Angus & Robertson’s equal lock-step demise…
  • That the honourable centenarian Angus & Robertson have been disrespectfully relegated to bargain-bin & best-seller-pulp status, undermining the value of their time-honoured brand.  If you narrow your range to pulp, don’t be surprised when customers buy pulp for a fraction of the price from Woolworths or Amazon/et.al.  But how did that happen?  Perhaps extorting smaller local publishers for an additional $2.5k to $20k to stock their books might’ve had something to do with them deserting the once respected chain, leaving A&R without unique compelling product?
  • There’s just so much more entertainment available now, and so much more competition for our disposable dollar & attention.  Even a mere two decades ago we consumed media distributed by news papers and magazines, TV, movies, music (vinyl/CD), and that was about it.  Computer/video games were niche, and there was no (recognisable) Internet/WWW.  Nowadays we have a smorgasbord of tech to keep us entertained & distracted on a whim anywhere, and all of them are seriously challenging the old-school old-media business models of physically-distributed media with territorial copyright licensed to 3rd-party distributors, or highly regulated & gate-keepered traditional electronic media.  Whilst the pie has grown much larger along with our prosperity, the number of ways that entertainment pie is now sliced has exploded.  We are reading less books.
  • No one’s talking about this one, but it can’t have helped matters that REDgroup made the tragic mistake several years ago of being convinced that SAP would be a good thing for their business IT infrastructure.  Surely a swish new world-class enterprise management system would make things better, right?  Did no one at REDgroup do their homework and read about the litany of over-budget & over-time SAP implementations scattered across the world in the previous decade??  Books have been written and websites dedicated to documenting their spectacular failures.  As other smaller entities in REDgroup came to make major IT infrastructure decisions in recent years, SAP was given a wide berth, for fear of crippling their own business with a grossly expensive and agonisingly slow development cycle.  Aside from that, any IT department that has a two week waiting list to delegate an internet domain name for their own online ecommerce store (something that can be actioned in 5 minutes) has way bigger problems than being duped by blowhard SAP salesmen.
  • eBooks & eReaders are taking a share. Yes, but I suspect this one’s a trivial component dwarfed by the other factors, but no doubt it’ll grow into a major additional bite in the coming years.
  • Let me drop two dirty words in the book industry: self-publishing and eBooks.  Thy time approaches.

 

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