Jan 13 2020
In the first installment of this Industry Insider series, which examines the effect of e-commerce on brick-and-mortar storefronts across a variety of sectors, IBISWorld looks at how the popularity of e-commerce has affected books.
It’s no surprise that online shopping has continued to rise in popularity with downstream Canadian consumers in recent years, as technology has advanced to provide faster, more-efficient and secure purchasing options via the internet. This becomes evident considering the growth in demand from e-commerce and online auctions in Canada over the five years to 2019 (latest data available), which has increased an annualized 12.9%. Moreover, demand from e-commerce is projected to continue to remain strong moving forward, increasing a further annualized 7.8% over the five years from 2019 to 2024. However, the explosive rise of e-commerce has also had its downsides. Online shopping is said to be eroding not only the presence of traditional brick-and-mortar retail stores, but also the performance of remaining locations.
One of the major reasons behind why online retailers, or e-tailers, are so successful is because they have no overhead costs. A physical location requires operators to pay rent and utilities. Operators also have to pay any associated maintenance fees as they occur.
Such costs can add up and affect profitability unless the operator charges higher final product prices on their inventory. Therefore, book store operators can’t mark a book up higher than its set market price or offer any discounts on it, for fear of operating at a loss.
Conversely, Amazon.com’s services are offered primarily online, cutting out overhead costs and simultaneously bringing economies of scale into play. In other words, the size of Amazon as a company enables it to successfully negotiate lower prices on materials, afford and implement a wide range of automation techniques, offset marketing costs and combine final shipments for efficiency.
Ultimately, Amazon has multiple cost- and time-saving measures in place that make it possible for the company to mark down book prices, which is why a book sold in a book shop can often be found online for about 20.0% to 60.0% cheaper.
Brick-and-mortar retailers feel the fallout
Compared with its US counterpart, the Book Stores industry in Canada (IBISWorld report 45131CA) is expected to have fared better over the five years to 2019, with industry revenue rising at an annualized rate of 2.2% to reach $2.4 billion in 2019. However, industry revenue is estimated to have decreased 3.7% and 3.2% in 2018 and 2019, respectively, with revenue also anticipated to decline during every year of the outlook period. Over the five years from 2019 to 2024, revenue for Canada’s Book Stores industry is projected to fall an annualized 2.5% to $2.1 billion.
It isn’t just that book stores in Canada are going to be making less money; there are now fewer of them, too. Canadian book stores that are no longer turning a profit are choosing to close their operations, with the number of industry establishments estimated to fall an annualized 2.3% to 1,578 locations during the current period.
Further exacerbating the long-term decline of book stores has been the larger decline of print media in general. While this isn’t solely attributable to the growing popularity of e-commerce and rising internet usage, the decline of print has been hastened by it. In this regard, e-books have been the primary avenue through which this decline has been encouraged. E-books can be read on smartphones and e-readers. As a more convenient and lightweight alternative to physical books, more people have gravitated toward these digital options in recent years.
Popular e-readers include Amazon’s Kindle, Barnes & Noble’s Nook and Kobo, which are able to store up to 30,000 books.
E-book sales rose from 16.9% of all domestic book sales in 2016 to 18.6% in 2017 (latest data available), according to BookNet Canada. Though the Book Stores industry is heavily influenced by e-book trends, digital sales are not relevant to book stores themselves, signifying an increasing level of external competition for operators that maintain retail storefronts. To combat this, many book store operators have begun selling e-readers and their associated accessories in their stores.
However, this has not been enough to offset the negative effects of e-commerce on the industry’s brick-and-mortar book stores, and likely won’t do so over the next five years.
Moving forward, demand from e-commerce is expected to remain strong and keep book stores from returning to historic levels, leaving book store operators scrambling to find alternative methods of remaining afloat.
Looking for related coverage on shifting Canadian media industry dynamics? Head to our Industry Insider to checkout our recent Analyst Insight discussing the Opportunities and Challenges for Video Streaming Services in Canada!
Edited by Sean Egan, Copy Editor
Infographic Design by Tafannum Rahman, Copy Editor