Amazon is the Worst

Amazon is the Worst

There are a hundred directions we could go with that headline, and there are volumes to be written on Amazon’s impact on retail markets, but here is what’s top of mind this week.

Amazon, as everyone knows, lets publishers sell books on its platform: hardcovers, paperbacks, e-books, and audiobooks .

When it comes to selling physical copies, a publisher’s dealings with Amazon are no different than with any other retailer, whether Costco, Barnes & Noble, Chapters/Indigo, or Ben McNally. Whoever sells the book, the publisher receives roughly half of the suggested retail price (the price printed on the cover) on each sale. So while Amazon makes a habit of seriously discounting popular new books, this matters only to consumers, not to publishers, who get their 50% regardless.

So everything’s cool, in the short run. In the long run, Amazon’s practice of selling bestsellers at nearly half off continues to fuck up bookselling.

Take a $45 hardcover like Barack Obama’s forthcoming memoir, A Promised Land, published by Penguin Random House. It is currently on sale at Amazon for $27 (all prices US unless otherwise noted). A big-three publisher I spoke with said that Penguin Random House almost certainly raised its cover price ($45 is high) to protect the perceived value of the book. If it had priced at the more typical price of $35, Amazon would have sold it for about $18, which is low for an 800-page hardcover. Selling an Obama biography for $18 bucks impacts the price of books generally, making it harder for Penguin Random House (which sells about a third of the trade books bought in North America) to hold prices across the board.

Two industry insiders I spoke with believe prices are creeping up generally in response to discounting by Amazon and its pseudo-competitors, Costco and Walmart (Amazon sells half the books in North America, roughly triple the share of Costco and Walmart combined).

This game of higher prices and big discounts is pushing independent booksellers and book chains to the limit.

Again, bricks-and-mortar retailers buy books from publishers at roughly the same 50% discount from cover price that Amazon gets. But actual bookstores can’t price competitively with Amazon. Returning to Obama’s book, it is posted at $27 on Amazon today. For each copy sold, Amazon has to remit half the cover price, $22.50, to the publisher, giving it a gross margin of $4.50. It then has to ship that book, which weighs almost three pounds, to the purchaser. That’s not cheap. A regular bookstore, even a chain like Barnes & Noble, would have to give UPS or the post office upwards of $12 to get the book delivered. Amazon’s distribution systems might be a little more efficient, but not enormously so. That means Amazon will make nothing on each sale. In all likelihood, it will incur a loss on each sale.

Amazon doesn’t much care if it fails to make money selling these books. It is more interested in making sure others don’t sell them. It wants to increase its already high market share until it has crippled or killed its bookselling competition.

Don’t bet against it. If you’re Chapters/Indigo, or Ben McNally, or Powell’s, or the Strand, you can’t hope to compete with Amazon on the big bestsellers, which are the ones that Amazon most aggressively discounts. You are literally selling the book at twice the price, or offering a small discount and selling at no profit. You’ll never come close to competing with Amazon on price. This effectively pushes you out of the picture for the high-volume books. You’re forever the toy store with none of the hot Christmas toys.

It’s worse in Canada. The higher prices demanded by US publishers are frightening when translated into Canadian dollars: Obama’s book is $55 up here ($38 on Amazon). Andrew Roberts’ 2018 Churchill biography sells for $60 in hardcover (it was $35 on Amazon until just recently; the paperback version is now out and the discounting has stopped). The price gap between independent booksellers and Amazon is unignorable at those prices.

Theoretically, it’s against the law for a big company to sell its products at a loss to drive competitors out of business, but competition law is slow to move (i.e., completely ineffective) when consumers appear to be getting a good deal, and half-price books delivered to your door overnight are a good deal.

Back to the long run. It’s not difficult to imagine a world in which Amazon increases its share of physical book sales to 70%. That should scare the hell out of publishers. You don’t want to deal with Amazon when it has something close to a monopoly. Just look what it’s doing in e-books in our upcoming article, Amazon is the Worst – Part II.

 

 

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