Joseph Evans [email protected] Trade books in the pandemic Abi Watson [email protected] Fair retail ending Amanda Ahadizadeh [email protected] +44 (0)20 7851 0900 • The consumer books market has flourished during the 28 May 2021 pandemic: following early worries, publishers are reporting strong growth and profits • However, bookshops, the most important point of contact between the industry and readers, are facing their toughest challenge yet as ecommerce booms and continued home-working saps high street footfall • Publishers and authors are embracing new, online ways of promoting titles. These will require new ways of working, and are not substitutes for dedicated shops, which must be protected as much as possible Related reports: Value in volumes: Books, midlists and retail [2018-025] If your company is an Enders Analysis subscriber and you would like to receive our research directly to your inbox, let us know at www.endersanalysis.com/subscribers It is by now a familiar story: books, like many things that people can enjoy at home and at little expense, had an embarrassingly good pandemic. The Publishers Association reported that the consumer market saw 7% growth, to hit £2.1 billion. Fiction sales are sometimes seen as a good indicator of actual engagement with reading, as they are more likely to be bought and read by the purchaser, and they grew 16% to £688 million. So far, the strong performance has continued through the first few months of 2021. Figure 1: Adult fiction sales from UK publishers (£m) 688 700 616 606 594 588 582 600 500 400 300 200 100 0 2015 2016 2017 2018 2019 2020 [Source: Publishers Association] At the same time, bookshops have been forcibly closed and sales rushed online, bringing forward a moment of reckoning for the key retail layer that sits at the heart of how trade publishing has operated for years. Authors, agents and publishers are nervous about what will happen if the pandemic demand glut recedes, and there is not enough of a return to the high street to support book retail as it exists today. Already, WHSmith (c.38% of UK retail book-selling outlets), has announced the closure of 25 stores this fiscal year, with a further 420 leases due for renewal in the next three years. Likewise, Waterstones CEO James Daunt warned in February this year that c.80 of its 290 shops could close when leases expire unless business rates were reduced, which would potentially reduce its footprint by up to 27%.1 In order to understand what happened and what it means for the future of the industry, we interviewed a range of people from across the value chain that joins author and reader. These were mostly on background to allow interviewees to speak freely. Though no two perspectives on the trade will ever be identical (a point we heard more than once), there was a surprising amount of agreement on the key areas of what happened in the last year, what the big risks are, and even the future of the industry. Below, we sketch the consensus view of what happened since the start of the first UK lockdown. Then we assess the challenged traditional reader touchpoints, bookshops foremost among them. We then explore new ways of reaching readers, and the implications for publisher operations. Our recommendations are summarised on page 16. 1 The Times, Landlords call time on rent rebels, February 2021 Trade books in the pandemic: Fair retail ending [2021-060] 2 | 17 The facts: what happened during the pandemic? Points of agreement • Sales crashed at the start of the first lockdown. Publishers went into crisis mode, cancelling launches and furloughing staff • Subsequently, however, sales more than recovered, with annual growth rates much higher than would be expected in a good but ‘normal’ year • Sales shifted heavily to online, particularly after Amazon ceased prioritising essentials (Amazon’s ‘essential’ category included children’s books, but not other books) • What people bought changed rapidly, with certain genres and types of books doing particularly well: children’s (especially educational); backlist and classics; titles about pandemics or infectious diseases; manga and graphic novels more recently • All formats grew, but there was no lasting shift away from print beyond the start of the first lockdown, when bookshops were closed and Amazon deprioritised books. Ebooks were back to substantial growth for the first time in years Points of difference There was disagreement over: • Whether Amazon swept up all the sales moving online in proportion to its existing online market share, or whether an outsized proportion of those new online sales went to other retailers. In other words, whether the market of online physical book retailers became more competitive or not • Relatedly, whether existing physical bookshops had transitioned effectively to selling online • Whether debut authors or title launches performed worse than usual, or about the same As a result of this generally positive story, several publishers have seen bumper years, particularly at the bottom line: Hachette owner Lagardère’s UK revenue rose 9.9% in 2020;2 Penguin Random House worldwide grew 4.6%, with EBITDA up 23.3%; HarperCollins grew global revenue by 7.9%, and while segment EBITDA was flat for the year, in the second half it was up 56%. Bloomsbury reported 10% sales growth in the six months to the end of August 2020, with profits up 60%. Books are objects, so the physical supply chain is key What this highlights is the book’s unique status as a home entertainment category that is also a physical object. The sector was therefore buffeted by two of the most important trends of the past year: the boom in home entertainment as a safe, legal and enjoyable way of spending leisure time and disposable income; and the explosion in ecommerce as non-essential retail was closed and the public avoided mixing. Other forms of home entertainment have moved away from physical delivery: video, music, games, and, less completely, journalism. These are no longer physical objects, bought in physical shops. Books saw a demand boom in part because of their status as a physical object: with home-working and home-schooling (not to mention doom-scrolling), books represented an escape from screens, notifications and a troubling pandemic reality. Indeed, our interviewees suggested that there was no significant shift from print to ebooks, though audiobooks continued their strong growth.3 But this status as a physical media also meant that books’ usual route to readers was disrupted. Straightforward logistical concerns about fulfilment 2 Hachette UK grew a spectacular 19.8% in the first quarter of 2021, driven by sales of the Bridgerton series which enjoyed a popular Netflix adaptation. 3 Figures from the Publishers Association suggest the consumer market went from 17% digital by value in 2019, to 20% in 2020. Trade books in the pandemic: Fair retail ending [2021-060] 3 | 17 were therefore widely reported; this was a particular problem for titles printed in China (where colour printing has a marked price advantage to Europe or North America) given its severe early shutdown. Still, compared to other markets, the UK supply chain held up impressively well, particularly given the collapse of wholesaler Bertram’s in June 2020. Bookshops play a vital role, and are under threat This status as a physical item, bought at retail, underscores how central bookshops are. The role of dedicated booksellers, both chain and independent, was frequently highlighted by every person we spoke to for this report. They are seen as the most important point of contact between the industry and its customers. The key function of sales and marketing teams at publishers is to sell books to bookshops, to get them to stock and promote their titles. Whether bookshops embrace a title is what makes the biggest difference to sales, and is crucially important for the midlist: books that won’t inevitably sell a boatload (as the next book from Bill Bryson will), but could have broad appeal if they’re pushed in front of a receptive reading public. As we have written previously (see: Value in volumes: Books, midlists and retail [2018-025]) the decline of the midlist is a perennial fear, and a trend that has been exacerbated by the pandemic. While overall sales volumes held up in 2020, this view was distorted by bestsellers on Amazon and supermarket chains (which tend to favour books that are already selling well), while midlist authors suffered. Figure 2 shows the importance of the frontlist titles outside the top 100 for revenue in 2019. These are important categories that struggled during the pandemic, though backlist and big sellers more than made up for it. Figure 2: Book sales by rank and year (2019) 60% 51% 50% 40% 29% 30% 25% 22% 20% 17% 18% 14% 10% 8% 10% 5% 1% 1% 0% 1-100 101-1,000 1,001-5,000 1-100 101-1,000 1,001-5,000 Published 2019 Published prior years Titles Value [Source: Enders Analysis, Nielsen BookScan] This trend was exacerbated by the glut of delayed and planned titles published later in the year—an additional 600 books were published on ‘Super Thursday’—with greater competition squeezing midlist sales.4 We note that this does vary by publisher: Usborne’s midlist and backlist sales grew during the pandemic, in particular demand for phonics, activity and sticker books.5 More worrying still is the upstream picture: there is a commissioning timebomb. Anecdotally, agents have noted a big squeeze on midlist titles, while advances for debuts were either very high or very low, with 4 The Observer, Literary world overwhelmed by 600 books to be published on one day, August 2020.