Borders Patrol

Book sales are surging. Superstores are booming. And the American Booksellers Association doesn't like it.

Nick Gillespie from the July 1995 issue

Simone Wallace can appreciate the vagaries of retail competition, even if she doesn't exactly have the time or the inclination to relish their nuances. Wallace is co-owner and co-founder of the Sisterhood Bookstore, a small (1,200 square feet) but impressive Los Angeles shop that specializes in women's studies, gender issues, and feminism. Over the past 23 years, the store had developed a steady and appreciative clientele.

Then, last fall, the nightmare that troubles the sleep of small bookstore operators across the nation suddenly came to life for Wallace: Directly across the street, a two-story Borders Books and Music superstore opened for business. The new store casts a long shadow, literally and figuratively. Look out the entrance to Sisterhood and all you see is Borders.

Borders is one of several national bookselling chains that are rapidly transforming the American bookstore from a quaint, genteel establishment into an expansive, book-lover's pleasure dome. The typical Borders store, says Dan Conetta, vice president of marketing for the Ann Arbor, Michigan-based company, carries 120,000 book titles and more than 2,000 magazines. The L.A. store is bigger still: It fills 43,000 square feet, boasts over 140,000 book titles, plus 50,000 music selections, a coffee bar, live music, reading groups, a carpeted play room for toddlers that's filled with toys and stuffed animals, and free underground parking. As one awestruck woman put it on the store's opening day: "This is the Disneyland of bookstores."

So far, Sisterhood has managed to keep pace, if just barely. Since Borders opened last October, Wallace says, "Business has been flat. Sales aren't up or down. We're working three times harder, though, and since we're not making more money, we can't afford to hire more help.

"In some ways, though, [the competition] has been positive," grants Wallace. Sisterhood has responded by increasing the number of author signings, creating a frequent-buyer program, sending articles and press releases to the local papers, attending conferences and seminars geared to their stock, and beefing up their textbook sales at nearby UCLA. Sisterhood's customers, she says, are definitely benefiting from the innovations born of the looming presence across Westwood Boulevard. Still, the competition is taking a toll. "I don't know if having stressed workers who are working many more hours is good for morale. Our quality of life is going down," says Wallace.

The cavalry, however, is charging into this particular retail war on behalf of independent
bookstore owners. Last May, the American Booksellers Association, a trade association that represents over 4,500 bookstores--chain and independent alike--filed a federal antitrust lawsuit against four U.S. publishers. The suit claims that Houghton Mifflin Company, Penguin USA, Rutledge Hill Press, and St. Martin's Press are violating the Robinson-Patman Act of 1936 by granting "unfair" and "illegally preferential" volume discounts and promotional allowances to national bookstore chains and "warehouse buying clubs." A fifth publisher, Hugh Lauter Levin Associates, was named in the original suit but reached an out-of-court settlement in February. David Kaye, general counsel for St. Martin's, dismisses the suit, saying, "I think it's all bullshit."

While the lawsuit may help independent bookstores secure through the courts what they may be losing in the marketplace, it is unclear that bookstore customers will benefit from the legal proceedings. Indeed, the ABA case appears to be an object lesson in how antitrust laws are used to protect embattled competitors rather than benefit consumers. As economist Paul Samuelson--hardly an enemy of antitrust legislation--has written, Robinson-Patman "make[s] competition more imperfect....Instead of concentrating on bringing [prices] down for the consumer, it concentrates on keeping many firms in business, even though some may be inefficient."

The ABA lawsuit shares many of the same issues with a recent Federal Trade Commission investigation charging HarperCollins, the Hearst Corporation, Putnam Berkley, Random House, Simon & Schuster, and Macmillan with giving illegal discounts to chain stores. The FTC investigation team, which started its work in 1988, reached an agreement with the publishers in 1992, but the terms have yet to be approved by the full commission or made public.

Under Robinson-Patman, whenever a seller offers a similar product to various buyers, any difference in price--including volume discounts--must be "economically justified" and extended to all buyers on a proportional basis. Otherwise, the seller is considered to be engaging in "anti-competitive" behavior, and a victorious plaintiff can be awarded treble damages. (The ABA, according to Executive Director Bernie Rath, "is not seeking damages, but only injunctive relief.")

Although Robinson-Patman is ostensibly designed to foment competition, it is almost universally decried by antitrust scholars because it severely restricts market forces and effectively punishes successful and innovative firms. By making virtually every price discount and promotional allowance subject to judicial review, it creates an environment in which the benefits of a more efficient retail organization and greater economies of scale can be negated, if not lost altogether in penalties. Robert Bork, for once squarely in the mainstream, has memorably called the act "the misshapen progeny of intolerable draftsmanship coupled with wholly mistaken economic theory. One often hears of the baseball player who, although a weak hitter, was also a poor fielder. Robinson-Patman is a little like that. Although it does not prevent much price discrimination, at least it has stifled a great deal of competition."

And indeed, while the ABA lawsuit names publishers, its real target are the beneficiaries of the alleged preferential discounts--chain bookstores. Although the ABA is quick to characterize the conflict in populist terms--"American culture has more riding on this than any other case I've heard of," says ABA President Avin Mark Domnitz--it is tough to shake the feeling that the legal action has less to do with promoting competition than with preserving the status quo for independent bookstores. "Right now, the independent is in a perfect bind," says Domnitz. "He can not discount, look like a thief, and lose his customers. Or he can discount, lose his margin, and go out of business. Either way, he loses."

"The ABA should be working for independent bookstores," says Sisterhood's Wallace. "I think that if there's unfair practices and discounts, it's good that the ABA--to which I pay a lot of money a year--is doing something."

Among the things that are getting better in America are bookstores," declared columnist and TV commentator George Will on a special segment of the C-SPAN show Booknotes. "There's a chain--I don't mind giving them a big plug--called Borders....You go there and you find people who love books."

The show's other guests, eminent historians David Halberstam and David McCullough, shared Will's enthusiasm for Borders in particular and contemporary bookstores in general. "I don't know how many voices there are to choose from in a bookstore like Borders. Thousands?" asked McCullough.

"A hundred thousand," said Will.