Chain Heat

Are book superstores a threat to the reading public?

The next time you go into a book superstore run by Borders or Barnes & Noble--stop to smell more than the gourmet coffee wafting out of the signature espresso bar. Stop to soak up the larger environment: The typical Borders superstore, for instance, stocks about 150,000 different titles and 50,000 music selections (there are videos for sale, as well). The magazine rack boasts about 2,500 different publications. The prices are about as good as they get: 10 percent off the list price of most hardcover books; 30 percent off New York Times hardcover bestsellers and other special selections; classroom and volume discounts; remainder bins piled high with books priced low.

There is a special area where kids can run riot, manhandling stuffed animals and pawing through other merchandise, while parents shop at a more-relaxed pace. Most days, the chances are good that there will be live music, an author reading, or some other event. Every day, customers are not merely permitted but actively encouraged to browse, to lounge about in abundant, strategically placed chairs and couches.

Soak all this in. Take a long pull off your double cappuccino and a quick nibble of your chocolate biscotti. And then, in the midst of such a scene, despair--for it all merely proves that "American culture is in jeopardy….Under the effects of the chains' buying power and economic concentration, it will suffer from a lack of diversity and choice."

That's the official position of the American Booksellers Association, a trade association that represents about 3,500 booksellers nationwide, as articulated by its chief executive officer, Avin Mark Domnitz, in Publishers Weekly. In March, the ABA, joined by about two dozen California booksellers, filed an antitrust lawsuit against Borders and Barnes & Noble in the U.S. District Court for Northern California. The suit claims that the superstores are getting from publishers illegal "extra discounts," "special terms," and a "whole range of various [advertising] and `promotional' terms not provided" to "independent" bookstores.

The ABA and the other plaintiffs are suing Borders and Barnes & Noble under the Robinson-Patman Act, a 1936 federal antitrust statute that forbids "price discrimination," and two similar California state statutes designed to prohibit "unearned" discounts to chain stores. If they prevail--and there is reason to believe that they will--they will gain a permanent injunction against the alleged special treatment, be eligible for triple damages on each violation, and have their legal fees covered by the defendants.

While the ABA's public-relations pitch about the case has focused on public-interest themes--"Independent booksellers bring diversity….I fear the day when what the public reads is controlled by a few power centers," Domnitz has said--there is a starker economic self-interest motivating the booksellers. Between 1991 and 1996, annual book purchases rose from $20.1 billion to $26.1 billion. But over the same period, independent bookstores' share of the market dropped from 33 percent to 18 percent, while that of national chains grew from 22 percent to 26 percent, in large part due to the growth in superstores. The ABA says preliminary figures for 1995 (the most recent available) show the failure rate for bookstores (about 77 per 10,000) is for the first time higher than the average failure rate for all U.S. retail businesses (about 73 per 10,000).

Such tough times make it easy to sympathize with the ABA and its "independent" allies, at least up to the point where they pursue remedies that will ultimately punish consumers. The Robinson-Patman Act, which mandates that any difference in prices offered to different buyers must be "economically justified" and extended to all buyers on a proportional basis, has rarely been confused with customer-protection legislation. As economist Paul Samuelson, a Nobel laureate and a proponent of antitrust legislation, has written, "Instead of concentrating on bringing [prices] down for the consumer, it concentrates on keeping many firms in business, even though some may be inefficient."

Indeed, the ABA has mastered the doublespeak of Robinson-Patman, which seeks to preserve competition by banning it. As ABA president Barbara Bonds Thomas put it in a press release, "If everyone was doing business in the same way, then there would be room for competition." Of course, if everyone was doing business in the same way, the ABA's much-vaunted diversity would cease to exist.

Similarly confused is the ABA's insistence that the vast selection Borders and Barnes & Noble stores offer is solely a function of competition with independent booksellers. Such an analysis ignores completely the role of consumer demand which, one presumes, is the major reason why bookstores, whether "corporate" or "independent," sell anything other than bestsellers (or, for that matter, sell books in the first place). It also ignores two of the major trends in retailing over the past two decades, both of which illustrate how consumer demand creates marketplace diversity. The first is the emergence of "category killers," stores that try to stock every possible product in market segments ranging from books to toys to home furnishings. The other is the near ubiquity of highly specialized niche boutiques that cater to rarefied tastes in goods such as coffee, personal-care products, and cigars.

Despite the economic or philosophical strength of its case, however, the ABA's chances look good. In Robinson-Patman cases, the courts typically rule that any difference in price is tantamount to "discrimination" and is hence actionable. More to the point, perhaps, in 1995, the ABA won a government consent decree against several publishers it then claimed were giving illegal discounts and other advantages to chains. And in 1997, Penguin Putnam, one of those publishers, agreed to pay the ABA $25 million for failure to comply with the consent decree.

If the ABA does win its current case against Borders and Barnes & Noble, it will have succeeded in its goal of "leveling the playing field." Such an outcome will indeed be a victory for independent bookstore owners, though not necessarily one for the reading public.