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Dog days for the chains

24 July 2006

The bookshop chains continue to report poor sales figures on both sides of the Atlantic. In the US Borders have just forecast a higher than expected loss for their second quarter, blaming it in part on retiring CEO Greg Josefowicz's pay package. They also announced lower sales in the US and a steep decline in sales at their UK company.

The new CEO George Jones said: 'This is not a broken business. It's a company that has a strong foundation in businesses that I am passionate about.' The stock market however reacted negatively to the figures and Borders' share price went down to a level not seen since 2003.

In the UK Simon Fox has been appointed as the new CEO of HMV, replacing the immensely experienced bookseller Alan Giles. But HMV has problems in both its areas of operation, music and books. The acquisition of Ottakars is going through, but publishers are concerned that Waterstone's will spend the next eighteen months absorbing the smaller chain, rather than sorting out its own problems. There's also still the possibility of HMV itself being taken over, although the current problems must make it a less attractive target.

Perhaps Simon Fox's background offers a clue to HMV's thinking on the way ahead. He comes from Kes Electricals, parent company of Comet. Although he doesn't have a retail background, he is experienced at online retailing, so perhaps the HMV board have now identified online bookselling as the company's biggest opportunity - and Amazon as the major competition. This is certainly a conclusion that many publishers reached long ago.

It never looked like a good strategic decision to close down the fledgling Waterstone's Online. With the benefit of hindsight it seems a big mistake. Waterstone's was not the only retailer to think that it couldn't compete with Amazon, which had by then already established its domination of the online bookselling market. But the subsequent boom in online retailing has shown that big bricks and mortar retailers have to have an Internet arm as well, even if it's mainly a defensive tactic to make sure that they can sell to their own shop customers through the Internet.

After the dotcom boom and bust it was easy for the book trade to think it could go back to business as usual. It has taken six years for the huge potential of the Internet to become apparent to everyone - and to smash that thinking to pieces.