INTERACTIVE: BEHIND THE HYPE/AMAZON: Seattle’s Amazon could threaten booming UK booksellers - The phenomenal success of the internet bookseller is a worry for the UK’s big players

There’s never been a more exciting time to be in the UK bookstore business.

There’s never been a more exciting time to be in the UK bookstore

business.



The big players in this country - Waterstone’s-Dillons and W. H. Smith -

are about to be joined by one of the world giants, the US-based Borders,

which has plans for an Oxford Street megastore. Waterstone’s has similar

plans and has also been looking to take over imposing premises at 203

Piccadilly, soon to be vacated by the Simpson department store. And

there’s no better evidence of confidence in the sector than Waterstone’s

award-winning press campaign of this and last year.



But there’s a cloud on the horizon - the Amazon virtual bookstore will

formally launch a UK service this autumn. Based in Seattle, amazon.com

offers upwards of three million US titles. The website allows you to

search for books by author, title, subject or certain keywords and you

can browse through titles arranged in 28 different subject areas. You

can call up reviews and bestseller lists and have recommended titles

regularly flagged for you according to stated preferences. Having

selected your choice of books, you key in your credit card details and

the goods are posted within 24 hours.



In the US, it is not only the top online bookseller but the leading

internet retail operation (it is diversifying into CDs) and one of the

top 20 most visited websites. The numbers are truly staggering. Sales

for the whole of 1997 were dollars 147.8 million, up 838 per cent on

1996, its first full year of trading.



Amazon took 27 months to serve its first million customers and less than

a further six months to reach its second million. Cumulative customer

accounts were 2.26 million at the end of March this year, with repeat

customer orders representing 60 per cent of order volume.



Perhaps surprisingly, Amazon is still losing money - but not for long,

given those growth rates. And one of the reasons it is not in profit is

its desire to expand through acquisition. In March, it purchased two

fledgling European cyber bookstores: Telebook in Germany and the UK’s

Bookpages.



They will soon be relaunched as Amazon operations.



Unlike for some products, the internet is a good retail environment for

books. You don’t need to squeeze them to see if they are ripe or try

them on before purchasing. And despite the dreary anorak tag, in

reality, internet users are well-educated, of above-average income and,

most importantly, they buy many more books than the population

average.



That doesn’t entirely explain Amazon’s success though. It’s down to

three big factors: good service, excellent prices and prime location. As

in conventional retail, this last aspect is a vital consideration, and

Amazon has an all-but ubiquitous presence on the web, having signed

deals with the most popular search engines, including Yahoo!, Netscape,

AltaVista and AOL. Most internet users are confronted with an invitation

to use Amazon every time they go online. As for discount - in the US,

Amazon prices are 40 per cent lower than bookstore prices.



Will it work in the UK? The portents are favourable. The UK is one of

the world’s top four countries in terms of per capita book purchase (the

other three are Germany, Japan and Israel). The population is 20 per

cent that of the US, yet its publishing industry produces twice as many

titles each year.



Then there are the familiar rallying cries of the technophiles - the UK

is second only to the US in penetration of the internet and the rate of

uptake is faster than for previous electronic innovations such as the

telephone and television.



That doesn’t necessarily drive a retail revolution. But price might -

and the UK is the most expensive book market in the developed world.

Simon Murdoch, the managing director of Bookpages, indicated recently

that the Amazon UK service he is shortly to start running would seek to

emulate its US price policy on this side of the Atlantic - though a 40

per cent discount target might be a little ambitious.



Are the conventional bookstore groups worried? They’re certainly taking

action. W. H. Smith recently purchased the Internet Book Shop while

Waterstone’s-Dillons is joining forces with Book Data.



However, many analysts believe their approach is defensive and

fundamentally flawed. Their primary business is in the high street and

they will always have to carry the overheads of those stores, no matter

how successful their online trading is. The bottom line is that they

don’t really want to cannibalise store trade, which needs decent margins

and high volume, especially if you’re trading on Oxford Street. But they

(and indeed, web sceptics in general) are about to get the fright of

their lives.



Budd Margolis, a London-based internet retail consultant, comments:

’Amazon is focused - it is only interested in servicing internet

clients. It doesn’t have any other stuff to worry about. High street

stores understand retail but find it difficult to understand how new

technologies will impinge not just on them but on the economy generally.

There just aren’t that many people out there who understand internet

retail.’



So, the much-vaunted revolution is upon us at last? Perhaps - but the

world isn’t going to be stood on its head overnight. Margolis adds: ’The

internet is four or five years away from hitting mass market momentum in

the UK, so it will not be a case of Amazon replacing the conventional

retail sector in the short term. But it will impinge on it. One day the

high street stores will wake up and realise they have lost 5 per cent of

their market. That will be enough to hurt them severely.



It might be the difference between profit and loss - and that can be

enough to kill a company.’



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