Booktopia Faces Collapse, But Bookshops Remain Strong in Australia

Booktopia, Australia's largest online bookseller, is on the brink of collapse. However, this does not signify trouble for traditional bookshops, which continue to thrive. Despite the challenges faced by online retailers, brick-and-mortar bookstores remain resilient and successful, adapting to market changes and maintaining their customer base. This situation highlights the contrasting fortunes of online and physical book retailers in Australia.

Boston Brand Media brings you the interesting news - At its height, Booktopia, Australia’s largest online bookseller, had a turnover of A$2.4 million, 5 million customers, and sold a book every 3.9 seconds. This week, it entered voluntary administration, following the axing of 50 jobs and the resignation of senior staff, including its chief executive. Shares had plummeted to 4.5 cents from about $3 a share in 2021.

Even at its peak in the 2022 financial year, Booktopia remained unprofitable. What went wrong?

Tony Nash, co-founder of Booktopia, once said, “I was never much of a reader.” He defied the book industry’s expectations of a bookseller. The Australian bookselling business operates on small profit margins, driven by a love of books.

Nash saw the book trade as a business opportunity during the early days of online selling. At a booksellers’ conference early in the Booktopia venture, Nash viewed his local competitors as lacking business acumen: “These guys have no idea.”

Yet, shortly after its 20th anniversary, Booktopia has gone into receivership. In contrast, independent and local chain stores have shrunk in number but are holding up reasonably well.

How has a data-driven, market-focused business failed, while traditional book businesses continue to thrive?

“It’s not that bookshops aren’t viable businesses,” Robbie Egan, chief executive of the Australian booksellers association BookPeople, told the Sydney Morning Herald last month, “it’s that Booktopia appears not to be.”

The rise and fall of Booktopia Booktopia’s story is a classic rags-to-riches tale. A software developer by training, Nash, along with his brother Simon and brother-in-law Steve Traurig, capitalized on their early knowledge of the internet and Google search practices. Nash initially ran Booktopia as a side project, investing $10 per day from the family business.

Founded in 2004, the company grew rapidly, turning over $2,000 in the first month and $30,000 in the fourth. It moved into a larger warehouse in 2014 and by 2018, it was shipping 30,000 parcels per day.

The COVID-19 pandemic lockdowns gave people more free time at home, boosting online trading. By 2020, Booktopia was listed on the ASX.

Booktopia’s fate is the latest chapter in a history of large-scale booksellers failing. In the 2010s, the global “megastore” Borders failed in Australia. Contrary to initial fears that it would drive Australian-owned stores out of business, it proved short-lived.

These megastores were squeezed between two types of competition: online booksellers like Booktopia and the local handselling of independent bookstores.

Unlike a physical bookstore, where space constraints necessitate keeping a handful of copies of a limited range of “frontlist” (recently published) titles, Booktopia lists millions of titles on its website and holds around 150,000 in stock.

Booktopia touted its predictive sales algorithm as a competitive advantage, allowing the business to manage stock levels and allocate advertising spend by monitoring and forecasting product demand in real time.

Nash described it as a computer company that just happened to sell books. In contrast, physical bookstores tend to rely on publishers’ sales representatives and their own assessment of their local customer base to make stock choices.

Why is Booktopia collapsing? The main competition for Booktopia is not physical bookstores but international online booksellers. US-based Amazon has captured more of the Australian book market in recent years. Much of Booktopia’s early rise happened before Amazon started trading in Australia.

Low-cost, operating at an international scale and highly competitive, Amazon and, before it, Book Depository forced Booktopia to match their discounts. In particular, Book Depository was able to drive down prices by providing free shipping through a partnership with the UK Royal Mail, until it ceased operating in 2023.

Boston Brand Media also found that, Booktopia’s earlier growth led it to over-invest in its warehouse capacity. In 2023, it doubled its warehouse space and introduced automated packing. Coupled with inflation-related increases in running costs on rent and electricity and a post-COVID slump in book sales, this investment has further eroded its margin.

Perhaps Booktopia’s greatest mistake was undermining the confidence and trust of its customers. Allegations of misleading advertising plagued the company, with titles promoted as “in stock” taking several weeks to be delivered and occasionally arriving damaged. The CEO blamed these issues on stock bottlenecks during peak periods.

Adding to the problem was Booktopia’s decision to give customers only a two-day period to seek a refund or replacement for damaged or faulty orders. Deeming this not a “reasonable time,” the Federal Court last year ordered Booktopia to pay $6 million in penalties. This severely damaged consumer confidence, driving business to its competitors.

For those concerned with the health of the local publishing industry, Booktopia’s demise is no cause for celebration. “They serve a really important role in supporting Australian authors,” Egan told the Sydney Morning Herald last month.

Unlike Amazon, Booktopia was committed to the local publishing industry. It chose to purchase from Australian publishers over their international counterparts where possible and supported Australian authors.

Its ability to offer millions of titles also allowed consumers to see and access backlist titles, increasing the sales potential of a publication over time.

While Booktopia’s demise might shift some market share to other local bookstores, it is more likely to benefit Amazon, which has no commitment to the local industry.

For questions or comments write to writers@bostonbrandmedia.com

Source: theconversation‍