Book stores fight battle of the bulge as profits slump

It was party time last week at the 66,000 sq ft, seven-floor site of Waterstone's flagship bookshop in central London. But the first anniversary bash of Britain's biggest store, in the former premises of the outfitters Simpson's of Piccadilly, was a celebration of survival. For while book stores are getting bigger, they are not necessarily performing any better.

It was party time last week at the 66,000 sq ft, seven-floor site of Waterstone's flagship bookshop in central London. But the first anniversary bash of Britain's biggest store, in the former premises of the outfitters Simpson's of Piccadilly, was a celebration of survival. For while book stores are getting bigger, they are not necessarily performing any better.

Profits among all the major chains are falling. In July it was announced that Waterstone's sales were down 3.7 per cent and pre-tax profits fell more than a quarter to £37.2m in the 12 months to April.

Matters are unlikely to improve. Industry analysts predict that one of the big chain stores, perhaps Waterstone's, perhaps the US-founded Borders, will be driven out of the British market. And all the time a new US invader, the highly-regarded Barnes and Noble chain, is waiting in the wings.

"We will see more of these megastores, because Borders haven't finished yet, and there's still the likelihood of Barnes and Noble coming over," said Sydney Davies, trade and industry manager at the Booksellers' Association. "Anything they do will be on a large scale. And if they do, companies like Waterstone's have to fight back in kind."

Curiously, Waterstone's success and the battle of the bulge with Borders have not been the death knell for the independent bookshops that many feared, and the smaller, often family-owned stores are fighting back.

Admittedly it was only yesterday that Compendium, an independent in Camden Town, north London, selling academic books and a vast stock of US imports, poetry and women's writing, was forced to close. "We've decided to quit while we're ahead," said a member of staff. "It's the culmination of a lot of factors. We've lost some academic trade to the internet and the area has changed. You can't move at weekends for Japanese tourists, none of whom are interested in what we have to sell."

But Compendium is the exception. Elsewhere in Camden Town and nearby Kentish Town there are several small, independent stores, specialising in travel or gay and lesbian literature, or, in the case of the generalist Owl Bookshop, fighting the chains across the market. According to Mr Davies, the numbers of independent book stores have actually remained steady - to survive, they have begun to specialise.

It seems there will always be room for the little independent. In the Sunday Times list of Europe's top 100 internet businesses, the only bookseller was not any of the major chains, but the newly created countrybookshop.co.uk, based in Bakewell, Derbyshire. It employs about 25 people.

The main fear factor for all book stores, both great and small, is the internet. The luxury of ordering books from the comfort of your own living room has sent a chill through stores around the country.

But again, like any thriller worth its jacket price, the tale of the book and the internet has revealed an unexpected twist. It has been far from plain sailing for Amazon.com, the leading internet bookseller. Earlier this year Amazon.com made 150 people redundant, the company's first sackings since it opened in July 1995 .

Last June its founder, Jeff Bezos, personally lost around $1bn after an investment bank warned that the company might not survive, highlighting Amazon's "weak balance sheet, poor working capital management, and massive negative operating cashflow". These were, said the report, "the financial characteristics that have driven innumerable retailers to disaster through history". That same day, the company's shares lost 20 per cent of their value, and 51 million of them changed hands. It does not end there. US newspaper investigations also revealed that around 20 per cent of the company's assets consist of balance-sheet "goodwill".

The company is now moving into selling toys, and cooking and home improvement items on the internet.

Last week, Mr Bezos invited hundreds of analysts and investors to a conference in Nevada in a desperate attempt to dispel fears that the company could never make money.

Despite Amazon's experience, analysts believe the internet's long-term viability is assured. Five per cent of books were sold online last year, a share which is set to rise to more than 17 per cent by 2004, according to market research agency Verdict. Nearly all major book chains now have their own websites.

The birth of the e-book - highlighted by Stephen King's much publicised The Plant, where readers buy downloads of each chapter - and print-on-demand -where customers can order short runs of out-of-print books - could prove another significant pressure.