Over the past 20 years, the book retail industry has undergone seismic transformations, repercussions reverberating through the organization and distribution of book products. These transformations are characterized by the increased digitalization of retail stores, allowing the customers to buy products entirely online, without leaving home, which Amazon initiated by opening their online bookstore in 1995. This online business significantly reshaped the industry environment through the forces of reduced bargaining power of buyers and the high barriers to entry.
From approximately 5,500 retail stores in 7,000 locations in 1995 to nearly 1,700 stores in 2,100 areas in 2021, the last two decades saw the previously brick-and-mortar industry acquiesce to the online-favoring reality (Rosen, 2022). As streaming platforms displaced Blockbuster stores, Amazon has been steadily driving out independent physical stores by easing its customers into the new possibilities of online shopping. The customer behavior was now characterized by the ability to continue previous actions, such as preview, choose, compare, and “save to cart,” but faster, with additional abilities to read/leave customer reviews and door-to-door delivery. By luring customers with reduced physical constraints, time-saving, and low switching costs, with a limited number of competitors, Amazon’s online bookstore effectively increased its power over buyers, essentially lowering the buyers’ bargaining power. This allowed the company to not only pioneer a unique online subsector within the larger retail industry but also limit its profitability potential for independent offline stores. The current book retail landscape is essentially characterized by online bookstores superseding physical stores, with Amazon at the helm, carving out a monopoly for itself, with millions of loyal customers and high customer switching costs.
According to Statista’s 2019 analysis, 47% of book purchases happened online, primarily through Amazon, with wholesalers, libraries, Barnes & Noble, and independent bookstores accounting for the rest half (Kunst, 2022). Amazon essentially came to rule this other half of all book sales because of its willingness to lose profit for almost ten consecutive years to build the necessary online infrastructure. The underpinning of this Amazon infrastructure are carefully automated and highly efficient warehouses, delivery systems, and online services that holistically bring together a comfortable online purchasing experience, offering unique customer gains. In attaining a sizeable market share in online book retail alongside Amazon, a competing company must not only be willing to face many unprofitable quarters but also have the necessary capital and talent resources. These challenges might be escalated by regulatory challenges, training employees, and finding a unique selling point to achieve customer loyalty, which sets up high barriers to entry, as it requires a significant up-front investment. Furthermore, as Amazon’s financial struggles in the beginning indicate, incremental improvements in service efficiency do not effectively correspond to financial growth, emphasizing the high barriers of the online book retail business.
In summary, the book retail industry has significantly evolved since 1995, as online retail represents nearly half of the market share, with Amazon at the vanguard, leading to the downfall of brick-and-mortar stores. While this evolution enabled a more comfortable customer experience that introduced new opportunities and alleviated inconveniencies of physical shopping, it also reduced the buyers’ bargaining power due to their growing dependence on monopolistic Amazon. Furthermore, along with this notion of evolution, this cut-throat online industry has driven out most of Amazon’s competitors almost with a “natural selection” approach due to the high barriers of entry that require substantial investment.
References
Kunst, A. (2022). Online purchases by category in the U.S. in 2022. Statista.
Rosen, J. (2022). The changing world of bookselling. Publishers Weekly.