Buy the Book.

Black bookstores may be going the way of the dinosaur. Here's what retailers must do to survive and thrive.

ON A WARM SUNDAY AFTERNOON in mid-August, Sherry McGee stood near the front of her store, the Apple Book Center in Detroit, surveying the crowd of 50 or so customers. They had gathered to hear author Colin Channer read from his first novel, Waiting in Vain, a culturally rich love story that had debuted on the Blackboard best-sellers list at No. 1.

"What would you like me to read?" Channer eagerly asked his mostly female audience. "All of it," shouted several readers, giving both author and bookstore the kind of enthusiastic endorsement that advertising could never provide.

Any other day, McGee and her staff of 13 full- and part-timers would be hawking the more than 25,000 literary titles inside the spacious, brightly lit store to customers directly. But the former marketing and management professional understands that no one can sell a book like its author, and understanding what makes books sell is the skill that has fueled this black-owned bookstore's success.

Two years ago, in the midst of independent retailers decrying the loss of their customers to super bookstores like Barnes & Noble and Borders, McGee not only opened Apple, but began a thriving business. Housed in a 3,500 sq.-ft, space, replete with reading couches and posters promoting new releases, her store generated more than $1 million in gross sales last year. Although she admits that independent booksellers are in a fight for their livelihood against encroaching chain stores, McGee plans to open a second store in downtown Detroit by early spring.

"Chains have become a big factor," says McGee. "Here are black bookstores, better able to focus on black readers, but harder pressed because we're competing against 70,000-sq.-ft. stores with tons of inventory and better discounts."

The chain stores' decision to enter the African American market is having more than a nominal effect on black-owned stores. "Many black bookstores have closed," says Max Rodriguez, publisher of the Quarterly Black Review of Books (QBR). "I can't say exactly how many, but I know that when we go to deliver QBR to bookstores, we've been getting back notes saying the stores no longer exist. That's been happening rapidly over the last two years," he adds.

Most of the challenges facing black-owned bookstores are not unique. "I've been telling [black] stores, `you've been thinking of the loss of sales as a personal problem, but it's a problem with indepent, dent bookstores across the board,'" says Manie Barron, a specialist in Africa American trade sales and marketing Random House in New York City. The issue of competition against the chains is simply a much newer one for black merchants who find their earnings shrinking or remaining flat while annual book purchases by black readers have increased some $115 million since 1990.

There are some strategies that the 400-500 black-owned book retailers--and those African Americans who may want to open a bookstore--can employ, however, to stave off the competition of large retailers and grow their customer base. These tactics range from identifying alternative financing to using technology to help market and sell book inventory.

BOOKSELLERS AREN'T JUST SMALL RETAILERS ANYMORE

The retail book business has changed a lot over the years. Once dominated by small mom-and-pop stores, 60% of all titles were sold by independent sellers 20 years ago. In 1991, "indies" sold over 33% of book titles, while major chains moved just over 22%. By 1997, independent stores sold only 17% of books while major chains moved over 25%. Besides competing with the chains, independent sellers have also lost customers to wholesale warehouse stores, online retailers and book clubs in recent years.

Chain megastores, however, are the independents' most immediate and threatening competition as these large retailers have focused on growing their customer based by luring niche-market readers. "The chains want a larger piece of the $296 million that blacks are spending on books on every year," says Faye Childs, creator of the Blackboard, a monthly list of best-selling, black-authored titles. Ironically, Childs created Blackboard eight years ago because there was a prevailing notion among publishers and mainstream booksellers that blacks did not buy books.

Chains like Barnes & Noble bring their formidable size and finances to bear offering substantial discounts on best-selling titles; multiple locations; roomy stores replete with couches, reading areas and cafes; and even catalogues that highlight black-authored titles. These attractive customer perks often prove too costly for most independent stores to duplicate, resulting in a decline in sales and profits.

That certainly was the case with Clara Villarosa's Hue-Man Experience Bookstore in Denver. Five years ago, a Barnes & Noble moved into her area. "I've probably had about a 15% drop in sales, and it's creeping upward," says the black store owner. "The superstores can discount at greater rates because African American writers don't account for a huge amount of their sales," explains Villarosa, who notes that chain stores offer as much as a 20% discount to lure customers.

TO SURVIVE, CAPITALIZE ON CUSTOMER SERVICE

While it may be impossible to offer the same low prices as chain stores, black bookstores, like other niche-market retailers, have the advantage of an already defined market. Servicing that market well is key to developing loyal customers and garnering support from publishers and authors.

James Fugate, owner of Eso Won Books in Los Angeles, says author signings can be very valuable to establishing and maintaining sales. "When we moved, it really helped us to have signings. One of our concerns was that we'd have a loss of business, but we didn't," says Fugate. In the first few weeks of Eso Won's move in 1996, the store hosted signings for such high-profile authors as Patti LaBelle, Tina McElroy Ansa and Johnnie Cochran.

"One major thing independent stores seem to have over chains is that people come in and ask the staff `what should I read?'" says Random House's Barron, who says that chain stores usually don't have as great a selection or as much knowledge of black-authored titles as independents. "Barnes & Noble may sell a good number of my books, but I've noticed that independent stores make more recommendations," concurs Channer, noting that a personal recommendation will help push his book when it's no longer a new title.

FINANCING IS THE HURDLE

Perhaps the most formidable challenge to getting and keeping a black bookstore running is financing. Getting a bank loan can be daunting, especially since the profit margin from book sales is narrow. "There are a lot of people who get into this business because they really love books," says Len Vlahos, communications director of the American Booksellers Association (ABA), a trade organization that advocates on behalf of independent booksellers. "It's a very romantic idea, but the average net profit is only about 1.5%. It's a very thin business," he cautions.

Acquiring a bank loan was impossible for Villarosa when she began raising capital to open Hue-Man in 1984. "I couldn't qualify. I had no background as a bookstore owner and I had no collateral," she recalls. As a result, Villarosa decided to solicit investors. To prepare, she took SBA classes, created a business plan for her proposed store and visited other bookstores across the country to learn the ropes. Initially unable to secure investors, Villarosa took on a partner, who has since divested. Together they contributed $40,000 of their personal savings to launch the 3,000 sq.-ft, store. During the first few years, Villarosa continued working part time as a therapist, so she could reinvest all of the bookstore's profits and grow the business. Raising capital became easier as the business began to succeed, says Villarosa, who now retains 60% ownership of Hue-Man and has 17 investors.

Like Villarosa, Fugate and co-owner Thomas Hamilton invested their own capital to finance Eso Won. But the duo decided to become booksellers first before opening a retail space. In 1988, they invested $4,000 to purchase an inventory of 300 black-authored titles.

"We were a weekend business, selling out of our homes and at festivals," says Fugate. Eight months into their venture, however, the partners had raised enough money and accumulated sufficient inventory to open a store. They spent about $6,000 in start-up costs to open their first location--a 900-sq.-ft. space on the top floor of a converted house. Besides rent, the cost covered utilities, installing phone lines and building bookshelves. Instead of taking salaries, the co-owners kept their full-time jobs during the first six months, opening the bookstore in the evenings during the week and all day on weekends.

But McGee may be one of the few black bookstore owners who've been able to secure bank and equity financing to launch a business. "When you borrow money from a bank, your cash flow can be so unpredictable that it can be difficult to build your business and pay back a loan," says Villarosa of why banks seldom finance independent bookstores. "Sherry had enough personal collateral, a dynamite business plan and was an expert in marketing and management," adds Villarosa about why McGee succeeded.

Despite her expertise, McGee's $500,000 capitalization proposal was initially turned down by her bank. "We would have been as unsuccessful as other bookstores without help from people like Comerica vice president Patricia Alexander. She really believed in us," says McGee. The banker revived the loan application and granted the future literary entrepreneur $250,000.

But to receive the bank loan, McGee had to raise the balance of her capital through other sources. She obtained 30% from the Wayne County Loan Fund, a local small business capitalization program in Detroit. She also had to convince the SBA to guarantee her loans.

Even entrepreneurs in a position to borrow bank capital should be clear about what they're getting into. "Every asset I own is tied up in this business," says McGee, who put up her home as collateral for the remaining 20%. She notes that her own financial well-being would be affected if Apple fails.

ACQUIRING INVENTORY IS THE GREATEST EXPENSE

Setting up a bookstore isn't usually as costly as McGee's. But the entrepreneur decided to locate in a space whose interior had to be constructed--to the tune of $50,000. She confesses, however, that the majority of her costs--one-half of the total--was spent on acquiring her 25,000 title inventory.

While purchasing books directly from a publisher allows retailers to acquire inventory at the lowest cost, most small bookstores don't purchase enough stock to get the premium discounts. That's especially true for black bookstores, which are often interested in only one or two titles by a major publisher. Consequently, most independents purchase the bulk of their inventory through book distributors. Although distributors offer smaller discounts, they have a wider selection of titles from a variety of publishers. Purchasing through a third party is one reason indies can't offer customers the same low prices as the superstores.

Publishers offer the largest discounts; the industry average is 40% on the purchase of 10-24 books, and 47% on 25 or more books. Distributors, on the other hand, offer average discounts of 40%-42% across the board.

"A distributor can give you a higher discount because you can combine your orders from several publishers," explains Kassahun Checole, president and publisher of Red Sea Press--a black-owned book distribution and publishing company in Lawrenceville, New Jersey, supplying to mom-and-pop stores as well as major chains. "Distributors are faster at fulfilling orders and bookstores can consolidate their credit line," says Checole. Booksellers can also usually negotiate special deals from distributors with whom they've developed good relationships.

But a disturbing problem for independent booksellers has been that even when purchasing large quantities of books directly from publishers, they have not reaped the same benefits--discount rates, terms and return policies--as chain stores. Vlahos of the ABA says publishers have often asked independent sellers to deliver payment of their invoices more quickly.

He says the philosophy is that independent bookstores' financial stability is more tenuous than the chains. Chains are larger customers, so publishers are reluctant to lean on them for payment, while the smaller indies can be pressured. But Random House's Barron says terms vary according to publisher, with most store owners having net 30 days from the end of the month in which the order was placed to pay, an industry standard.

Two recent lawsuits, however, could help put independents on a more equal footing with chains. The first was a lawsuit filed by the ABA and its members against Penguin, St. Martin's Press, Houghton Mifflin, Rutledge and Hughlauter Levin in 1994; Random House was added to the suit in 1996. It alleged the publishers violated antitrust laws by giving secret discounts, more favorable advertising and marketing reimbursements (co-op funds) and credit terms to chain stores. All six publishers eventually settled with the bookstores by signing a consent agreement that barred favorable treatment. Last year, Penguin made a voluntary $25 million settlement with the ABA after finding it had violated the agreement.

The second suit, which is still active, was filed by the ABA and 25 of its member stores against Barnes & Noble and Borders this past March. It contends that these chains solicited and received extra discounts from publishers, including special terms for new stores and expansions; obtained better credit terms than were available to independents; and solicited co-op funds on more favorable terms than were made available to independents.

Ideally, the two actions will position independent stores to better compete with chains. But even with legal protection, buying inventory will continue to be the most costly expense for booksellers.

BUILDING SALES

Of all the perks that chains offer, lower price is the one that usually attracts loyal customers away from independent stores. "If you talk to most black consumers, they'll tell you they don't like going to the chains, but it's where they get the best discount," says Barron.

While discounting best-selling titles as steeply as a chain may be impossible for small stores, Barron suggests that independents take a book that isn't moving quickly, make it a book of the month and substantially discount it. By purchasing deeply discounted backlist titles from distributors or publishers, or buying new titles by popular authors directly from publishers, indies can pass the savings on to customers in those first few weeks when readers are really buying up the title.

But industry experts and successful bookstore owners say one of the most important things independent stores can do is to tap into technological advances. "The more [a store] is able to computerize, the more it's able to become like a Borders Books, which grew [into a chain] because they were able to keep track of their inventory, rapidly reorder what ran out or return what wasn't selling," says Fugate, who began using the WordStock computer system to keep track of Eso Won's sales in 1995.

Computerizing is also the way to build a customer mailing list by databasing information each time a sale is made. That list can then be used to promote a store's events, sales and or send out newsletters.

Black book retailers must also look seriously at developing Web sites to expand their customer base by selling to those outside their immediate market area. "I think the expansion of superstores has already had its effect. The next area of competition will come from online sales," advises QBR publisher Rodriguez. "Online, virtual bookstores can help [black booksellers] with inventory issues because you don't actually have to have the inventory in stock," he says of the way booksellers can set up a site but use a distributor to fulfill orders.

That's the benefit that McGee hopes to reap with the launch of her new Web site (www. applebookcenter.com). "We'll be able to tap into the stock of a larger distributor. We'll be able to say we have 2.5 million book titles too."

But putting up a Web site is not an inexpensive proposition. It can range from as little as $300 to more than $4,000 just to build the site and another $250-$300 a month to maintain it. If a retailer wants to include chat-room facilities for online author chats, the venture becomes even costlier. Even the big online bookstores such as Amazon.com have yet to turn a profit selling via the Internet.

Small store owners like Eso Won's Fugate admit their venture into cyberspace retailing has met with little success. "It hasn't helped very much in terms of sales," Fugate says of his Web site launched in 1996. "But it's been very helpful in terms of advertising. Authors have found us, as well as people who lived 30 or 40 miles away and didn't know that we exist."

Villarosa experienced a similar level of disappointment after putting up a Web site for Hue-Man in 1995. "I made $300," she says. "Most African Americans aren't buying over the Web. We're more suspicious about credit card security," she posits. So she advises that, for the time being, black bookstore owners consider cyberspace as a vehicle to advertise rather than a means for earning revenue.

MARKETING SPURS DEMAND

Traditionally black booksellers have operated as grassroots, community-based businesses that depended more on word of mouth than advertising to draw customers. But advertising is becoming a necessity for indies to hold their own against the chain stores.

"Many black booksellers don't advertise because they automatically believe it's too costly," says McGee, who runs ads promoting her bookstore with newspapers, TV and radio stations. "We have customers who say, `We're just seeing your name all the time,' and I think, yes, because we advertise," says McGee, who admits to spending more on advertising than most bookstores. "I'm closer to 10% of gross sales, where the average bookstore, according to ABA data, spends more like 2%."

McGee advises, however, that booksellers with small budgets can still make an impact by looking for good deals and placing ads around key holidays such as Christmas, Kwanzaa, Mother's and Father's Day. She maximizes her own advertising budget by spending it with secondary outlets that give the best bargain in cost, audience size and demographics. For instance, instead of advertising with local TV network affiliates, McGee places commercial spots with Detroit's cable carrier. "We've gotten ads on stations like the Discovery Channel, the Learning Channel, Lifetime and CNN for as little as $10 a pop," she says, noting that these channels also tap more directly into the book-reading demographic that her store is targeting than do networks.

McGee also places ads with the Michigan Chronicle, one of the country's largest black weekly newspapers, because it's more affordable than either of the city's major dailies. Besides advertising on a local, top-rated classic R&B station, whose primary listeners are the key demographic that fuels black book sales--African American females, 18-49--McGee has built a monthly promotional partnership with the station. It includes a book club that is promoted on air, as well as co-sponsored book signings and other annual events that give Apple added exposure.

Most major publishers can provide co-op funds to help offset the expense of advertising their titles. Co-op dollars usually range from 3%-8% of a previous year's net purchases for promoting a publisher's tide.

While advertising can pull people into a bookstore, marketing is what creates loyal customers who won't abandon small boutique stores for the convenience and lower prices that chain stores offer. That marketing advantage is the personal relationship independents have with their customers and surrounding communities.

When Fugate and Hamilton started Eso Won, they promoted their store's grassroots image by paying to bring in self-published and small press authors--who often have no promotional tour budget--for book signings. While Fugate admits that the store seldom made money from these events, he says it proved an extremely effective means of growing its customer base and establishing an identity.

Although gaining new customers is key, Villarosa says keeping existing ones is equally important. This became clear when Barnes & Noble opened a store in HueMan's neighborhood. In response, she has begun giving her customers incentives to shop more frequently at her store. "When I got free tickets to a screening of How Stella Got Her Groove Back, I went down my list and gave pairs away to my best customers," she says of the recent incentive.

"The one thing any black bookstore owner has to know is that we're competing with upscale retail now. We have to provide the product, ambiance and good customer service," advises Villarosa. "It's a much more competitive environment than it was a few years ago."

A Book sellers Resources

Trade associations are often the best source of information and support for entrepreneurs launching new businesses. The American Booksellers Association (ABA) is a national membership organization that was created in 1900 to provide support and advocacy for independent book retailers.

Based in Tarrytown, New York, the ABA provides classes on how to finance and manage a bookstore, legal support, group health insurance benefits, financial and 401(k) plans, and discount purchasing for merchant supplies such as bags and autograph stickers. Membership costs $175 for bookstores in business less than a year; a fee schedule based on annual sales determines membership costs and dues for all other stores. Contact them at 800-637-0037 or visit the ABA Web site at www. bookweb.org for more information.

The Manual on Book Selling by Willard Dickerson Jr., offers advice on financing and managing a bookstore.

The booksellers trade magazine is Publisher's Weekly (www. bookwire. com/pw), which keeps abreast of the news, people and trends in the book publishing industry.