The World Is Flat and a River Runs Through It

Where were you when you realized that the world was flat? This is one of the questions that NT Times op-ed columnist, Thomas Friedman, poses in his best-selling book, The World is Flat: A Brief History of the Twenty-First Century. While this question initially doesn't seem to have the significance of, say, Where were you the day JFK was shot?, on further reflection it may. For myself as a bookseller, I became aware that things had flattened when, just before Christmas, Amazon announced that it had received 1.8 million orders in a single day! Staggering. I also realized it when my wife lined up to buy a U2 concert ticket for our son and reported later that there were people in line who were also on-line with their wireless computers and on their cell-phones trying to buy tickets.

What does Friedman mean by a flat world? Basically he argues that the explosion of computer-based technology coincided with a series of historical events that allowed India, China, and other countries to join a global-supply chain. This chain brought into being a new middle-class in these countries and gave millions of new people a stake in the global economy. In a triple convergence, business developed horizontally so that a new playing field came about with new ways of doing business. Onto this playing field came literally billions of new players from China, India, and the former Soviet Empire. Whether one likes it or not, this change is a reality, and Naomi Klein or Bill McKibbon to the contrary, and barring something like an al-Qaeda nuclear bomb, the process is irreversible. In the long run Friedman thinks that this is for the best and is the only way possible to lift the hundreds of millions that are mired in grinding poverty.

Certainly Friedman is aware of the drawbacks of globalization. This flat, frictionless world makes global businesses hum but it also can destroy the local distinctives that give us a sense of community and place. A Minneapolis friend complained to Friedman,

"Everything is by e-mail now," he said. "I am dealing with a young kid at [one of the biggest retailers in the nation], and he says, 'Just e-mail me your bid.' I've never met him. Half the time he doesn't get back to me. I'm not sure how to deal with him...In the good old days, I used to stop by the office, give the buyers a few Vikings tickets. We were friends...Tommy, all anyone cares today is about price."

I have spent my last 24 years working in a bookstore. The flattening world has played havoc upon my book-selling world in just the past two years. At times I think our store has become a well-stocked showroom for Amazon. Customers will stand in front of a shelf comparing prices on-line through the wireless network in the building. I've heard of students ordering books on-line and even unpacking them in the classroom. A brick-and-mortar store is extremely vulnerable in this kind of environment. A local bookstore needs local expertise on staff in order to operate. Most of the inventory needs to be paid for long before it is sold. In contrast on-line sellers on average simply broker the sale and drop-ship it from a supplier without actually being in possession of the book. The economies of scale are vastly different and the cyberspace seller is able to skim the cream off the top.

The optimum income statement for a bookstore doing $1 million and showing a net income of 5% a year would typically look like the following:

Income
Revenue: 1,000,000
Cost of Book Purchases: -600,000
Freight In: -30,000
Gross Income (before expenses): 370,000

Expenses
Wages & Benefits: 200,000 (7 full-time equivalent employees)
Rent & Utilities: 60,000
Advertising: 15,000
Office Supplies, Bags, etc.: 15,000
Bank & Credit Card Charges: 12,000
Misc. Expenses: 18,000
Total Expenses: 320,000

*Net Income: 50,000

You can see why there are so few bookstores opening in a neighborhood near you. And this is a best-case scenario. Local brick-and-mortar bookstores have to purchase inventory that they don't know whether or not it will sell plus they need to maintain local expertise. Say, an average employee salary not including benefits is $25,000 and the employee takes home $21,000 per annum. In an urban area rent for a modest one-bedroom apartment can easily run $1,000 per month. If the average rent of an employee's apartment is $1,200 (some have children) then rent is running almost 70% of an employee's take-home pay. Again, this is a best-case scenario. In a flat world the internet plays havoc with this scenario. Internet book brokers don't have the overhead that a traditional bookstore has. Thus they can operate on very thin margins. If a bookseller is forced to add on average an additional 10% discount to sales in order to compete and keep revenue at $1 million then net income easily becomes -$50,000 instead of +$50,000. The bookseller is then forced to slash wages and expenses.

Recently I talked to another bookseller who painfully had this to say:

Is there any hope for us as booksellers? Are we going to be forced to sell a lot of knick-knacks with just a few books? I'm not interested in doing that. I'm paying $5,000 a month rent for 2,000 square feet. I don't know whether I should renew the lease when it is up.

After reading Friedman I am certain that the changes in book-selling are permanent. But I do remain hopeful. Local independent bookstores remain watering holes and many people continue to love to browse the shelves. For Christians books have been important tools of the Holy Spirit and I'm sure they will continue to serve a purpose within the Church as well as for those that are looking in from outside. But bookstores will need to rethink much of what they do and to retool their business.

To be continued....

Bill Reimer
June 22, 2005
bookblog@regent-college.edu