Why I think Deseret Book chose to cut off Seagull
A little over two weeks ago when I first learned (from multiple sources) that Deseret Book had announced to their employees that they were severing their relationship with Seagull Book & Tape I had mixed thoughts & feelings on the issue. Briefly some of my thoughts were:
- Way to go Deseret Book for actually making a hard decision!
- Glad to see that in a free market players can choose who they do business with
- How sad for Seagull—this may kill them
- It's kind of slimey for an 800 lb. gorilla to throw its weight around to knock off the competition
- Deseret Book (for legal reasons) will never fully articulate their reasons to Seagull
- I need to go re-read Hugh Nibley's Approaching Zion
- This may get messy; customers aren't going to be happy
I expected that the news would reach the media rather quickly (it can be seen as a sort of David vs. Goliath story; big bad corporate Deseret Book versus the peoples' Seagull). Frankly I'm surprised that it took fifteen days before the Salt Lake Tribune "broke" the story in the local media. I guess my humble readership doesn't extend very far. :-)
I worked for Deseret Book from 1998-2005 and built their online store (the L&F of which has since been redesigned), auctions, ticket, wholesale extranet and Nauvoo Temple Cam sites.
I got to do more than just create websites. I built the infrastructure to implement and integrate Deseret Book's Rewards Club loyalty program. When Time Out for Women began I was able to build a mobile point-of-sale system (from the ground up) that was portable, efficient, easy for volunteers to learn, and fast. I was also extensively involved with surveys and other market research (working with Cathy Chamberlain who came to Deseret Book from Wirthlin Worldwide).
For most of that time I thought I was going to be one that dying breed of people who spend their entire career (largely) with the same company. After the Internet Department was merged with the Information Systems Department, and after a series of turn over in managers, and being passed over repeatedly for promotion, I came to the conclusion that I'd reached the limit of my growth potential at Deseret Book and would need to look outside the company. It wasn't an easy decision to make, and I would consider going back if the right opportunity ever presented itself.
Que saudades.
During the years I was at Deseret Book I think it is fair to say that the retail division always viewed Seagull as a thorn in their side. When Ron Millett was CEO each major division basically did whatever they wanted. Everyone tended to live and work in their own silo (be it wholesale, retail or publishing) and the left hand often didn't know what the right hand was doing. Wholesale never cared how retail would be impacted or vice-versa.
One of Sheri Dew's many accomplishments as CEO (from my viewpoint) was her ability to increase inter-company communication (both from the top down & bottom up to between divisions) and to take a more wholistic global view of what the company is doing and needs to do.
The book industry is a tough business to be in these days. You are selling a low-priced comodity where customers are price sensitive and people are reading less and less than in the past. Many small "mom & pop" LDS bookstores have closed in the past few years. The advent of Amazon.com and deep discounting by national retailers has conditioned people to never pay full price for a book.
Seagull has always been Deseret Book retails nemesis. For years—at least the late '80s through the mid to late 90's—DB Retail held their noses in contempt ("we're a premeire full service bookstore! people will like our stores better!") and discounted (pun intended ;-) the threat that Seagull poised.
Collectively Deseret Book largely ignored Seagull until Seagull had grown to the point that they had taken away a major chunk of market share and had created the perception in the marketplace that Deseret Book was expensive and that they (Seagull) were affordable.
Deseret Book's price matching was instituted in an effort to stem the bleeding and to try and regain the trust that had been lost in the marketplace. Not all customers responded well—in surveys many said that they didn't like having to do the homework ahead of time to be able to know what price match to ask for. (Might as well go to Seagull since they perceived that they'd always be getting a low price there.)
Deseret Book responded to this feedback with a page out of Seagulls playbook. The revised campaign promised that Deseret Book would do the price matching homework upfront so you'd never even have to ask for it. You'd always get the lowest price—except that it would be logistically impossible to always be 100% up-to-date on the rock bottom lowest price of any book being sold in any brick & mortar store or online. And so sometimes someone would find a lower price and DB retail would honor it. And people are generally reasonable and understanding that its impossible to monitor an entire industry completely.
Really, what the "we'll do the price matching for you" had to do was match Seagull's prices. Seagull was perceived as being cheaper. Seagull mailed out regular catalogs that people would see and bring in. If Seagull's prices weren't matched the general public would view the marketing campaign as a fraud. When Deseret Book matched Seagull's discounts Seagull would often discount a little bit more deeply to stay ahead.
Naturally you'd expect this marketing campaign to increase gross sales, but if you are matching your deep-discounting competition's prices out of the chute on everything you both publish it shouldn't come as a surprise when your net margins go (way) down.
After some internal debate it was decided that there would be two different sets of retail prices, one for "competitive stores" and the other for "non-competitive stores." (I'm not joking about the "competitive" versus "non-competitive" labels. I imagine that is still how Deseret Book referrs to them internally to this day.)
The criteria for determining which stores were competitive and which weren't was fairly simple: the deciding factor was almostly exclusively whether or not there was a Seagull Book & Tape in the region.
In my opinion Deseret Book's decision was undoubtedly motivated by discounting, though I don't expect them (for legal reasons) to come out and say that. Seagull is who they have to price match. You can afford to give up 8%-10% of your wholesale business (which is what DB management told their employees on June 27th that Seagull represented) if you can reign in your discounts on the retail side (scaling back from 40%+ discounts to a mere 10%-20% will give a big boost to the bottom line). In this analysis the decision could make financial sense even if you generously assumed that no one who ever bought Deseret Book products at Seagull would switch to shopping Deseret Book.
Deseret Book does still sell some titles to Walmart who will discount them deeply, but Walmart doesn't buy anywhere near their full product line, sticking mostly to the A-titles, titles Deseret Book can expect enough volume on to be able to afford to discount deeper anyway.
I think for Deseret Book's viability as an ongoing concern, after years of losses, this was a smart business move. I'm actually impressed that they thought it through, (hopefully!) ran the numbers, and made what I'm sure was a very tough decision. That shows leadership, forward thinking, and an overall unified strategy that hasn't always been there in the past.
On the other hand I think this may be a death warrant for Seagull
and it is sad to see competition being run out of the market, especially
when Seagull's offense is essentially offering people lower prices. I tend
to think that, in the LDS bookselling industry, Deseret Book does have a
monopoly. But I imagine a court would construe the market much more
broadly if Seagull were to bring an anti-trust lawsuit. (I agree with the
comments on
Kent Larsen's the Motley Vision blog.)
Deseret Book can't collude with Seagull to fix their prices, so instead we get silly pronouncements by DB executives to the press implying that this is all a big to-do over Seagull's lack of appreciation for Deseret Book's marketing materials. Of course that is genuinely an irritation that DB marketing has with Seagull, but that hardly seems to be a sufficient reason on its own to divorce yourself from a tenth of your entire wholesale business.
While I don't think Seagull will be able to reconcile with Deseret Book in the short term, perhaps they can take heart in knowing that Deseret Book reversed its decision not to sell to Walmart after a year or two when they realized they needed the money.
One route for Seagull to survive would be to find another company that already has a wholesale relationship with Deseret Book that would be willing to act as a middle man. Obviously a middle man is going to have to add their own overhead into the price (meaning Seagull wouldn't be able to afford such deep discounts), but then Seagull would retain access to the 50% of the products on their shelves that they are poised to lose, Deseret Book would have the wholesale business, some middle man could pocket some change, and only the customer would lose out—though perhaps not in the long run (in a sense) if it keeps both Deseret Book and Covenant in the publishing business.
Neither Deseret Book nor Seagull Book & Tape have been willing to stock Mormon's Book yet, so perhaps my loyalty should lie stictly with the various independents who do carry it. :-)
—Michael A. Cleverly
Thursday, July 13, 2006 at 21:08
Thanks! This blog post was refreshingly even-handed and level-headed in comparison to the parade of nincompoops on the KSL.com message board.
Thu, 13 Jul 2006, 23:49