Attention Shoppers: Building Opportunity Based on Customer Behavior Data

Of Distribution ExcellenceLHE

Attention Shoppers: Building Opportunity Based on Customer Behavior Data

“…the brick channel for printed books continues it’s inevitable decline into insignificance”

--Mike Shatzkin

Attention Shoppers: Building Opportunity Based on Customer Behavior Data

“…the brick channel for printed books continues it’s inevitable decline into insignificance”

--Mike Shatzkin

Combined, these retailers represent 25% of total US GDP in 48,000 US locations (that’s a heck of a lot of foot traffic)

Mass Merchants Grocery Specialty

Club Department Drug

*

*

*

*

*

**

*

*

*

*

22,082 retail store locations shipped with 1,600 in-house merchandisers

Sales Breakdown of Distributed Products

LHE

Mass Merchants

69%

Specialty

5%

Other

1%Drug

2%Grocery

7%Distributors

8%

Department

0%

Club8%

Adult Hardcover22%

Mass Market Paperback

20%

Young Adult Hardcover

7%

Series Romance Paperback

3%Kids Hardcover

27%

Trade21%

Units sold by Category Units sold by Channel

Mass Merchant retailers have very high share of blockbuster releases/series

Life to date sales /BookScan/est. for Walmart

TWILIGHT SERIES Market Share(Avg = 20%)

BREAKING DAWN (HC) 45%NEW MOON (TP) 50%

TWILIGHT (TP) 43%ECLIPSE (HC) 46%ECLIPSE (TP) 60%

TWILIGHT (TP) 67%TWILIGHT (Movie Tie In) 72%

NEW MOON (HC) 34%SHORT SECOND LIFE BREE TANN (TP) 49%

TWILIGHT (HC) 34%NEW MOON (Movie Tie In) 74%

BREAKING DAWN (TP) 63%NEW MOON (MASS) 75%

ECLIPSE SPECIAL EDITION 26%ECLIPSE (Movie Tie In) 72%

ECLIPSE (MASS) 78%TWILIGHT: THE GRAPHIC NOVEL 46%

RECENT TITLES MKT SHAREDIARY OF WIMPY KID #5 40%

AWAKENED: HOUSE OF NIGHT 52%HEAVEN IS FOR REAL 25%

ENGAGEMENT IN SEATTLE (MASS) 83%

LHE

Ask the simple questions (that are really

difficult to answer)

LHE

2. What questions do we need answered?Ask the organization and rank the results

6 “Rights” by Sol Price1. Merchandise—brand equity

authors, local interest 2. Time –maintain in-stock while

avoiding over-stock3. Price – profitably priced to show a

value to the consumer4. Place – merchandising standards to

maximize sales5. Quantity – just-in-time inventory to

maximize turns/GMROII6. Format (Right Condition) – paper,

audio, ebook

1. Where is the opportunity to improve?lower returns, increase conversions, improve supply chain

"I guess I've stolen--I actually prefer the word 'borrowed'--as many ideas from Sol Price as from anybody else in the business.“

--Sam Walton

LHE

Ask the simple questions (that are really

difficult to answer)

LHE

2. What questions do we need answered?Make a list!

1. Where is the opportunity to improve?lower returns, increase conversions, improve supply chain

nothing will improve until you

change the corporate culture

3. Are we currently making decisions based on facts?“There are lies, damn lies, and statistics”

-Mark Twain

LHE

Results-Generating Business Analytics

• We all need to collect data (consumer, customer, category, channel,

format, genre, title) and mine that data to uncover patterns and

derive actionable insights

• Invest in analytics tools to understand trends

• Provide business, operational and financial insight to all parties in the supply chain

• Collaborate, Cooperate and Redefine Competition

LHE

SURVEY RESULTS She is cash-strapped and wants a discount on her favorite authorOPPORTUNITY “Right-size” the department through category to space analysis

On-Line BookShopper

Traditional Bookstores Shopper

Mass Merchants / Clubs Book Shopper

Female Book Shoppers 65% 58% 72%

Income < $50k 43% 39% 47%

% of Purchases made because of specific

Author / Series59% 56% 75%

% of Books Purchasedbecause of sale price 32% 15% 34%

% of Purchases Fiction Category 66% 67% 84%

% of Fiction Purchases Romance / Mystery or

Thriller27% 26% 44%

% of Purchases Impulse 55% 61% 78%

Primarily female

Less discretionary spend

Author (brand) loyalty

Value shopper

Heavy Fiction Romance / Mystery / Thriller buyers

Very impulsive

Bowker Consumer Pub Track – 2010 Full Year Results

Talk to the Customer (not the database administrator

or business analyst)

LHE10.0% 12.0%

15.0%17.0%

4.0%5.0%

15.0%

15.0%

8.0%

10.0%8.0%

16.0%

40.0%

25.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Walmart Target

How the Customer Learned about the Last Book They Purchased

Retail Browsing

Personnal Recommendation

Publicity

Other

Email

Online Sources

Info From Authors Prior Book

LHE

Book Unit Share has not Moved Significantly (print to e) Among Those that Purchase Books in Mass Merchants

49%46%

79%

14%

87%

8%

82%

9%

46% 48%

76%

17%

82%

12%

84%

10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Print eBook Print eBook Print eBook Print eBook

Kindle Owner Amazon (non Kindle) Target Walmart

% of Units Purchase

Nov-10

Feb-11

Shopper’s Marketing—Competing for Footsteps

Awareness

• Out of Department placement

• Events

• Fixture Signage

• Media Category Advertising

• Online influence

Discovery

• Clear recommendations and brand (author)

awareness

• Repeat visits—tell them what’s coming

• Develop new authors in Mass Merchant channel

• Consistent and directed merchandising

• Wayfinding

Value

• Everyday Low Price

• Price Cuts

• Competitive pricing

Book Buyer Conversion

LHE

Improving the In-Store Experience Leads to Double Digit Sales Increases

Way Finding

Price Message

30% increase in kids sales 5 – 12%

increase in overall sales

Promote out of the Department—Increased Awareness Leads to conversions

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2/27 3/13 3/27 4/10 4/24 5/8 5/22 6/5 6/19 7/3 7/17 7/31 8/14 8/28 9/11 9/25 10/9 10/23 11/6 11/20 12/4 12/18 1/1 1/15 1/29 2/12 2/26 3/12

% C

hang

e in

$ S

ales

Test Group Control Group

Lift During Promotion

Pre Promotion

Post Promotion Sustained Sales

Emerging Growth Brand Equity Authors

Lora Leigh Nicholas Sparks David Baldacci

Kressley Cole Kristin Hannah Janet Evanovich

Monica McCarty Linda Lael Miller John Grisham

Karen Marie Moning Lee Child Debbie Macomber

Elin Hilderbrand Robyn Carr Nora Roberts

Lori Wilde Susan Mallery Charlaine Harris

Lara Adrian Vince Flynn James Patterson

Lori Foster Harlan Coben Danielle Steel

Kerrelyn Sparks Cathy Maxwell Sandra Brown

Larissa Ione Mary Higgins Clark

Tracy Anne Warren Michael Connelly

Clive Cussler

With limited retail space, and full-face merchandising, Mass Merchants can drive large sales volumes on emerging and growth authors

LHEXX% Average Bookscan

Marketshare

XX% Average Bookscan

Marketshare

Buyer Selections, Book Club Picks and Spotlight Author programs are helping readers discover new authors

• Wayfinding is necessary for mass merchants to attract bookstore shoppers

• Mass merchants are more successful in breaking out new authors in mass or trade

• Test programs have shown an average 16% increase in sales over control group LHE

Organize the Data so it Becomes Useable 313544612.9914.9522121022214

413544612.9914.9529181112920

513544612.9914.9545182724531

1213544612.9914.95211011332112

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7513544612.9914.95871183

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7813544612.9914.9540103014025

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9513544612.9914.95642563

9613544612.9914.95361125123619

10013544612.9914.953425933421

10713544612.9914.9534628663420

10813544612.9914.9545936794527

11113544612.9914.951551001511

12013544612.9914.9511742119

13713544612.9914.954383514328

13913544612.9914.9528101812816

14413544612.9914.9528111702818

14513544612.9914.9517980179

14613544612.9914.9542271504223

14713544612.9914.952071302010

15113544612.9914.9543271604326

15213544612.9914.954083204028

313544612.9914.9522121022214

413544612.9914.9529181112920

513544612.9914.9545182724531

1213544612.9914.95211011332112

1313544612.9914.9510554104

1813544612.9914.95154115158

1913544612.9914.95341618123422

2413544612.9914.954473724422

2613544612.9914.9548123614828

4313544612.9914.9528121622816

4413544612.9914.9513499139

4813544612.9914.95271611442715

5213544612.9914.95141135146

5513544612.9914.951798121712

5713544612.9914.9513943138

6113544612.9914.9546739664630

6413544612.9914.9532302793221

6713544612.9914.952191202114

6813544612.9914.95179821711

6913544612.9914.9552242815232

7513544612.9914.95871183

7613544612.9914.9535102523525

7813544612.9914.9540103014025

7913544612.9914.9546262024628

8013544612.9914.95201010332015

8213544612.9914.9542162644231

8313544612.9914.952161552113

8413544612.9914.9517512121711

8513544612.9914.9546123424628

8613544612.9914.9537181913730

9013544612.9914.95131032138

9213544612.9914.9511569119

9313544612.9914.95271314442717

9513544612.9914.95642563

9613544612.9914.95361125123619

10013544612.9914.953425933421

10713544612.9914.9534628663420

10813544612.9914.9545936794527

11113544612.9914.951551001511

12013544612.9914.9511742119

13713544612.9914.954383514328

13913544612.9914.9528101812816

14413544612.9914.9528111702818

14513544612.9914.9517980179

14613544612.9914.9542271504223

14713544612.9914.952071302010

15113544612.9914.9543271604326

15213544612.9914.954083204028

1 DAYS DATA FEED IS AS HIGH AS

6 STACKED EMPIRE STATE BUILDINGS

120,000 EXCEL ROWS OF DATA10,000 ft. high

313544612.9914.9522121022214

413544612.9914.9529181112920

513544612.9914.9545182724531

1213544612.9914.95211011332112

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1813544612.9914.95154115158

1913544612.9914.95341618123422

2413544612.9914.954473724422

2613544612.9914.9548123614828

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4413544612.9914.9513499139

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5213544612.9914.95141135146

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6113544612.9914.9546739664630

6413544612.9914.9532302793221

6713544612.9914.952191202114

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6913544612.9914.9552242815232

7513544612.9914.95871183

7613544612.9914.9535102523525

7813544612.9914.9540103014025

7913544612.9914.9546262024628

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8213544612.9914.9542162644231

8313544612.9914.952161552113

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12013544612.9914.9511742119

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14413544612.9914.9528111702818

14513544612.9914.9517980179

14613544612.9914.9542271504223

14713544612.9914.952071302010

15113544612.9914.9543271604326

15213544612.9914.954083204028

313544612.9914.9522121022214

413544612.9914.9529181112920

513544612.9914.9545182724531

1213544612.9914.95211011332112

1313544612.9914.9510554104

1813544612.9914.95154115158

1913544612.9914.95341618123422

2413544612.9914.954473724422

2613544612.9914.9548123614828

4313544612.9914.9528121622816

4413544612.9914.9513499139

4813544612.9914.95271611442715

5213544612.9914.95141135146

5513544612.9914.951798121712

5713544612.9914.9513943138

6113544612.9914.9546739664630

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14513544612.9914.9517980179

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14713544612.9914.952071302010

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14713544612.9914.952071302010

15113544612.9914.9543271604326

15213544612.9914.954083204028 1 WEEKS DATA FEED IS AS HIGH AS

3 STACKED MT. EVEREST

830,000 EXCEL ROWS OF DATA70,000 ft. high

LHE

Assign Attributes to the Data

Onix Coding to Capture “Title DNA” (get it right the first time!)Sorted data relates to space productivity and category trends

“Control Tower” makes sure data tables are populated correctly

Regression and Correlation Analysis is a powerful tool to spot trends (you can run multiple regressions by loading the Data Analysis Add-On for Excel)

LHE

Customer Relationship Management

• Non-linear Regression—new data points create new demand outcomes that feed the supply chain

• Systems Communication—retailer demand forecasts need to drive print quantities so stock is available at the right time

• Returns—If we’re all making analytical decisions based on the same demand forecasts can we get rid of the old returns model?

LHE

The Future of Books in Big Box Retail (If past events are any indication)

LHE

1. Books will Remain an Important Margin Category for Retailers• Consolidation with electronics and media

52% 51% 48% 45% 41% 36% 33% 29%23%

1% 3% 5% 8% 12% 18% 25% 29% 36%

34% 35% 38% 40% 41% 40% 36% 36% 33%

13% 11% 9% 7% 6% 6% 7% 6% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Unit (Physical Album) Market Share

Chain Outlets Non Traditional (On-Line) Mass Merchants Independents

Despite tremendous unit growth, the Digital Music Industry represents only 39% of the dollar sales. Digital Unit Growth has hit a Plateau 7 years after the iTunes launch. Mass Merchants are still a significant portion of Physical Album Sales

$11.3 $11.5 $10.5

$9.4 $7.5

$5.5 $4.3

$0.1 $0.2 $0.9

$1.6

$2.4

$2.6

$2.7

$-

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

Year of iTunes

Year 1 after

iTunes

Year 2 after

iTunes

Year 3 after

iTunes

Year 4 after

iTunes

Year 5 after

iTunes

Year 6 after

iTunes

Sale

s $

(Bill

ions

)

Dollars

Physical CD (Full + Single) Download (Full + Single + Mobile)

Digital only 39% $ share

RIAA & Nielsen SoundScan

LHE

The Future of Books in Big Box Retail (If the past is any indication)

LHE

1. Books will Remain an Important Margin Category for Retailers• Consolidation with electronics and media

2. Juvenile Space will Increase Significantly Leading into Fall• Category is growing YOY and Returns are Decreasing• Mass Merchants have a very high market share in Young Reader and Young

Adult categories• Mass Merchants will continue to dominate share of novelty, movie tie-in

and event driven publishing events

LHE

As Adult Categories Continue to Shift Toward eBooks More merchandise space is Devoted to Juvenile

40.1%36.1% 36.0% 36.8% 36.4% 36.0% 35.7% 35.3% 35.0%

9.1%9.7% 9.8% 9.3% 8.9% 8.4% 8.0% 7.6% 7.2%

31.8%31.8% 31.1% 31.0% 30.7% 30.4% 30.1% 29.8% 29.5%

16.0%16.7% 17.5% 19.4% 20.3% 21.4% 22.4% 23.5% 24.7%

3.1% 5.7% 5.6% 3.5% 3.7% 3.8% 3.8% 3.8% 3.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

% o

f $ S

ales

Hardcover Mass Market Paperback Trade Paperback Kids YA

Historical – BookScan + non reporting chains, $’s extrapolatedProjection – Levy estimate

LHELHE

The Future of Books in Big Box Retail (If the past is any indication)

LHE

1. Books will Remain an Important Margin Category for Retailers• Consolidation with electronics and media• Some space loss, but not retailer profits

2. Juvenile Space will Increase Significantly as Endcap Space for AdultFiction Shrinks• Category is growing YOY and Returns are Decreasing

3. Market consolidation has historically been good for Big Box retailers when they can show a value

LHE

Similar to music, video, and greeting cards Mass Merchants can get a bigger piece of a shrinking pie by 2015

62.9% 60.5% 58.0%53.7%

46.7%41.1%

35.7%30.4%

25.2%

16.0% 17.6% 20.1%24.0%

31.9%36.7%

40.4%44.4%

48.8%

18.7% 19.5% 19.6% 19.9% 19.3% 20.0% 21.7% 23.0% 23.8%

2.5% 2.4% 2.3% 2.4% 2.1% 2.2% 2.2% 2.2% 2.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

% o

f $ S

ales

Retail (Bookstores) On-Line Mass Merchants / Clubs Specialty / Grocery / Drug

Historical – BookScan + non reporting chains, $’s extrapolatedProjection – Levy estimate

56.3%50.2% 54.5% 54.3% 53.1% 54.8% 54.7% 51.2%

25.6%31.9% 22.9% 25.6%

21.8%25.0% 22.6%

24.5%

16.1% 15.9%20.0% 17.9%

22.1%17.8% 19.9% 21.3%

2.0% 1.9% 2.6% 2.2% 3.0% 2.4% 2.7% 3.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LY TY LY TY LY TY LY TY

January February March April

Retail (Bookstores) On-Line Mass Merchants / Clubs Specialty / Grocery / Drug

Excluding the Borders Liquidation, Recent Mass Merchant Market Shares are Close to Prior Year

Relatively Unchanged

Impact of Borders Liquidation

Based on market shifts we estimate print books will still be over $5.5 billion in 2015

$10,923 $10,963 $10,884 $10,024

$8,520 $7,668

$6,902 $6,211

$5,590

$96 $161 $323

$862

$1,768 $2,599

$3,171 $3,488

$3,662

0.9% 1.5%2.9%

7.9%

39.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

eBoo

k M

arke

t Sh

are

Boo

k Sa

les

(mill

ions

)

Total Market Print (Trade Channel) Total Market eBooks eBook Market Share

PrintBooks

eBooks

2010 to 2015 -44% +324%

Historical – AAP & BookScan (Trade Channel excludes Scholarly, K-12, University Press)

Projection – Levy estimate

Print Books$5.5 Billion

LHE

LHELHE

The Future of Books in Big Box Retail (If the past is any indication)

LHE

1. Books will Remain an Important Margin Category for Retailers• Consolidation with electronics and media• Some space loss, but not retailer profits

2. Juvenile Space will Increase Significantly as Endcap Space for AdultFiction Shrinks• Category is growing YOY and Returns are Decreasing

3. Market consolidation has historically been good for Big Box retailers when they can show a value

4. Economics of book retailing need to adapt to a new value benchmark

We must abandon the archaic business models of the past (push strategy) and adopt compatible demand planning and

analytics tools (pull strategy)