Book Chats on Retailing.

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Note: The two "Chats" featured below were posted a year or so ago..the main idea being to amuse those of a scientific bent, but also to give the reader some concrete idea of the financial problems facing a High Street trader. The idea was to step out of the box, or your comfort zone, and put a few numbers in showing the day to day realities. These can be quite challenging, as witnessed by the number of bookshops that have had to close in the past several years. If maths is not your thing then just ignore. The most realistic suggestion we can make is for you to give it a go, i.e., have a go at running our bookshop yourself for a day or so. It is maybe here that we can be of most practical help to you.
We believe towns still need individal bookshops run by passionate booklovers.
Real bookshops, not cloned and faked up retail chains like Amazon, Waterstones, Smiths and Oxfam.

"So you want to have a bookshop..?". (Part 1).
“He can have what he wishes, who wishes just enough”. (P. Syrus. Epigram 809).

Having been in second-hand and antiquarian bookselling for thirty-six years, and with a High Street retail shop over twenty years, and survived (we opened up in Lyme on August Bank Holiday Monday1997), it may be of interest for some readers to look back over our own High Street venture and put in some figures.......

Before we get into this, any would be book trader is most welcome at 65 Broad St anytime, both to hear of our experiences and on how we might help them. All journeys start with a first step. If you mention your hopes and ambitions, then a tea or coffee or glass of wine is definitely on the cards.

With Amazon now opening bricks and mortar shops (yes....curious ..isn't it? Click on the "Book Chats on Book Chains" tab, screen left green column, for the latest), and with Waterstones masquerading as Single Shop Independents, we find one so called charity chain boasting 130 dedicated bookshops...and so the odds appear stacked against us. [We are all not meant to notice that top Charity Shop career executives pay themselves £200,000/year plus....and then have the nerve to claim the moral high ground. See link below*.]

So, one just tries to speak up for the little guy, for transparency, and, to welcome all newcomers to the profession. In short, anyone who is serious and aspires to a career in books and bookselling....
It's never too young to start and, like a good wine, it gets better as one gets older. George below, our senior colleague in Colyton, can testify to that!

"Rem Tene: Verba Sequentur". Cato.
So, let's get started......(GCSE maths should be more than enough. Non maths people...abandon this page here..!)...and, if the image above makes you feel faint...just hang in there.
First, a few definitions.....
Let Q equal the total Annual Turnover in pounds (the shop “take”).
Now, let E be the Expenses (the Overheads)....rates, electricity, gas, water, telephone, ISP, casual labour, car, restoration, advertising, accountancy, bank charges, shop maintenance, sundries....(everything one would claim that is justified when calculating one's Tax Allowance. Also, in our case: no staff).

Let T be the Profit (take home money, before tax).

Let P be the Purchases for the year (the stock acquisitions).

Then, just to break even, it is clear that....

Q-E-P = 0

(i.e., no profit, but no loss).

N.B. In our case, Q, E, and P are known (How? Because we keep daily, weekly, and monthly records, plus all associated paperwork. This is for tax purposes. Also we keep Moving Annual Totals, MAT's, on Q, E, & P. This has proved indispensible, but you may need to look that up).

Now here is the key.... in equilibrium, i.e., the buying and the selling of the stock to be in balance and stable (a state we only reached in 2000, after an initial three years trading), then

P = Q/m

[The test for this, is that the figure calculated on the annual stock take remains approximately constant year on year.....]

Also, here “m” is the the “markup”, i.e., the factor, or average multiplier on the trade purchase price, sufficient to yield a trading margin (more of this later in the next Chat).

Therefore

Q-E-Q/m = 0

...just to break even.

So

...to take home T = £X a month clear (profit: before tax: all bills paid), one needs to ensure that

(1-1/m)Q – E = 12X

Now Q = 313 q (assuming a six day trading week), where q is the average daily receipt (the daily take, averaged over the year).

Therefore

313(1-1/m) q – E = 12X

Or, rearranging....

q = m(12X + E)/313(m-1)

This equation yields a fascinating insight into the (gruelling) realities of High Street book trading, and is definitely worthy of further discussion (we will keep that for a later Chat. See below.).
We also note that we mean here second-hand and antiquarian bookselling. The selling of new books by Independents operates under completely different constraints....(aside: Independent bookshop numbers have almost halved in the past 12 years, in 2005 there were 1,535, while in 2017 just 867. However, the total number of Independent bookshops that are members of The Booksellers Association rose from 868 to 883 in 2018).

For the time being, let us take two examples close to home that illustrate the problem...

1. Just to break even (no take home income), then X = 0, assuming m = 3 (more on this later), and E= £30,000/year (reality), readers can check and see that they will need a turnover (averaged over the year), of q = £145/day approx.

2. However, to take home £1000/month clear, with m = 3, again taking E = £30,000/year (reality), then one will need an average daily take of q = £200 approximately, every trading day of the year.

These are gruelling figures for a sole trader, and explain why so many fail (or in fairness, are unable to start...). There is no avoiding the fact that High Street Trading is extremely Darwinian. It ruthlessly winnows out the weak, and is certainly not for the faint hearted. In the words of Paul Minet*....the best security one can hope for, is:  an independent income, a non-salaried partner (wife, husband, colleague...), and the ownership of one's own freehold premises!

So, not for us Charity Bookshop retail cloud cuckoo land: reduced rates, free donated stock, unpaid volunteer staff, fat cat executive salaries milked from your free donations*.......

The reality of these figures, just to break even, is: £20/hour for a 10.30 am to 5.30 pm day, or ten £2 paperbacks sales hour (it is important to emphasise that these are figures that are averaged over the year). In fact, August in Lyme can see us with queues all day! By way of contrast in February..most retailers here in Lyme will find it hardly worth opening....maybe just a few pound's worth of sales on an average weekday!

Also, one might think in the second illustration, that a free disposable income of £1000/month seems quite modest, but remember, this is after all bills have been paid!

Finally, the hidden assumption in all this is that good saleable second-hand book stock is somehow flowing into your shop, at attractive prices sufficient to allow a decent margin.....

Ah-ha! Could it be the art of second-hand bookselling is in the buying? (But more on that later)...
* Paul Minet. "Bookdealing for Profit". Richard Joseph Publishing. 2000.

* Fact Checker. Executive pay for Charity Workers.

"So you want to have a bookshop..?". (Part 2).
"Profit badly made can be the same as a loss". Hesiod. c 700 b.c.
These two Book Chats last updated February 21st 2020.

We left the Issue above with an interesting relationship for the required average daily turnover q to yield a given monthly income X before tax, where T, the annual profit = 12X.

This was:

q = m(12X + E)/313(m-1)

where m is the average markup (ratio shelf price to buy in price).

E is the “Overhead” (rates, electricity, gas, water, telephone, ISP, casual labour, car, restoration, advertising, accountancy, bank charges, shop maintenance, sundries....(everything one would claim that is justified when calculation one's Tax Allowance. Also, in our case: no staff).

The variable m is an interesting little fellow....

The following is a “thought experiment” ….much loved of Albert Einstein, who regularly used the term gedankenexperiment, (from the German “gedanken” for thought).

Supposing we let the average value of m decrease.....3.0, 2.5, 2.0. 1.5.....

It is beyond dispute that as m tends to 1, any profit T will tend to zero. To sell at the "buying in" price is clearly nonsensical. Any value of overhead will result in an immediate trading loss and the rapid closure of your enterprise.

Now let us think through the consequences, should m be allowed to go the other way, i.e., tend to the very large....3.0, 3.5, 4.0, 4.5, 5.0, Keep in mind we are talking average values of m over the whole stock, and, rather more subtly, a shop stock that is in equilibrium (see our earlier discussion on this topic).

I hope it is obvious to the reader that if you are going to mark up an Agatha Christie paperback, say, bought in at 50p, and put on the shelf at £5.00, it is going to stay there indefinately.

Why?

Well customers are not fools and are well versed at price comparison.

Goodwill and hence footfall will move to nearby charity shops, your colleagues trading in the vicinity, and, worse of all, to the Internet.

The point here is that sales, and hence T, any profit, will again remorselessly tend to zero, along with the footfall.

If I can just carry you mathematically one more step, it follows that there is a maximum in the value of T, somewhere between m equals one and m equals five (say).

The mathematically inclined among you will instantly spot that with T (profit) as Ordinate (vertical axis), plotted against m as Abscissa (horizontal axis), T must show a peak somewhere between m = 1 and m = 5.

Ah-ha....!

I just need to rearrange for T = f(m), and compute dT/dm = 0. This is just bog standard calculus to find the maximum of a function, in this case, the optimum value of m to give the maximum profit T.

Although this value of m cannot be computed analytically, this thought experiment has its use.

Why?

Because it leads us to an obvious actual experiment.

Namely, to vary m over time on a selected range of steady selling items, keep records of sales versus purchases and hence find the value of m that is optimal for your location and your stock.

Far fetched..do I hear you say...?

Far from it.

It took us several years to run the experiment.

This was made up as follows...four years to come into equilibrium from start-up in 1997, and a further six years to get reliable figures.

So, by 2008 we had very reliable data.

Perhaps the moral of all this, is...
1. Have a five to ten year business plan.
2. Reconcile yourself to the long haul. Good Data and especially local Goodwill (fair pricing) is invaluable.
3. Maybe talk to someone with long experience in the field and who has survived. Paul Minet (q.v. Book Chat above) was very good at this, and generous to a fault, and for that we are personally in his debt.

On that note of Complete Goodwill, may we bid you Good Evening...and Thank You for reading.