Virtual vs. brick & mortar

Jifeng Bookstore, which has served readers from its store at the South Shaanxi Road Metro Station in Shanghai, recently bounced back from a death scare. When its lease expired, the bookstore was not sure whether it would be able to afford to remain in such a high-traffic, high-rent location.

Jifeng blamed its woes on market pressures exerted by online retailers. From the People's Daily on February 16:

Jifeng doesn't discount, so more and more readers have begun to treat the bookstore as a "sample showroom." They write down the titles of books they're interested in, and then they make their purchases online where prices are cheaper.

[Company president] Yan Bofei said that support from international and venture capital allows online bookstores to "irrationally" slash prices very low. And their high sales volume gives them a smooth cash flow, meaning that even annual debt rates of 5-6% aren't life-threatening. This "advantage" is not something that brick-and-mortar stores can match.

Peggy Yu Yu, co-president of online retailer Dangdang, brushed aside Yan's suggestion when she met with reporters in Shanghai a few days ago. She ducked the issue of Dangdang's competition, but her remarks, quoted by the Xinmin Evening News, painted a picture of a bookselling sector that has yet to completely throw off the vestiges of the planned economy:

Yu said that Jifeng is her favorite bookstore in Shanghai because of the high quality of its books. She believes that humanities bookstores' greatest rivals are state-owned bookstores, because the biggest cost for a retailer is rent, and most state-owned bookstores do not pay much rent yet occupy prime locations. Additionally, they're able to sell textbooks.

When she was asked, "so who are online bookstores' competitors?" Yu sighed, and lamented that entertainment choices like television and online games take up a good deal of readers' time. She envies the "bookworms" that ride subways and public transportation in the west: "Our greatest opponent is the fact that book readers are so few in number in China. The country's population is increasing, but reading rates are falling. When we figure out ways to entice more people to read, to grow the denominator, online bookstores and brick-and-mortar bookstores will both win.

The Shanghai Daily reported on February 17 that Jifeng bookstore signed a new three-year agreement with Metro property management, but only time will tell whether Jifeng will be able to brave the combined forces of online and state-owned giants:

Although the exact rent was not revealed it is apparently more than twice the 2 yuan (US$0.29) per square meter set in the original contract which was signed ten years ago.

But the high rent may squeeze all the profits for the store, warned Yan Bofei...