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Serendipity

The Economics of Used Books, part 1

December 17th, 2013  |  by  |  published in Blog, Bookselling, Serendipity

bookstore-pic

The first of an infrequent series of bookstore economics

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A couple of years before he died, Peter Howard of Serendipity Books, in Berkeley, was hired to appraise a small, general used bookstore in the greater Bay Area. Peter had appraised other bookstores and liked to use that platform to express his views of bookselling. The result is a rare look inside bookstore economics, with the conclusions and observations of one of the most knowledgeable, respected (yet simultaneously disliked), and successful booksellers in the trade.

The shop in question, which I’ll call Ye Olde Bookshoppe, had been open just over seven years at the time of the appraisal. There were two partners. When Peter visited, the store had 45,000 titles in stock, about evenly divided between hardcovers and paperbacks. What follows are extracts from the analysis section of the final appraisal.

Start Up

The partners had been involved in bookselling in various forms for ten years. Together, they pooled $5000 in cash, plus 15,000 books acquired at an average of $1 per and 10,000 books acquired for $2,000. “20 cents each!!!” writes Peter. So 25,000 starting books acquired for $17,000, mostly at garage and estate sales. Their average retail price was $7.

Walk-in Traffic and Internet Sales

“Ye Olde is a general used book store catering to the walk-in public, humble and modest readers, and scouting dealers,” Peter wrote. “The bookstore is not heavily patronized nor sustained by university faculty or students. There is no separate section for selling rare books or first editions.”

“Ye Olde’s rent increases every year. They are forced to gross more every year, though market conditions for open-premises used bookstores HAVE NEVER BEEN WORSE SINCE THE END OF WORLD WAR TWO” (emphasis in the original), due to the Internet. “More than 50 similar booksellers in the Bay Area have closed recently, only one has opened… Booksellers with 20,000 good and valuable books go home, put them online in one or two years, and average $25,000 or more in profits. No overhead. Ye Olde’s owners cannot go home. One cannot sell $7 books online and earn a living and support two families….Ye Olde serves its local, not very academic, middle-class neighborhood only. At the minimum price of long hours and endless scouting. And they have kids.

“The 3000 books Ye Olde has listed online, selling for an average of $40 (when sold), are locked in the back room, and are falling over somewhat from lack of attention, though they are in numerical order by computer listing, rather than by any other useful order (by subject, by author). They sell only one or two books each day.

“These 3000 books are not available to the public. Ye Olde does not have enough space, money, or staff by which they could both offer books on line and yet house them in a manner so that they are simultaneously available to curious walk-in traffic. It is the worst of possible situations, not the best. [In a random sample], there were cheaper copies online of all but one of the online books surveyed. The time and effort expended in putting these books online resulted in a tremendous waste of money. Moreover, the books online are locked upand cannot be seen by walk-in customers who would happily pay shelf price because most walk-in customers do not comparison shop at used book stores.”

Book Buying

When a partner is not working, “he spends his discretionary time scouting for books that he might sell for more than he pays. There are no other stores that sell for prices averaging less than Ye Olde. Therefore they must scrounge flea markets, benefit auctions, thrift stores, house calls, over the counter purchases. They cannot buy books from other book stores.”

Here are Ye Olde’s financials. All numbers are rounded to the nearest thousand

Year Rent Overhead Books Bought Gross Sales Cost of Goods Sold Ending Inventory Taxable Profit/Partner Actual Take-Home
1 27k 9k 27k 96k 34k 19k 13k 11
2 28 8 31 100 29 23 17.5 15.5
3 29 13 37 123 37 27 22 20
4 30 15 42 140 41 29 27 26
5 32 18 43 156 42 32 32 30.5
6 33 21 60 196 59 33 41.5 41
7 35 26 59 204 57 35 43 42

Note: The actual take home is less than the taxable profits because Ye Olde invested some of its profits to growing its inventory. Actual take-home is per partner, so in year 7, the two partners each made $42,000.

Commenting on Ye Olde’s financials, Peter noted that bookselling is a “trade that takes a lifetime in which to master little, suffer much, and on the average, earn less than any union laborer.”

Cost of Goods Sold

“The only variable in an honest book business is the estimated cost of books sold,” proclaimed Peter at the top of the section on inventory. “Cost of books sold is computed either by the coding and recording of the cost of every single book (Serendipity’s method) or by equating the cost of books purchased with the cost of books sold in a fiscal year. Ye Olde records the cost of books sold on an annual basis as the amount of money spent on books that year, and report that figure annually on federal tax returns, to the truth of which they swear. This method is allowed by the IRS, especially when the average price realized is small and steady records are maintained of checks written, deposits made, bills paid. Their manual bookkeeping is extremely hard and time-consuming work.”

Ye Olde had a very low cost of inventory, averaging just 29% of sales for the first seven years.

Profits and Margins

“The more expensive the book, the greater the profit in absolute dollars, if not the greater ratio of cost to selling price. Ye Olde pays 29% for books sold (less the cost of books UNSOLD). Simply enough, they make $7 on a $10 sale, before overhead. But dealers who pay 80% instead of 30% and who average $50 a sale, instead of $10 per sale, make $10 profit. Most antiquarian booksellers average 60% for cost of books sold, making $20 gross profit on a $50 sale.

“Ye Olde is at the very bottom of the food chain that is the book business. They sell the cheapest, least profitable type of book, and only that type of book, and have absolutely no means by which to get ahead, except by inching forward, their success depending entirely upon long hours (read: good health, lifetime commitment); the willingness of others to sell them books at the cheapest values in the book business; a rent that does not interfere with their ability to pay based on their gross; yet a large enough space to contain an endlessly growing stock.

“Almost all dealers leave a portion of their profits within their business, in order for their businesses to grow. Ye Olde struggles to increase their inventory a bit every year. This means taking less money out of the business. If the business does not grow and the inventory increase, Ye Olde will fail.”

“Inventory is the stock of material for sale, and the cost to the bookseller of that stock. Ye Olde buys books by check and with cash…. Ye Olde records sales with a cash register and in a salebook daily under lock and key, entering by day and summarizing by month, distinguishing between taxable and non-taxable (dealer) sales. The account book is maintained in pencil and appears absolutely straightforward. Single entry bookkeeping, manual. Currently $200,000 in annual sales. Two employees gross $100,000 per annum each.

Each partner works an average of 3.5 days per week in the store, often until three or four hours after closing.

Bottom Line

Peter’s conclusion, at the end of the appraisal: the store is worth $35,000 – the value of its inventory, at cost, even “though it is worth less than its cost….The cost of used goods does NOT REFLECT the value, as COST is likely to be too generous, and does not take into account the number of books residual in inventory that have declined in value, and have been repeatedly de-selected as candidate purchases by customers. Ye Olde must constantly remove books for which they paid money because they have not sold, making room for new arrivals that might have a better chance of selling. Yet booksellers’ stocks, so long as they remain on the shelves, may not be depreciated, legally.

“A business may have goodwill of value, calculated by the cost of replacement to the relevant community: e.g., a new barbershop (find one that will give you a shave with a straight razor!!) or a new hair salon. There are startup costs to recover, there is value in having “good deed” foot traffic (sponsoring ball team, donating to local fundraising auctions, internships underwritten). Dentists and veterinarians sell their practices and get a little more extra for the good will of their good name and their patient lists in the community. The notion of good will having value is NOT APPLICABLE when the good will is dependent upon “key man” personality or depth of friendly knowledge, or in the circumstance that the businesses has no likely future beyond the present owner. Used bookstores are always representative of and extensions of their independent owners’ personalities and utterly dependent upon their specific knowledge, non-transferable, earned over a lifetime.”

Next up (when I have time!), some comments on the conclusions herein.

 


Cool Stuff from Serendipity

November 19th, 2013  |  by  |  published in Blog, Feature 3, New Arrivals, Serendipity

yumyum-smSince the story ran in the Tri-City Weekly, we’ve had a lot of requests about what we brought back from Serendipity Books, in Berkeley. I have to say, the interest caught us a bit unprepared. But we’re making an effort to pull some of the cool and interesting stuff out of boxes and to put it in the shop. Here’s the first bit: R. Crumb’s 1975 Yum Yum Book, a full-color graphic novel retelling of the Grimms fairy tale about the girl who kissed a frog that turned into a prince. The cheapest copies online are selling for $25. We just opened a box, still sealed from the printer after 38 years! and are selling them for just $12.48.


Serendipity Sale Parking Update

November 6th, 2013  |  by  |  published in Serendipity

residential parking

NOVEMBER 15 UPDATE: SALE IS OVER. ALL MERCHANDISE IS SOLD

Parking will be tight at Serendipity during the sale. The store in on the edge of a residential parking zone, but if you stay to the east of the shop, you should be fine parking in the neighborhoods (but read the signs carefully).

There is a parking lot on-site, but it will be for loading and unloading only. So drop off your bags and boxes, find a parking place, and walk in.

Due to the expected volume of sales, we cannot store books over night. Please have a plan to remove all books by the end of the day.

The sale opens to the public on Saturday at 10 am.

Saturday, Nov. 9, 10-6
Sunday, Nov. 10, 10-6
Monday, Nov. 11, 10-6

More info on Berkeley parking regulations can be found here: http://www.ci.berkeley.ca.us/Public_Works/Transportation/Parking_RPPMap.aspx

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Serendipity Sale Schedule Update

November 4th, 2013  |  by  |  published in Serendipity

NOVEMBER 15 UPDATE: SALE IS OVER. ALL MERCHANDISE IS SOLD

The schedule of the sale (accurate as of 11/4/13; subject to revision):

For the most up-to-date information, follow the sale on Facebook.

All posts about the sale are here.

ALL SALES ARE FINAL. No returns or refunds.


Breaking the Bad News

November 3rd, 2013  |  by  |  published in Serendipity

Anyone who has been a bookseller longer than five minutes has had to find a way to break the bad news that someone’s family heirlooms have no value.

Among Peter Howard’s files at Serendipity Books, I found this priceless letter from Peter to an insurance company. A family in Berkeley had a water leak and claimed $20,000 in damages to their library. Peter was called in to appraise the damaged goods. Since he was working for the insurance company, he could be blunt in the way all booksellers would like to be, but often can’t, out of respect for the feelings of the owner of the books.

Peter writes:

The Smiths [a pseudonym] own a fine and valuable home in a nice part of town. The home is well and expensively furnished (the dining room set alone cost $20,000 or more, apparently). Objects d’art abound, particularly glassware. The Smiths are very nice, agreeable and well-spoken people. They have a daughter at UC Berkeley, entering her sophomore year.

However, their books, basically, are worthless. They may have taste, education, discretion, and character, but they are not bookmen. They did not ever buy fine, valuable or resalable books. Such books as they did buy–almost all from book clubs, subscriptions, or by second-hand acquisition–have insignificant or NO RESALE VALUE (emphasis in the original). In all honesty, I would say they have NO RESALE VALUE AT ALL.

I have attempted to put the kindest interpretation imaginable on this business. Mrs. Smith is very nice and wise and experienced, and her husband, who said nothing, seemed a gentle soul. $1250 would be charity. More would be a distinct disservice to your employers.

Yrs. faithfully,

Peter B. Howard

NOVEMBER 15 UPDATE: SALE IS OVER. ALL MERCHANDISE IS SOLD

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Serendipity Books Sale Schedule

October 26th, 2013  |  by  |  published in Bookselling, Serendipity

NOVEMBER 15 UPDATE: SALE IS OVER. ALL MERCHANDISE IS SOLD

Eureka Books  has acquired the closing inventory of Serendipity Books, in Berkeley. Serendipity was one of the great antiquarian bookstore on the West Coast for 50 years (established in 1963) [read the New York Times’ obit for the store]. Over five weekends in November and December, we will be selling the remaining books – at least 60,000 titles left over from countless great libraries.

Serendipity specialized in modern first editions – twentieth century literature – but bought good books in all fields. The late owner, Peter Howard, was a great supporter of booksellers and frequently gave them better discounts that anyone. While the final closing of this literary landmark is a sad event, we want to continue Peter’s generosity, by offering wonderful books at wonderful prices, starting at $5 per book and dropping from there.

[NOTE: The poetry, drama, and Canadian sections have been sold in their entirety]

Here’s what a professional book scout (someone who makes his living buying books to sell to other booksellers), who we enlisted to help organize the books, has to say about the books included in this sale:

“I’ve been helping out at Serendipity, sorting and offering opinion. I wish [people] would recognize that [Eureka Books] doesn’t have the time or space to cart away all the “good books”… There will be thousands of $100+ books, hundreds of authors’ first books, great bibliography, etc. at (at first) $5 a pop. There are great bargains to be had and anyone thinking that this is something other than an extraordinary buying opportunity is missing the boat.

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We will also be selling book cases, metal library shelving, desks, book ends, at least 100 pieces of art, prints, broadsides, ephemera (particularly related to printing and poetry), finely bound sets, reference books too numerous to count, rugs and carpets, etc.


Peter B. Howard on Bookselling

October 22nd, 2013  |  by  |  published in Bookselling, Serendipity

Peter Howard was one of the top antiquarian booksellers in the United States, with a heyday in the 1990s, when his firm, Serendipity Books in Berkeley, frequently grossed more than $2 million per year with just four or five employees. As we have been packing up the store, we have come across some of Peter’s observations on bookselling:

“There is no possible, rational prediction that a given used or antiquarian book will sell for a given or specific price in a specific period of time.”

“A large collection of used books is difficult and often impossible to sell at a predictable or desired price.”

“Booksellers are entrepreneurs. The success of their business depends primarily (or entirely?) upon acumen honed over time; their special knowledge (absorbed over years), and their force of will. None of these elements is transferable; none can be bought and sold; occasionally they can be hired. Such entrepreneurs are vulnerable to illness, uncontrollable social or personal vicissitudes, changes in economies of scale, and bad judgment.”

“In a downward, declining or changing market, ownership of one’s building is an absolute guarantee of survival… The book market place is changing utterly, more so than in any time in history, this hour, this day, this month, this year.”


Never Be a Bookseller

October 17th, 2013  |  by  |  published in Bookselling, Serendipity

photo(61)

 

 

Perhaps my favorite book so far, found on the Serendipity shelves. Alfred Knopf published it in an edition of 2000 copies (none for sale) in 1929. This charming pamphlet begins: “Never try to write, but above all never have anything to do with publishing or the book trade”; this is the only parental advice I can remember.

Garnett, remembered perhaps most today for his novel Lady Into Fox, republished by McSweeney’s, also owned a second-hand and antiquarian book shop and was a partner in the Nonesuch Press.

Garnett concludes with advice for his sons, ” ‘Above all, never be a bookseller. That is the worst of all: the hardest work and the worst paid. ‘ Yet sometimes I wish I were back in the shop….”

For the complete Serendipity Chronicles, visit http://eurekabooksellers.com/serendipity/


Every mountain top is within reach

October 17th, 2013  |  by  |  published in Serendipity

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“Every mountain top is within reach if you just keep climbing.”

― Barry Finlay, Kilimanjaro and Beyond

We try to keep this in mind as we pull books from the tops of the 18-foot-tall shelves that line Serendipity Books. There are so many books that when we move the books down and empty all the boxes and bags, all the normal-height shelves are filled again.

For more about Serendipity: http://eurekabooksellers.com/serendipity/

 

 


Fool’s Gold

October 5th, 2013  |  by  |  published in Serendipity

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My wife calls what’s the process of sifting through the thousands of books at Serendipity mining for gold.

This was the first shiny object we found: an old painting with the hint of a signature in the lower left corner. We took the picture out of its frame and the name was Howard Pyle, one of the great illustrators of the 19th and early 20th century. If real, it would be a five-figure painting.

Hopes rose.

The problem, however, is that it didn’t look like a Howard Pyle. The second factor working against it was that Peter Howard would not have left a Howard Pyle lying around.

Then we cleaned the dust off the painting and discovered that the signature read “from Howard Pyle” and that the artist had signed illegibly on the the right side.

As any gold miner knows, you have move a lot of rock to find a few nuggets. So it’s back to the mines.

See all posts here.


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