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The next three sections of the sample business plan for Fiction Addiction are included below. Below each section, I've included comments in brackets discussing other ways you could handle the section, areas to consider, etc. The remainder of the plan will follow in part IV of this article.
4.0 Market Analysis Summary
The used book market has only recently started to be studied, but it seems clear that the marriage of used books and the Internet has been wildly successful. The Book Industry Study Group reports that in 2004, used book sales topped $2.2 billion and represented 8.4% of total consumer spending on books, with much of the growth coming from online channels.
A similar 2004 study by Book Hunter Press found that online sales grew at a time when used book sales in general dropped 7-8% for existing dealers. For brick-and-mortar stores, in-shop sales generated 61.16% of total sales and online sales generated an additional 33.01% of total sales for open shops.
We believe that the recent drop in used book sales found in the Book Hunter Press study can be attributed to the decrease in average selling price for many common books due to the advent of the Internet and its accompanying price transparency. The Internet has also dropped the barriers to entry to the used book business and many online-only book dealers have sprung up, leading to an increased supply, which in turn depresses prices further.
The good news is that prices for the truly rare volumes seem to have gone up, which suggests that the industry as a whole is simply going through a period of turbulence and adjustment. As the Book Hunter Press report states: "With just over half of all used book sales originating from the Internet, there can be no question that online sales have drawn sales away from open shops. But, with 33% of all store sales coming from online sales, there are two ways of looking at how the Internet is likely to affect the future of open shops: Online sales could lead to the slow but steady demise of the traditional used bookstore, or open shops could continue to adjust their overall marketing plan to reflect the constantly changing used book market - e.g., change the extent to which they sell online and through other selling venues as well as change their inventory mix and/or their pricing structure."
It seems apparent that in order to succeed as a used bookstore, Fiction Addiction must concentrate on online sales as well as those to local customers. We believe that there is a synergy between the two businesses. Building up a local customer base takes time and/or advertising, whereas the online services such as ABE, Alibris and Amazon have already invested that time and money for us and thus they should be an immediate source of income for us. Also, by selling online we will be able to accept a wider-range of inventory from our customers than we would if just selling to the local market. This should promote goodwill among our customers as well as enforcing customer loyalty through their credit balance.
Another positive to note is that the used book business is somewhat of a recession-proof business. In slow economic times, book buyers who would usually shop at a new bookstore chain seek bargains via used bookstores. Or those who would be vacationing in Europe are instead stocking up on books to take to the beach.
Looking to the future, Baby Boomers - an extremely literate generation known for their book buying - will soon begin to retire and many will have to deal with lower incomes simultaneously with more leisure time. They will be ideal customers for the used book business.
Book buying is closely correlated with education. Greenville County has the largest public school system in the state - approximately 60 private schools - and is in close proximity to 9 universities and colleges. Greenville, recognized as a business, high-tech, manufacturing, and engineering center, is South Carolina's most populous county. Future growth prospects are very good as Greenville is centrally located between Atlanta and Charlotte, two of the largest cities in the Southeast.
Greenville has supported a paperback exchange (The Carolina Book Rack) for over twenty years. The outlying towns of Greer and Simpsonville each have a similar shop. An antiquarian store located in downtown Greenville, Bentley's Bookshop, recently closed its doors. But conversations with the owner revealed that the store closed when it lost its lease and the owner decided she wanted a change of pace, not due to slow sales. With the area's growth over the past twenty years and the recent closing of Bentley's, it seems like the perfect opportunity to open a general used bookstore in the Greenville area that carries both paperbacks and hardcovers.
[When analyzing the used book market, you want to consider the market in general and then the particular area of the country where you are planning to locate. I wasn't able to find anything more recent than the 2004 BISG study, but as the market grows more studies are sure to come. There is a strong correlation between education and literacy, so anything that shows your area is well educated is a plus - for example, if you can show that the libraries are well used and supported, etc.]
4.1 Market Need
The East Side is one of Greenville's most prosperous, literate, and fast-growing communities. Yet since the closing of the East Side branch of The Open Book (several small stores were consolidated into a superstore to compete with the arrival of Barnes & Noble to the area) and the relocation (then later, closure) of Bentley's Books, the East Side does not have a convenient neighborhood bookstore. The closest bookstore new or used is Barnes & Noble, requiring shoppers to fight traffic on Haywood Road, one of Greenville's busiest streets.
[Evidence that an area has previously supported a bookstore is usually good if the reason that the store closed or relocated had nothing to do with poor sales. If you're intimately familiar with an area, then the market need may be self-evident. If you're new to the area, you may need to do more research or testing of the market.]
4.2 Main Competitors
The best direct competitor to Fiction Addiction is Carolina Book Rack; the closest competitor is Barnes & Noble.
[You must research your competitors. Some of your competitors are going to resent you for daring to steal their market share, but after a while they may even start to refer customers to you. It will help if you do not compete directly head-to-head but instead only partially overlap with each other. Thus, Fiction Addiction does not carry the category romances (Silhouettes, Harlequins) that are the bread-and-butter for Carolina Book Rack, and they send anyone looking for hardcovers my way.]
4.3 Market Segmentation
Our main target markets are Housewives, Students, Teachers, Professionals, and Retirees.
Housewives and Retirees
This target market will purchase during the day. Women will primarily be interested in romance novels, mysteries, general fiction such as Oprah's Book Club picks, and children's books. Men will typically be drawn to mysteries, science fiction, and nonfiction.
Housewives and Retirees can take their time while shopping and will appreciate a seating area, intelligent book discourse with the owner, and reading recommendations.
To appeal to women shoppers with small children who may wander in from the children's haircutting salon in the Plaza, Fiction Addiction plans to create a children's nook, with toys & child-size seating.
Students and Teachers
Students and teachers will typically purchase during the afternoons and on weekends. Teenagers would be embarrassed to have to browse through books for younger children, so books for younger readers will be divided into three sections: Young Adult, Juvenile, and Easy Readers.
High-school and college students will gravitate toward the adult science fiction, fantasy, and horror sections but may also purchase classics and other general fiction.
Fiction Addiction will to reach out to local teachers by offering a 10% discount and ask that they recommend us as a source for books to their students. We will also consider advertising in the local college directories and/or newspapers.
Professionals
Professionals will tend to purchase during the evenings and on weekends. Their purchases will most likely include bestsellers, hard-to-find out-of-print books, nonfiction, and collectibles. Professionals have little time to shop and thus will appreciate shelf-talkers and other merchandising efforts.
[Who will your customers be? How will you reach them? What will their needs be? You can segment your market however you want - perhaps you're in a tourist town and will have locals vs. tourists. The idea is to try to group your customers by their different needs to have something that appeals to every group.]
5.0 Strategy Summary
Fiction Addiction's main strategy is to establish itself as the East Side's neighborhood used bookstore.
The company's secondary strategy is to expand its market via Internet sales.
[What are your primary goals regarding your potential market base? Will you be reaching out to a specific segment first?]
5.1 Competitive Edge
Fiction Addiction's proposed location in Patchwork Plaza is an important competitive edge. The nearby intersection of East North Street and Hawyood/Howell is a high traffic area and the store will have good visibility from the street. Many East Siders do not travel on East North Street farther than Hawyood and thus would find our location more convenient than Carolina Book Rack.
Fiction Addiction plans to have the best and largest science fiction and fantasy section in the Upstate. The initial inventory will be fueled by the owner's personal collection in this area.
Fiction Addiction will be the only used bookstore in town carrying a significant amount of nonfiction and hardcover books. As the reading population ages, more and more customers are preferring the larger print of hardcovers.
Another competitive edge Fiction Addiction must develop is atmosphere and reputation. Avid readers are always looking for new recommendations and will be loyal to a store with a knowledgeable owner who takes the time to merchandise and promote her inventory in an environment that encourages browsing.
These advantages are important to Fiction Addiction because our prices will be slightly higher than most of the other used bookstores in Greenville.
[How will you be different from your competition? What can you specialize in? Where does your knowledge and interest lay?]
5.2 Pricing Strategy
Since the East Side is one of the more affluent areas in Greenville and since Fiction Addiction will be the closest bookstore, we feel that we can price slightly higher than the norm for a used bookstore in exchange for the convenience of our location.
We plan to discount most used paperback books at 40% off of the current retail price (not the cover price). The norm in Greenville is 50% off the cover price, though Carolina Book Rack's complicated pricing scheme often results in a less than 50% discount. We will have a minimum price of $2.00 for children's books and $3.00 for adult books. We will give 20% of the cover price (up to $2.00/book) in store credit.
We plan to give $2.00 in credit per hardcover and to price most hardcovers at $8.00 and up. $8.00 is the current retail price for most new paperbacks. If paperback prices increase, we will similarly increase our used hardcover price. Collectible first editions may be priced as high as $300, but most will fall in the $15-40 range.
We will pay 10% of cover price for used audiobooks. We will primarily accept CD audiobooks. We will price our audiobooks at 40% off of the current retail price. We will also offer audiobook rentals at $3.50/week. Customers will pay the purchase price, then get refunded the appropriate difference when they return the rental.
[Many used bookstores operate on a 50% margin, meaning that if I buy a book for $1.00, I turn around and mark it $2.00. If it sells, my profit is half (i.e., 50%) of my sales price. But the best used bookstores have a much higher margin - at least 60%. I strongly suggest only paying 1/3 of your estimated sales price for your stock. If you think you can get away with paying less, even better. Remember that you're starting a business and it's not unethical to want to make money at it. Used books are not a high-dollar item when compared to jewelry or cars or furniture and yet you still have to pay the same prices for rent and advertising as all those other stores. You're going to need those higher margins to foot the bill.]
5.3 Advertising Strategy
Fiction Addiction's advertising budget will be concentrated on reaching local customers. Online customers will typically find us through our listings on Alibris, Amazon, and the other aggregators.
We plan to use the following advertising and sales channels:
[Advertising is extremely expensive. Usually it's too expensive for used bookstores to do much more than a Yellow Pages ad on an ongoing basis, but you'll probably want to do some initial Grand Opening advertising. Please say no to every high school kid trying to sell you a yearbook ad and every small local advertising idea that someone comes to you with. You are better off saving your money and committing to an expensive long-run newspaper buy than dribbling it away here and there. Long-term, your best marketing is going to be word of mouth from satisfied customers.
As soon as you've signed your lease, make sure to put up some sort of sign that says "Bookstore Coming Soon." As you get closer to your opening date, put that info up on your door.
If you're in a small town, then you'll probably find it a lot easier to get free publicity, but even if you're in big city it doesn't hurt to try. Put together a press release about your grand opening with photos of yourself and your shop and send it to any one who might be interested.]
5.4 Distribution Strategy
Customers will buy our merchandise directly from the store, in the store.
We will also generate sales through the Internet via our own website and listings with online aggregators such as Alibris and Amazon. Such aggregators typically charge a monthly fee of $40-60 and take 15-20% of the sale in exchange for creating the online marketplace.
We will ship all products ordered online from our proposed Patchwork Plaza store. We will take telephone orders via our local number and will either hold the items for in-store pickup or will ship orders to non-local residents.
All sales transactions, including online and telephone sales, will be tracked through the inventory control system.
[I don't recommend it, but if you're planning to drop-ship new books via Baker & Taylor, mention that here, or if you're going to do school book fairs or any other off-premises sales.]
5.5 Sales Strategy
Fiction Addiction's sales strategy is to identify and fill a customer's need, not to pressure the sale. We recognize that many shoppers prefer to help themselves and thus we will use shelf-talkers and focused promotional areas (i.e., for Award Winners or Store Picks) to aid busy customers with their selections.
Our goal is to have our customers take home a product they will enjoy, and thus any Store Pick or employee recommended book can be returned if the customer is not satisfied.
We will unobtrusively track customer sales history (getting names from checks and trade credit accounts) so that we can call customers when books we think they'll like come in. We will also use this information to inform our buying decisions.
[I think one of the best things you can do is get to know your customers by name and track all their purchases. It's helpful with customers who are hesitating - "I can't decide if I've read this or not" - if you can look up their past sales history for them. If you're nervous about contacting a customer without prior permission to tell them about a new arrival, then just set aside the book with their name on it and whip it out the next time they walk in, saying "I set this aside in case you might want it. I know this is an author that you read." Pretty soon you will have them trained to buy anything you've picked out for them.]
5.5.1 Sales Forecast
The following chart gives a run down of forecasted sales. Most used bookstores have fairly even sales throughout the calendar year, with the summer months and the winter holiday season being somewhat stronger.
Table 5.5.1: Projected Sales
Fiscal Year& Projected Net Sales
1 - $85,000.00
[Sales are usually projected based on industry turn figures and the retail value of your inventory. If your store plans to have an inventory of 10,000 books, a 'turn' is simply how long it will take you to sell your entire inventory. If you sell 10,000 books in one year, then you have a turn of 1; if you sell 20,000, then you have a turn of 2, etc. New bookstores usually have a turn of 3-4. Used bookstores may only have a turn of 1-2. And unless you are religious about marking down inventory that doesn't sell and moving it out at bargain basement prices, then your turns may decrease over time as your best books sell and your inventory grows stale.
To come up with the Projected Sales, I took the initial inventory of 15,000 books and multiplied by my projected average sales price of $5.50 and then by a turn of 1.05. This gave me projected sales of $86,6250.00, which I rounded down to $85,000.
The increased sales in years 2 and 3 can be gained by increasing the amount of inventory and/or increasing turns as you get to know your customers and their interests.]
6.0 Management Summary
The owner, Jill Hendrix, is also the President, Secretary, Treasurer and only full-time employee of Fiction Addiction. The owner's desired yearly profit, to cover her living expenses, is $30,000.00
In the case of sickness or vacation, the owner's mother, Nancy McFarlane, will fill in at a rate of $7.00 per hour.
The company does not envision hiring any other full-time employees within the first 3 years.
[This section is fairly self-explanatory. Who's going to be running the business and how much will they get paid. If you are providing benefits, you should mention that here as well.]
If you have any comments or questions about this article please email me at fictionaddiction@juno.com. Stay tuned next week for Part IV of Writing a Used Bookstore Business Plan. It will include the next three sections of the sample business plan - covering market and competitive analysis, advertising, and sales projections.
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