Brazil’s Chain Booksellers Can’t Beat Amazon

(Bloomberg Opinion) -- When Rui Campos was shopping for a new venue for his up-market Rio de Janeiro bookstore, Livraria da Travessa, he had some stiff competition. One bidder for the spacious Ipanema address he had in mind was a tony women’s wear label, Chocolate. Another was the Universal Church of the Kingdom of God, Latin America’s hottest Pentecostal order run by billionaire pastor Edir Macedo, who offered an upfront $250,000 leasing fee.

Campos and his associates dug deep and topped the pastor’s offer, and in 2002 inaugurated the brand’s fifth store. Sixteen years on, the odds of pulling off a deal like that – or even of surviving at all -- look even more daunting. Brazil’s book market is staggered by debt, costly overhead, thinning profit margins and fierce digital competition. Late this year, the country’s two biggest booksellers, representing 40 percent of Latin America’s biggest market, filed for bankruptcy. Together, Livraria Saraiva, with 110 stores in its heyday, and Livraria Cultura, known for its multi-floored mansions, have shuttered 40 stores and laid off some 2,000 employees, leaving hundreds of publishers in the lurch.  

To hear it from aficionados, this was a debacle foretold. Latin American book retailers seemed fated to go the way of financially challenged international giants like Barnes & Noble Inc. and the now defunct Borders Group Inc., and it wasn’t long until the Cassandras were prophesying the death of publishing in Brazil, too. Luiz Schwarcz, founder and editor of the highbrow Companhia das Letras, appealed to Brazilians to buy books for Christmas to save them. One snarky columnist blamed social media-driven anti-intellectualism, declaring “stupid is the new black.”

Yet Brazil’s crisis is not part of an imagined global collapse of literacy, as some would have it, but rather a cautionary tale about the digital rabbit hole and chasing the Amazon illusion. Sure, in an economic downturn, books are vulnerable merchandise: clothes and food on the table trump storytelling anytime. (Even in Argentina, perhaps the region’s most bookish society, book sales fell 40 percent in 2016 after President Mauricio Macri floated the overvalued peso, sending inflation soaring.) Yet managerial tunnel vision and executive overreach are killers. “We’ve been talking about the death of the book for a while now,” Campos told me in a recent conversation. “The problem isn’t books, it’s management.”

This time last decade, bookselling and publishing seemed an idiot-proof industry in Brazil. The world’s eighth economy was on a commodity high, juiced by a grand find of high-quality oil hidden in the “pre-salt” layers deep below the Atlantic floor. Sure, the world economy was shaky, but Brazil was still humming. What about the fallout from the collapse of Lehman Brothers Holdings Inc. that presaged the Great Recession? No worry, then President Luiz Inacio Lula da Silva, quipped. “It’s just a ripple.”

Booksellers fancied themselves as charmed. After all, they’d discovered their own pre-salt cache of treasure. While the boom lasted, it lifted the poor into a swelling middle class eager not just for flat-screen televisions and airline travel, but self-improvement and quality education. “With the economy roaring, we imagined a country of readers,” Marcos Pereira, president of Brazil’s National Union of Book Publishers, said in an interview.

Along came Amazon and the lure of e-commerce, hoisting digitally dexterous Brazil into the global top 10 of electronic retailing by 2015, clocking faster growth than the U.S. Suddenly Latin America was buzzing over virtual bookstores, with literary agents hailing an “extraordinary flourishing” in publishing.

Yet book moguls had misread the script. Banking on the new consumer demographic, septuagenarian Saraiva scooped up smaller booksellers and tripled the number of stores in the last decade. Cultura opened a chain of book palaces, before taking over the troubled Brazilian operations of European bookseller FNAC. The binge continued even as mega-retailers like Barnes & Noble and Borders careened. “Brazil thought itself an exception to the economic rules,” said Schwarcz, who was forced to lay off longtime staffers and recently sold control of Companhia das Letras to Penguin. “The book market was in trouble worldwide, but Brazilian stores just kept on expanding.”

Campos recalls the frenzy well. Starting in 2010, with Travessa expanding slowly, suitors with deep pockets came calling. Both Cultura and Saraiva wanted to partner up, either through a joint venture or buying his brand outright. Campos pored over the numbers and, after a lot of courting, demurred. The problem was not just profits, but serious mission drift. 

Lured by the digital emporium, the big booksellers had plowed fortunes into online services and expanded their portfolios to include  electronic games, compact disks and films, telephones and personal computers. “The physical bookstore is stupid,” Sergio Herz, whose family controls Livraria Cultura, famously declared in 2014. He challenged retailers to take their business online, where tech-savvy vendors slinging the right algorithms could target clients, map their purchases and divine their tastes. Saraiva and Cultura even spun out their own e-readers to compete with Amazon’s Kindle, and flopped badly. As the Brazilian stores went mega, revenue from book sales plunged 20 percent from 2015 to 2017.

There were two problems to mimicking Amazon. One was that by chasing customers online, Brazil’s retailers wound up in a price war where besting the competition meant offering drastic discounts, sometimes selling books at little more than cost and undercutting sales at their physical stores. “Market share is beautiful, but it doesn’t pay the bills,” said Mauro Palermo, executive director of Editora Globo, another publisher.

The other problem was existential: Legacy retailers were straying from the business they knew best. “The bookstore is the showroom for books,” said Palermo. “You can surprise readers with your floor plan, architecture, a coffee shop, a book launch, or just the joys of browsing. Those are experiences you can’t match online.”

Campos knows the drill. “People have shown that they want a book to hold in their hands and pages to turn, and they want to have contact with others book lovers,” he said. “That’s what the bookstore is for and bookstores are our business.” Indeed, while the giants languish, regional bookstores like Livraria Martins Fontes, Livrarias Curitiba and Livraria Leitura still flourish.

One proposal that has long stoked booksellers’ imaginations is the so called fixed-price law, which publishers and retailers alike reckon would curb corporate predators (read: Amazon) from buying in bulk and then dumping titles to undercut the native competition. Several European nations have experimented with such literary ring-fencing on the argument that books are cultural patrimony and require special nurturing. Yet such market dirigisme sounds troubling in a country still recovering from years under an economic bell jar, and it’s no hedge against illiterate management.

While Campos backs tamed pricing, the current rules seem to have worked well enough for Travessa, which now has nine walk-in stores, an online service and a catalog of 1.7 million titles.  The day we spoke, Campos was jet-lagged from a trip to Lisbon, where early next year he plans to open his first international store. Another is slated for Sao Paulo in March. Travessa’s debt is modest and his profits are up 15 percent this year. Those are conditions about which most of Brazil’s giant retailers can only read, and dream.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

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