2005 ABACUS Report Offers Insight Into Independent Bookstore Operations

For the past three years, in an effort to help booksellers increase their profit margins, the American Booksellers Association has been gathering data on the financial operations of its member bookstores. Each year, these results have been published in a new ABACUS Study and participants have been sent customized store reports, which compare their financial performance with the performance of other stores based on more than 20 different criteria. Participants in this year's study of 2004 financial operations were recently sent their customized store reports, as well as key findings presented in an Executive Summary, which has been adapted for Bookselling This Week.

Introduction and methodology

Now in its third year, the 2005 ABACUS study drew responses from 278 stores -- representing over 15 percent of ABA's membership -- more than have participated in any previous ABACUS survey. (181 stores participated in last year's survey.)

The increased number of participants not only provided stronger data for the survey, but also allowed for a breakdown of the results into more targeted categories. For example, size of store by level of sales is broken out into nine ranges in this year's ABACUS report, compared to six in last year's report.

The increased participation came from stores of all types and sizes, but participation by stores with less than $100,000 in annual sales increased more than any other group. The large number of the smallest stores (many of which are newer stores or stores that serve small communities) relative to other size stores significantly skewed the results of the survey (for example, average net income was nearly three percent lower when these stores were included in the results).

Most of the 2005 ABACUS Study, therefore, excludes data from stores with less than $100,000 in sales for the purposes of calculating average values, and the results referred to in this summary are from the 256 reporting stores that had sales in excess of $100,000. (It should be noted, however, that data from these stores was used in other analyses, and ABA encourages bookstores with sales of less than $100,000 to participate in future ABACUS studies.)

In order to make meaningful comparisons with previous years' surveys, the results of the 2003 and 2004 ABACUS surveys were also recalculated, where pertinent, to exclude data from stores with less than $100,000 in annual sales. Any comparisons in this summary to results from the prior years' surveys reflect these restated results.

Summary of the survey results

The results from this year's survey show a continued trend of rising gross margins that is offset by increased operating expenses, leading to a small decline in net income:

This raises the question of whether operating expenses have increased in actual dollars, or whether sales have declined, causing operating expenses to rise as a percentage of sales even if actual operating expenses have not increased. Since each year's survey includes a different mix of stores, it is not possible to answer this question with certainty. However, there is a core group of 90 stores that have participated in all three years' ABACUS surveys (the "ABACUS Group"). An analysis of the results from this group shows that sales have remained relatively flat while operating expenses have increased.

Not surprisingly, payroll expense and occupancy expense continue to represent the two most significant expenses for almost all stores in the survey. As a percentage of sales, both increased over last year, with occupancy expense showing the largest increase (caused, at least in part, by a significant increase in utility costs). All other operating expenses also increased substantially.

(Note: all percentages, including increases over previous years, are expressed as a percentage of total sales.)

As with previous year's surveys, participating bookstores were divided into three profitability groups -- and, as with previous years' surveys, there was a significant disparity between the profitability of the three groups.

Finally, returning to the results for the "ABACUS Group" (the 90 stores that have participated in all three year's ABACUS surveys), the results from this year's survey again show that these stores are more profitable than the survey group as a whole, and that their profitability is increasing:

Net income for ABACUS Group versus all stores

Watch for more on the 2005 ABACUS Survey results in upcoming editions of Bookselling This Week.