2006 ABACUS Data-Gathering Begins -- 2005 ABACUS Review Online

Looking to build on the success of last year's ABACUS study, this week the American Booksellers Association started collecting data from member booksellers for the 2006 ABACUS study through a newly designed and easier-to-use Web form. Coinciding with the launch of the new survey, ABA has made available online to member booksellers the 2005 ABACUS Review, which ABA CEO Avin Mark Domnitz presented at the welcome luncheon at last month's Winter Institute in Long Beach, California.

"The data provided in the ABACUS study has become a critical benchmark that booksellers can use to evaluate and improve their stores' financial performance. Moreover, it has become the foundation for much of ABA's educational programming," said Domnitz.

As an incentive to provide data for ABACUS 2006, booksellers who submit completed surveys by July 31, 2006, will receive $50 off their next ABA dues renewal. To make it easier for booksellers to submit their 2005 financial data, the ABACUS Web form is now self-calculating. Also new this year, the study will begin asking participants to include their percentage of online sales.

With 278 ABA member bookstores -- representing 355 locations and approximately $379 million in sales -- submitting data to the 2005 survey (compared to 181 the previous year), the ABACUS study has clearly set a standard against which each store's financial results can be measured, providing participants, as well as the bookselling community as a whole, with invaluable information.

The 2005 ABACUS study results garnered great interest at this year's Winter Institute, where some 300 booksellers attended the "Welcome Luncheon: ABACUS Review" on Thursday, January 26. At the session, Domnitz summarized the results from ABACUS 2005, which is based on participants' 2004 financial data, and explored what the results mean for independent bookstores.

Domnitz noted that, due to the large number of new participants in the 2005 survey that were bookstores with less than $100,000 in sales, the data from those stores significantly skewed the results for the survey as a whole. For example, he said, average net income for all participating stores in 2004 was minus 3.43 percent [Slide 3]. However, if stores with less than $100,000 in sales were excluded, the net income of the remaining stores increased dramatically to minus 0.72 percent [Slide 4]. Therefore, he explained, ABA decided to exclude the data from these stores from this year's survey report, and to ensure consistency of comparisons, the results of previous years' surveys were recalculated to also exclude stores with sales of less than $100,000.

However, Domnitz stressed, "ABA very much encourages stores with less than $100,000 in sales to continue to participate in the ABACUS survey. The results from those stores provide us with a valuable window into the operations of smaller stores and each of these stores receives the full benefits of participating in the survey, including a fully customized report."

According to the 2005 study, while average gross margins have improved significantly over the past three years (2002 to 2004), from 39.8 percent to 41.5 percent [Slide 5], average net income declined over those years because operating expenses have increased at a greater rate than gross margin [Slide 4]. Most notably, occupancy costs have increased almost one percent and payroll expense also continues to rise [Slide 6].

Although the average net income of all stores participating in the survey was minus 0.72 percent, Domnitz pointed out that 30 percent of participating stores actually made a "very healthy" average profit of 6.6 percent, while the 30 percent of participating stores that fell into the lowest profitability group had an average loss of 9.4 percent [Slide 9].

Domnitz then walked attendees through a comparison between the higher profit group, the lower profit group, and average stores. For instance, in 2004, the average cost of goods sold (COGS) for the lower profit group was 59.4 percent, while the average COGS for higher profit stores was 56.3 percent. And importantly, the higher profit group spent a lesser percentage on compensation, occupancy, advertising, and other expenses [Slide 13]. On average, the higher profit stores had higher sales-per-selling-square-foot (SPSS), lower costs of goods sold, higher gross margins, and lower operating expenses [Slide 14]. However, Domnitz noted, "There is no one model of profitability." For instance, while the average SPSS for the higher profit group was $328, one store in this group had SPSS of only $29, while another had an SPSS of $1,299 [Slide 15].

Contrary to what many people might think, the largest bookstores in the study were not the most profitable, Domnitz reported. While there are profitable stores of all sizes, on average, bookstores started to become profitable at around $500,000 to $750,000 in sales, and stores with sales in the $1 million to $2.5 million range showed the highest average net income. Average net income actually started to decline at about $2.5 million in sales, he said [Slides 17 and 18].

To conclude his presentation, Domnitz encouraged booksellers to participate in the ABACUS 2006 survey. Completing the survey takes approximately an hour and in return ABA member booksellers receive:

• A customized report with detailed analysis of their store's financial results;
• Comparisons with other stores based on more than 20 different criteria;
• An executive summary of the study's key findings;
• Key insights into the drivers of independent bookstore profitability;
• Year-to-year trends data; and
• Opportunities to participate in ancillary studies.

Making the case for participation, Domnitz noted that while average net income for all participants in the ABACUS study has declined for the past three years, average net income for the ABACUS Group -- 90 stores that have participated in all of the past three years surveys -- has been increasing and is now nearly 1.5 percent higher than the average for the entire survey group. "Stores that regularly participate in ABACUS are also stores that pay close attention to their finances," he said, "and paying close attention to the numbers is critical to becoming profitable" [Slide 21].

All information provided to the ABACUS study is kept strictly confidential. To access the easy-to-use ABACUS Web form, click here.

Questions about the ABACUS study should be directed to David Walker, ABA's director of special projects, at [email protected].