Dymocks and its digital turnaround

Don Grover is the chief executive of the franchise chain of book sellers Dymocks, which has emerged from the doldrums of this early decade with a new business model that embraces online strategies.

He talks to Amanda Gome about how he has changed the model and thrust of Dymocks and prepared the company for a digital world.

Amanda Gome: Tell us what you saw when you came onboard in 2003?

Don Grover: When I arrived at Dymocks, it was a business with over 130 years experience in book selling in Australia and with offices and trading sites in New Zealand and Hong Kong. But we were a business primarily focused on the retail assets of the Dymocks bookselling business.

Through a franchise model, the business had experienced some good growth during the 1990s, but stalled somewhat in the early part of the decade in 2000 through to 2003, and really needed some fundamental work done on its model to ensure its ongoing success.

What did you do?

Focused on the basics. We started to remove some of the projects that were not earning value, focused on the margin improvement, and certainly focused on getting the strategic direction of the business into the heads of not only the people that worked in our head office but into the heads of the franchise owners as well.

What did you do with the margin? How did you improve those?

…particularly in bookselling where margin is very difficult to manage in the closed market of environment that booksellers find themselves.

And at that time Borders was really picking up momentum and you had a lot of competition…

That’s right. The best retail principles are the ones that focus entirely on the customer and the differentiation of our business.

The thing is that Dymocks has a wonderful position in the market as being a bookseller of a strong backlist assortment, on top of the best new releases, and we needed to make sure that we were doing the very best job we could for our customers.

I think that that objective is still the objective of our business today to ensure our customers remain the most relevant thing in this industry.

How did that improve your margins though?

Well, the way that it improves your margins obviously comes off top line sales. We’ve had some significant compounding growth of sales over the past four years or five years now, and that’s come from the customer focus which gives us gross margin dollar improvement but also working with some of our publishers to truly form partnerships rather than just supply arrangements.

The fact is that I think that most retailers have adopted a partnership approach with their supply chain. I think they have been the ones that have got the best results in the past decade.

What do your partnerships include?

They have a holistic arrangement, which means that everything we do is designed to improve not only our business outcomes but those of our publishing partners.

I think all too often you can focus on what’s in it for me and I think you get better results quite often when you can focus on what’s better for the partnership in total.

Can you give us some examples?

We worked with one of our major publishers to investigate more thoroughly their intellectual property, their information about what’s selling in the market, so we could ensure that we mandated that the purchasing of those products was made across our networks so we made sure that all of our franchise owners were in stock of the best selling lines of that particular publisher.

That approach hadn’t been done at Dymocks before, and in return for that focus and that commitment to stock the best selling lines of that publisher, we were able to attract a greater level of margin on the sales of those products.

So it was a win/win for both of us. We sold more of what made sense for them and at the same time our people made a greater level of margin on the product that we sold. Simple thing, but then again you think about all the other executions that happen through the channels that we have whether it be website or through our loyalty programs, we were able to espouse the virtues of that particular supplier through the marketing of their product in a holistic way across all the channels we got to market through.

Is that the main way you would increase your margins?

Yes it is, and keep it simple. If you over-engineer things you sometimes make the mistake and lose the woods for the trees. We’ve simply focused on the customer first. What is it they want to buy? Well in Dymocks stores, they want to find the things that are selling well everywhere and our publishers can help us identify those products better than we can. And once you form those partnerships you ensure customers get the best possible outcome.

How did you go about getting the franchisees on board?

It was simply built around the fact that they weren’t aware of what the Dymocks strategy was, so when I first joined I went to them first and said ‘tell me about your strategy, where do you see yourself in three years?’ They had no idea, and the only reason they had no idea was I don’t think Dymocks knew where they were going to be in three years time either.

So doing a very detailed and well communicated strategy about where the business was going to be, was pretty critical to ensuring the franchise owners could buy into that as well.

How did you communicate it?

Through regional franchise meetings, conferences and a constant communication through our infonet. We use our infonet at Dymocks as the porthole to our business and the way we think, and we structure very few, but simple, well articulated documents that help them understand where we are going and what are the issues that they get from high levels, strategic advice.

Then once a year we have a conference, and the first couple of hours of that conference is me standing up in front of them all and talking to them about where I see the direction for the next 12 months, what are we doing, what are we changing from where we have been if we need to, so they are constantly being updated on the big picture.

Because you know what it is like when you are a franchisee; you are working in your business and you don’t have enough time to put your head up and say ‘where the hell are we going?’.

Have you used online to help you find out more about your customers?

Enormously. I mean that’s probably one of the most significant parts of our strategic direction in recent years. When I joined, our website was almost disconnected from our stores and our marketing. It was almost like a separate business. Customers were like, if you could go into a store and buy a product, you should be able to find it on the web.

But at the same time if you go into a store and you want to earn points on your loyalty program, our website at the time I joined didn’t actually have an integration of that ability. It couldn’t provide the points to the loyalty program or in fact look the loyalty program up or have any of the things that made it a truly cross channel business.

Today we have one of the strongest domestic websites in the country with some very significant plans to grow that business much more internationally.

What percentage of revenue comes from online?

We don’t disclose too much about Dymocks, being a private company. But it is a very large store in terms of its volume. Where it really works hard for us is the fact that it is a tool of support for the network in looking up product and finding out where it is, whether it’s available. It’s a tool for our customers to be able to interact with us on a regular basis.

And one thing that I have learnt from bookselling is that customers are wonderful suppliers of rich information back to our business. Because they love to write a story so you can ask them something by email and a very high proportion of them will (a) tell you and (b) tell you in the most eloquent way.

How are customers changing? What’s happening globally in this market and what trends are we following?

Look I think more businesses has started to move towards front list or new release titles. There’s the heavy promotion and I suppose the entertainment factor of new product coming out and coming out in regular monthly sort of bites.

To some degree I have sort of avoided that with Dymocks. I actually think that the love of the product, the love of the author, the author are our brand. So once you’ve found an author, a lot of people will read everything they’ve written.

And I think that it’s important and it’s certainly an advantage that Dymocks’ has is that we carry a big range of backlist titles. I think where the real opportunity is going to lie in the future for bookselling generally speaking is through digital product and print on demand capability.

As that develops over the next decade you’re going to find that bookstores are going to be able offer customers a significantly wider range of product without the need to invest in the physical product to do so.

So which categories are the digital products beginning to take off?

Right now undoubtedly in business and education, the tertiary products and business by far, by far and away.

Which age groups?

That’s a little broader than you think. I think it is starting to touch most age groups but I would say that the 15 to 30 age group where people are both in search of knowledge and they’re not trying to read the entire product or book. They’re wanting to pick and search for particular items of interest and that’s what makes the digital delivery of a book so powerful, because all of them have some form of search capability so you can find the subject or the topic you want from within a text.

And do you find you have to educate the market about digital?

Our stores are the places where we will be able to educate customers on digital technology. We piloted a little over 18 months kiosk functionality in our George Street store in Sydney, to allow customers while they’re in a store to start to learn, touch and feel website interactivity in a store that allows them to download digital products to devices even while they are in our store.

So it is an education process, but I think the education of customers through physical education in stores is a mighty powerful benefit that we can provide that a pure online player can’t.

So how fast is the growth? Is it as fast as you thought it would be?

Yes, well it’s larger than I thought it would be to start with, so we’re serving tens of thousands of people through that are just looking for digital product. While there is a lot of question marks over what hardware people are going to use to access digital product and what suits them most whether that’s computers or e-readers or mobile phones or whatever.

The fact is that we’re a provider of content. We’ll certainly support through the sale of hardware, customers to get everything they need at Dymocks. At the moment we’re selling an Irex Iliad machine out of the Netherlands which is about $1100. We’ve sold hundreds of them, so a lot of people have spent quite a bit of money on these readers and we haven’t had one back. So clearly they’re using them and getting some value out of them, but it’s going to evolve substantially over the next decade.

Do people write differently for online?

Look I haven’t noticed that. Certainly the texts of the books online are the same as the texts of the books in the physical form in everything we do. So I haven’t seen anything where it’s been specifically written for an online purchase only.

That’s interesting; we of course write for online and having spent decades writing for print, we have actually evolved a different style. It’s quite interesting.

I suppose we are looking for the value in people being able to buy both the physical and the digital product together.

What are the margins like compared to print?

The margins are a little lower than the print, however the wonderful thing after margin is there are very few costs; so there is no cost of holding the stock and no cost of delivering it and no cost selling it, so there is far more gross margin that arrives on your bottom line than in a bricks and mortar bookselling business.

What is a Dymocks bookstore going to look like in 40 years?

I do believe the customers are still going to want a physical printed book and because they value so much the smell, the feel, the tactile experience of holding a book, and reading a book. The big difference will be that you can walk into a 100 metre store and find the best part of probably 20,000 books on the shelves in a 100 metre store, but more importantly you will be able to go into a kiosk, where you’ll find anything up to 10 million books and be able to choose anyone of them, that isn’t in stock in the store, and have it printed while you wait. That is going to be the future of bookselling.

It means, in my view, in the long term the need to have very large bookstores with enormous ranges of stock will probably diminish. Right now they want a tactile product and we are going to keep providing them with a tactile product, but we do want to explore and understand the benefits of the digital format and the ability to print on demand.

How many different franchises have you got now?

We have 98, across three countries.

How many did you have when you came on board?

It was in the mid-80s, I can’t remember exactly, but we’ve been able to grow the network. We are quite mature here in Australia as you would expect. We’ve grown some stores in New Zealand and we’ve grown some stores in Hong Kong to be the largest English language bookseller in Hong Kong, and we see that Hong Kong is a wonderful market to be in for future growth into other Asian countries.

So is China next?

China wont be next at the moment, because the regulations currently prevent publishers, booksellers and the like having equity in a business in China. There are structures available that are in the opinions of booksellers worldwide just not appropriate at the moment to enter that market. And that is why you will see no international booksellers in the China market at the moment.

So which country is next?

I think we are going to keep consolidating what we are doing at the moment in the countries that we have. There are amazing countries that are interesting to us, but at this stage China is our major focus and certainly the development of our online presence in China and India, will precede any investment in bricks and mortar.

Have you had any trouble with franchises in countries or in Australia that you have had to shut down?

Look there are always occasions when your network rationalises as well as it grows. The fact is that some business do forfeit for different reasons whether it is competency or just a change in the market dynamics.

And what can you learn from that?

Once it is clear that there isn’t the market to support your business, close the business. That is the simple part of it. You can spend an enormous amount of time and energy and wasted amounts of time and energy, trying to prop up businesses that fundamentally are not in the best interest of the customers.

Now the customers will decide clearly where Dymocks will perform and at the moment we have a very, very solid network. We have had very little alteration to it in the past few years. We have grown quite significantly as a business, even with the Borders and other competitors coming into the market. We have been well positioned to grow and I think it is because of our focus on the customers and ensuring that they go first every time.

How is your revenue growing?

We’ve had probably more that 10% annual compounding growth rates over the past four years.

Of course the John Forsyth family owns Dymocks, what’s that like working with a family like that? What are the benefits and drawbacks?

I don’t see any drawbacks and I think there are a number of benefits. Certainly I’ve come out of a corporate career with an on-market business and being off-market but still sizeable with a wonderful brand, and a very experienced and active board, I think the mix is in a fantastic position.

We don’t need to be on market. We are a business that is growing. We have just purchased a majority share, an 80% share holding, in a company calld Healthy Habits, which is a food retailing business, a franchise business. But at a time when I think most people are feeling the pinch, Dymocks is well positioned to grow.

I think one of the reasons we are able is we are flexible, we do not a have a significant bureaucratic structure, the chairman and I have regular conversations and when we want to make a decision, we make a decision and we can move fast.

So it is like working in an entrepreneurial culture.

Yes it is very different for me, because I hadn’t been exposed to that culture before, but it is an entrepreneurial and performance culture. We have a really good working relationship, management and the board get on extremely well, but at the same time it is an environment where we challenge each other and we’re simply just looking for the best possible performance.