Volume Business

Transformations

What happens when the world's best real-life bookstore takes on the world's best virtual bookstore?

It's located in the space once occupied by a hard-pressed auto dealership. The unadorned front window sports a haphazard display of dog-eared copies of such masterpieces as The Pantyhose Craft Book and Mystery of the Ductless Glands. Inside, the wooden floors creak as you walk past bookcases of new books shelved side by side with used ones.

Hard to believe you're in what is considered by many to be the world's best bookstore. Yet Powell's City of Books is a landmark for hard-core book lovers not only in Portland, Oreg., but throughout the United States and abroad. Even the likes of Barnes & Noble and Borders haven't been able to make a dent in its fanatically loyal trade.

Nevertheless, Powell's faces a competitive threat that many believe casts a cloud over the prospects for any bookstore's long-term existence. The business spearheading that threat is located up the coast, in Seattle--though it also can be said to be located everywhere and nowhere. The culprit is Amazon.com, the Web-based cyberbookstore whose explosively growing sales have called into question the most fundamental notions of how books--and perhaps other goods--should be sold.

How can a growing company that has mastered the art of doing business in a 3-D world respond to an incursion from a Web-based competitor? The obvious answer is that it should build its own beachhead on the Web. But extending a successful real-world presence into cyberspace can call for a very different approach from starting a new business on the Web.

By any measure, the book trade is amazingly fragmented and decentralized. Perhaps 50,000 titles are published every year in this country. Covering every subject imaginable, they are produced by hundreds of publishers, ranging from multibillion-dollar outfits like Disney and Time Warner to tiny shops like Graphics Press, of Cheshire, Conn. Those hundreds of publishers use hundreds of distribution companies to get their products to market. And none of this considers the huge market in used books.

As a result, book retailing is ripe for consolidation. Today the 800 or so superstores owned by Barnes & Noble, Books-A-Million, Borders, and Crown control almost 50% of all bookstore sales. As a result, hundreds of independent bookstores have closed.

Powell's staved off the threat from Borders and Barnes & Noble by turning itself into a store like no other. It was founded by Walter Powell, a retired painting contractor and carpet layer with no experience in the book business. Walter's son, Michael, went to graduate school in Chicago, where he opened a used-book store in 1970. When Michael went on vacation, he asked his father to look after the store. Walter enjoyed the experience so much that he went home to Portland and opened his own used-book store one year later. Not knowing anything about the book trade, he broke all the rules.

Instead of limiting his inventory to titles that would sell quickly--standard practice in most small bookshops--Walter bought books like crazy. He built up the stock until it swamped his original location in the northwest part of town and then a second space across the street. He finally pushed the whole operation a few blocks away, into a defunct car dealership that he converted into what is now the single biggest independent bookstore in the United States and perhaps the world. "The idea is choice," says Michael Powell, who joined his father's business in 1979. "We went way past the traditional size of bookstores to find the limit of what people would be interested in, and we've never found that limit."

Today Powell's City of Books is like the Platonic ideal of funky independent bookstores. It rambles over 43,000 square feet of retail space and carries more than half a million volumes in 122 main subject areas. It has a laid-back, paper-strewn cafÉ that sells espresso, pastries, and about 1,000 periodicals. In the 1980s Michael Powell established six satellite stores, all in Portland, most of which specialize in subjects like travel, cooking, and computers. Altogether Powell's has some 400 employees; sales top $30 million a year.

Much of the company's continuing growth stems from a second innovation: selling books in every form--hardcover and paperback, new and used--on the same shelves. "In the used-book world, mixing paperbacks and hardbacks was not so much of a stretch," Michael Powell says. "But when my dad had the idea of bringing in new books, too, I had no sympathy. Used and new on the same shelf? It seemed crazy." It wasn't, though. Combining books in every form, Powell says, "had synergy way beyond what we expected. If you put all the new books in one store and all the used books in another, each wouldn't get half the total business--they drive each other."

Providing books in all forms, Powell's is able to offer a selection greater than any of the chains. "It's our weapon against Borders," says Kanth Gopalpur, marketing manager for Powell's. "They're an excellent store. They create a nice ambiance and have a good cafÉ, and so do we. But they don't sell 21 editions of The Catcher in the Rye. We have old paperbacks that sell for $2, a signed first edition for $1,200, and everything in between."

Michael Powell wanted to keep growing the business, but he didn't, as he puts it, "have the personality" to enjoy rolling out stores. Even if he had wanted to, the logistics of creating another City of Books in another city were formidable. Expansion didn't seem to be in the cards. Then came the Web.

Meanwhile Jeff Bezos had been thinking about the Internet and books. Bezos had always enjoyed bookstores: the smell of paper, the quiet sense of promise behind every spine. But he had never considered starting a bookstore until the early 1990s, when he, like many others, began pondering the commercial implications of the Internet. Bezos was a senior vice-president for a Wall Street fund, but he wasn't so far removed from technology to realize that to sell anything on a medium as emotionally cold as the Internet, he would have to offer a product that was so superior that customers would brave the obstacles of the technology to get it.