Xinhua Bookstore’s competitors are both online and in-house

China’s Xinhua Bookstore brand turned 70 this May. The bookstore traces its pedigree to a Yan’an store that opened in 1937, and at present, it “has grown into a mammoth distributing and retailing conglomerate, owning 3,100 subsidiary companies and 14,000 chain stores, and employing a workforce of 150,000,” in the words of China Daily.

Earlier this month, shortly after the Sichuan branch had its IPO in Hong Kong, China Daily discussed the threat online bookstores posed to the giant:

Indeed, book retail businesses in China have undergone dramatic changes over the past few decades, says Xu Shengguo, researcher with the China Institute of Publishing Science….By the end of 2006, almost all of the 565 publishing houses in China have opened online bookstores as well as put their products on some 300 privately owned online bookstores, says Xu, a key author of Annual Report on the Publishing Industry in China.

…

In 2006, the total net profit of China’s book retail sector reached 50 billion yuan (6.5 billion U.S. dollars), of which online book sales garnered about 1 billion yuan (130 million U.S. dollars) – a 2-percent year-on-year increase, Xu says.

…

“It is too early to predict the demise of traditional bookstores in the foreseeable future,” Xu insists. He believes that printed books will exist for quite a long time. But with book markets further diversifying, “traditional bookstores will surely be elbowed to a minor position in the near future”….But to keep up with the new market trends, Xinhua Bookstores have made continued adjustments over past few years, as smaller outlets at provincial levels combine to form grouped companies, says Xu.

However, according to a recent analysis in China Business Herald, Xinhua Bookstore’s main problems are found offline. Until recently, Xinhua was the sole national distributor for books, and it had a monopoly on the sales of primary- and secondary-school textbooks. But in 2003 and 2004, GAPP opened up the publishing and distribution market to foreign capital and started to grant domestic companies the power to run national chains of retail outlets and to distribute books across the country. Also in 2004, GAPP began implementing a national plan to invite bids for textbook distribution rights.

The CBH article closes with a discussion of Xinhua Bookstore’s internal problems involving local protectionism and brand management:

The Xinhua Bookstore system was formed in 1951. At the time, Xinhua Bookstore set up its head outlet in Beijing; this office maintained uniform leadership and management of all Xinhua Bookstores across the country, while provincial branches were responsible for managing at the county level. But 1987 was a watershed year in China’s book business: the Xinhua Bookstore head office began to transfer management of local bookstores to the Press and Publications Bureau. From then on, apart from sharing the same name, the head office and local Xinhua Bookstores were completely independent operations. The head office was under GAPP and ran in parallel with local Xinhua Bookstores. Provincial branches were under the local Press and Publications Bureau; they became the administrative and wholesale outlet for the Xinhua system in their province, giving rise to separate local regimes.

These local regimes threw Xinhua Bookstore’s management out of joint and gave rise to harmful competition between Xinhua Bookstores in different areas, as well as spurring rampant local protectionism. In 2002, provinces began to set up distribution groups centered around the provincial Xinhua Bookstores to consolidate the resources of the original Xinhua system in each province and to undertake systematic chain development. But the local regimes were difficult to break.

Industry insiders believe that, to some degree, the chains were able to clear up some of the negative effects of the local regimes. On the other hand, the local regimes presented major obstacles to the development of the chains. The most obvious example is Xinhua Bookstore’s head office. When the Xinhua Publishing Group Company started up its domestic bookstore chains, general manager Liu Guohui said that within 5 years the company would form regional fulfillment centers for Liaoning, Shanghai, Wuhan, Chengdu, Xi’an, and Guangzhou, as well as a national distribution network of more than 1000 chain stores to generate annual sales revenues of up to 3 billion yuan. But to date, it’s hard call the results ideal. In fact, when compared to some strong regional Xinhua Bookstores, head office with all its resources does not have an advantage, because it lacks its own network….

But in fact the influence of local regimes does not end there. To a large extent they have contributed to the gradual decline of the brand.

Xinhua Bookstores is, outside of the financial sector, one of the few commercial enterprises under a single brand, a brand that, through twenty years of reform, has seen enormous development. But over the long-term, as a cultural undertaking of the party, Xinhua Bookstore has been oriented toward social benefit, giving readers a rather strong “mission” image. The broader influence of the company brand has never been given enough attention. Particularly in a distributed operational model where local Xinhua Bookstores “mind their own business,” there is no entity devoted to protecting this storied brand, and it has grown dusty as a result. The “Xinhua Bookstores” brand, an intangible asset, has not really exercised its social influence.

The holder of the “Xinhua Bookstore” brand is distinct from its users, while the Xinhua Bookstores that blanket the country have no financial ties; they are simply individuals who happen to appear unified but really have with no special relationship. Everyone uses the Xinhua Bookstore brand but no one owns it, so there is no motivation to appraise and protect it, to unearth the potential value that lies buried beneath.

Zhejiang’s Xinhua Bookstore Group has reportedly begun promoting its own brand – Bookuu (博库) – and is preparing to expand. The Xinhua Bookstore brand in Zhejiang will retreat backstage as a controlling parent company. Sichuan’s Xinhua Winshare Chainstores is promoting its own “Xinhua Winshare” (新华文轩) and “Times Xinhua” (时代新华). An expert’s analysis says that local Xinhua Bookstores need their own brands to pursue cross-province business, but they are also worried that the umbrella brand of Xinhua Bookstores will suffer harm from poor business performance by their peers.