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Winners

Bookoff Corporation Limited

2006 6th Porter Prize Winner Used book store chain
Creation of an innovative strategy for developing the second-hand book market for “ordinary books,” supported by a totally new method for setting the purchase price that is not based on the contents of a book but on its appearance, simplified store operations that involves the management of inventory through the use of colored labels, and a personnel management system to motivate and enhance the performance of part-time staff.

Industry Background

Second-hand bookstores have traditionally relied on specialization in a niche market as a successful business model. More specifically, it was believed important to develop a specialty and offer a selection of used books that would attract researchers or collectors of rare books in a particular field. This approach requires second-hand bookstores to have in-house capability for assessing the value of a book, taking into account rarity, and historical and cultural value, a skill which takes several years to learn and must be developed through hands-on experience. Because of the difficulty of cultivating specialists capable of assessing the value of books, it was generally believed that it would be virtually impossible to create a chain of second-hand bookstores.

Executive Summary

Bookoff Corporation pioneered the second-hand bookstore chain in Japan. It offers books for the general public, instead of just researchers and book collectors. Its stores are clean, brightly lit and welcoming. Bookoff opened its first store in May 1990, and as of March 2006, it operated 854 bookstores: 291 stores under the direct management of Bookoff and 563 franchises. During the 1990's when the Japanese economy was in the midst of a recession, a few new competitors entered from various industries, but most of them failed and withdrew from this market. Bookoff currently holds more than a 60% share of the second-hand book market. It is still on a growth track, as evidenced by the continual increase in the number of stores and also by the upward trend in revenue per existing store.

Unique Value Proposition

Bookoff created a new market for books, comics, CDs, DVDs and video game software, making it possible for items that had been unused and hoarded at home to be traded in and resold. In other words, general consumers found a place to sell the dead stock that normally accumulates at home.

Furthermore, Bookoff offers general consumers a place to buy second-hand books at low prices through a very simple process. The books sold at Bookoff stores are priced according to their condition and appearance. Books in good condition are sold at half the original retail price of the book when it was new, while those that are faded, torn or dirty are priced at 100 yen. The average price of books sold in Bookoff stores is 20% of the original retail price. Japan's resale system prohibits the discounting of new books, to ensure that prices are maintained at the original price level. Therefore, Bookoff has not only created a new market for recycling books that have been read only once, but also provides a place for people to buy books at low prices.

Unique Value Chain

Procurement
Bookoff focuses on buying used books at low prices. This was made possible by buying directly from the vast general consumer population. The condition of the book determines the purchase price, which is about 10% of the original retail price if the condition is good, and is as little as 10 yen if it is damaged or in poor condition.

Bookoff staff polish the covers of books that have been traded in, and shave off their edges before putting them out on the display shelves.

Inbound and outbound logistics
Books that were been traded in are sold at the store which bought them. As a result, Bookoff has very short supply chain. Books that are traded in are either brought in by the seller, picked up by a Bookoff staff member at the seller's home, or sent directly to the store in a package from the seller.

Store operation
Bookoff's store operation has been simplified so a first-year store manager and seven to eight part-time staff can operate each store. Even part-time staff can handle purchasing, price setting, and inventory management after only three days of work in a Bookoff store. Books are displayed on shelves by content category and size, which makes stacking the shelves a simple process. Specifically, book categories include: hard cover books, paperbacks, comics for children and comics for adults.

Bookoff's simplified operations do not mean that store operation is merely an inflexible, mechanical process that leaves no for improvement. Bookoff's staff are encouraged to come up with new ideas for improving many areas of operation, such as the reallocation of shelf space to match the flow of customer traffic (i.e. the decision to put a certain category of books near the store entrance).

Inventory management
Bookoff's inventory management has also been simplified. At the time of acquisition, a colored adhesive label is affixed to the book's spine. This color is changed quarterly, to indicate broadly when it was purchased. Inventory at Bookoff is not controlled by maintenance of records for each individual book but rather by the use of these colored labels.

Bookoff aims to sell all the books in its inventory as quickly as possible, and this is the main objective of its inventory management system. To this end, the sales price of a book is drastically reduced when the period in inventory exceeds a certain length of time. Books in good condition are generally priced at half the original retail price, but books with a colored label from two seasons back, if found on a shelf, will be discounted to 100 yen. Also, if there are more than five copies of the same book, the price be slashed to 100 yen for a quick sell. The pricing of music CDs is conducted according to pre-determined guidelines periodically provided by the headquarters.

Marketing
Bookoff's marketing activities focus on how they can increase the amount of books acquired for resale. The message consistently communicated in its advertising (TV commercials, newspaper inserts, billboards and outdoor banners) stress: "Please sell your books (to us)," rather than "We sell books." This derives from the fact that total sales of used books depend entirely on the volume of books Bookoff can buy (unlike the case of new book sales, in which bookstores can freely place orders to procure more stock from wholesalers and publishers.)

Human resource management
The most distinctive feature of HR management at Bookoff is in its emphasis on making maximum use of the capabilities of every staff member in the store. It uses standardized promotion criteria for both full-time employees and part-time staff, clearly stating as requirements that staff and part-timers work closely together with co-workers, and constantly make diligent efforts to improve their skills, and that all employees be sensitive to the activities and feelings of others. Its corporate culture places the highest priority on helping others to develop and grow. This guiding principle is well understood and shared by all members of the staff. Each store takes the initiative in the training of newly recruited staff members. Much authority is delegated to the store manager, and store managers can hire and promote part-time staff on their own discretion.

To develop the staff's capabilities, training programs are conducted at the headquarters, and also within divisions and at certain stores that have training capabilities. The leaders of the part-time staff in each store are invited to training programs held overseas, which are designed with the primary objectives of pooling the know-how developed at each store, discussing the latest issues and devising solutions. The secondary objectives are the broadening of participants' perspectives and restore their energies.

Bookoff openly discloses its financial targets and the performance results of each store. This information is shared with every member of the staff, including part-timers, to motivate all employees to work toward accomplishing the store's management objectives.

Fit among Activities

Bookoff's activities are selected and adjusted in line with three central concepts, with the first being simplified and easy-to-understand store operations that can be learned and performed by part-timers after only three days on the job, the second being tight control of inventory turnover, and the third being the effective motivation of part-time staff members in the store. Activity designs call for a purchase price system that focuses on a book's condition, inventory management through the use of colored labels, and the elimination of record-keeping for individual books, decisions all stemming from the concept of simplified store operations. To maintain a high inventory turnover rate, Bookoff drastically discounts unsold books to 100 yen after a period of three to six months, and also slashes the price on excess inventory (i.e. six or more copies of the same book). Furthermore, to raise the motivation of part-time staff and keep them motivated, Bookoff includes them in discussions of management issues, arranges various training programs, and sets clear promotion criteria for them.

Through the cultivation of a team of highly motivated part-time staff, Bookoff manages to keep personnel costs to a relatively low, and simultaneously makes constant improvements to book displays and store layouts, runs the store operations with a high inventory turnover rate and provides customers with a comfortable environment in which to buy or sell books. If part-time staff members are not motivated, a vicious cycle is likely to ensue in which they might slack off instead of buying the books that are brought in. The result would be a stagnation in the selection of books on offer in the store, which would lead to a decline in sales and even fewer books being brought in the future. Keeping part-time staff highly motivated activates buying and leads to increased sales. (Please refer to the attached "Activity System Map" for more detailed accounts of relationship between these activities.)

Innovations that Enabled Strategy

  • The purchasing price is determined by the external appearance of the product, not by its cultural value or rarity.
  • The selling price is also determined by the external appearance and the length of time in inventory, not by the book's cultural value or rarity.
  • Inventory management is conducted through the use of affixed colored labels, with the label color changed every three months.
  • Bookoff shaves the edges of the book, and polishes the front and back covers.

Continuity of Strategy Over Time

Simplified store operations, so that book buying and inventory control can be performed by newly recruited part-timers on the third day in the store, and an emphasis on promoting inventory turnover have been the basis of Bookoff operations from the very first day. Since then, Bookoff's merchandise lineup has been expanded to include CDs, DVDs and video game software. The sales prices of products in these additional merchandise categories fluctuate according to supply and demand, thereby rendering Bookoff's simple pricing process ineffective. Bookoff has been able to successfully keep store operations simple by having the headquarters set the prices for this merchandise.

Trade-offs

  • Bookoff has chosen not to cultivate a team of specialists with experience and expertise in the assessement of a book's cultural value and rarity.
  • Bookoff does not manage inventory by individual book
  • Bookoff does not seek to make its stores distinctive by offering a specialized selection of books targeting to particular niche market, nor does it offer consultation services by knowledgeable specialists.
  • Bookoff does not keep books in inventory for long period.

Profitability

Bookoff consistently exceeded the industry average in terms of both return on invested capital and return on sales, and its positive lead is even widening.

Return on invested capital (ROIC)   (Unit = percentage point)
Difference from industry averag
over 5 year period
Difference from industry average, by year
2001 2002 2003 2004 2005
11.9%P -2.9%P 7.2%P 12.7%P 12.6%P 22.3%P
Return on invested capital = Operating income / Average invested capital

Return on sales (ROS)   (Unit = percentage point)
Difference from industry average
over 5 year period
Difference from industry average, by year
2001 2002 2003 2004 2005
3.3%P 0.4%P 2.7%P 2.9%P 4.1%P 6.0%P
Return on sales =Operating income / Net sales

Activity System Map

Four Musts to Achieve Planned Goals

  1. Every staff member and store manager knows the store's goals and targets.
  2. The overall performance targets for the store are communicated to every member of the staff, and personal performance targets are assigned to each individual. Thus, all members share responsibility for achieving the achieve targets.
  3. Each staff member is responsible for achieving the assigned targets. The store manager constantly monitors each individual's progress.
  4. Meeting are held constantly to discuss ways to achieve targets, and information and suggestions are collected from everyone in the store.

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