AUF WIEDERSEHEN: German media conglomerate Bertelsmann has decided to close its bookstores in China

German media giant Bertelsmann AG is going to close 36 of its bookstores in China because it has been unable to realize profits from the business after failing to fight off fierce competition from online rivals and adapt to readers' changing tastes.

The company, which has sold books through catalogue order deliveries, bookstores and online stores in China, said on June 13 it would close 36 of its 21st Century Book Chain outlets in 18 cities by the end of July. The company will keep its nine Bertelsmann outlets in Shanghai open, because they are managed by a different company, Shanghai Bertelsmann Culture Industry Co.

"Despite our significant investment in managerial and financial resources, the chain store business lacks the scale and profitability necessary to make it a sustainable option," Yu Le, CEO of Bertelsmann's China Corporate Center, told Shanghai Daily on June 16.

Bertelsmann is also considering shuttering the loss-making China subsidiary of its Direct Group, one of the company's six divisions that includes Bertelsmann Online, the third largest online bookstore next to Dangdang.com and Joyo-Amazon in China, its book club unit and its bookstores.

Bertelsmann, a private company headquartered in Gütersloh, Germany, set up China's first book club in 1995. It has attracted 1.5 million fee-paying members in the past 13 years. But the world's third largest media company failed to turn its first mover advantage into profit when China geared up for the e-commerce boom.

"The biggest failure was that Bertelsmann had never found itself a team of executives who knew the market well," said Huang Yuhai, former Editor-in-Chief of the Shanghai Bertelsmann Book Club and President of Shanghai 99 Readers' Culture Co. Ltd., in an interview with China Business Weekly.

"The CEO has always been a foreigner although 99 percent of the employees are Chinese," Huang was quoted as saying. "They stressed candidates' overseas or MBA experience even when they looked for Chinese management personnel, while neglecting the importance of localizing the book club operations."

Outdated book club

Bertelsmann introduced the "book club" system in China in 1995 and targeted young readers with so-called "youth literature"-mostly the latest bestsellers. It encouraged customers to join its book club by paying membership fees in exchange for membership discounts.

Bertelsmann had invested hugely in the book club business here. An insider told China Business Weekly that deliveries of its catalogue to members cost the company about 3 million yuan ($430,000) every month, and the company spent 4-5 million yuan ($571,400-714,300) a year in advertising to recruit members.

In the meantime, Bertelsmann also had focused on improving its delivery and customer service systems. It established a customer relationship management (CRM) system and a call center in 1997, staffed with nearly 150 employees. It also secured an exclusive postcode that most online bookstores covet in order to speed up its book deliveries.

Its book club business reached peak in 2003 when its yearly revenue hit 150 million yuan ($21.4 million), which has already shrunk to several dozen million yuan in recent years. The book club had information for more than 8 million members in its CRM system, of whom 300,000 had placed 10 or more orders and another 1.5 million had placed between five and 10 orders, according to Huang.

Unhappy readers

The book club was popular among white-collar workers and teenagers at first, but lost its appeal when readers had easier and cheaper access to books and their interests and habits changed.