Small bookstores want chains' big discounts shelved

In 1978, when Crown Books operated four stores, founder Robert Haft complained to Avon Books and other paperback publishers about the Waldenbooks and B.Dalton chains getting bigger wholesale discounts than he and other small booksellers were receiving. In a letter to Avon, Mr. Haft wrote that Crown was suffering a ``competitive disadvantage ... simply because our competition is buying from you at a better price than we are.'' He asked for and got the higher discounts.

Today, Crown has 160 bookstores and it is on the other side of what has been termed a ``classic David versus Goliath'' battle where a small, feisty group of independent bookstore owners has taken on the nation's paperback book publishers.

Early this year, the Northern California Booksellers Association (NCBA) filed an antitrust complaint alleging that the nation's three largest bookstore chains - Waldenbooks, B.Dalton, and Crown - have been receiving unfair and illegal wholesale discounts from the paperback book publishers. Coupled with a similar suit filed by the NCBA four years ago against one of the country's major paperback publishers, the latest case could change the nature of bookselling.

Andy Ross, owner of Cody's bookstore in Berkeley, Calif., and president of the NCBA when the first suit was filed, calls this an important case for readers and booksellers alike.

``In the '80s,'' he says, ``the book industry has been dominated by the chains doing 35 to 50 percent of the general book business, and the commercial mass market books are being stocked at the expense of literature and other books.... Unless the concentration is stopped, people will end up with very little variety to read.''

In the extremely competitive book business, wholesale prices are determined by a discount off the preprinted cover price, and the difference between two or three points means a great deal to a retailer. Independent booksellers have long suspected that the big chains were secretly receiving larger discounts from paperback publishers.

The suspicion was confirmed in the late '70s when a publisher's invoice destined for a chain store went astray and ended up in the hands of a Michigan bookseller. The errant bill was followed by further evidence of secret discounts to the big companies. The independents took their case to the Federal Trade Commission (FTC).

The FTC ultimately decided to take no action. But in 1983, NCBA attorney William Petrocelli filed suit against the Hearst Corporation, owner of Avon Books, the nation's eighth largest paperback book publisher. Avon was chosen as a test case, and the NCBA sought only injunctive relief from unfair trade practices, no damages.

Thus far the case has been fought over the issue of cost efficiency with Avon contending that the chains deserve a bigger discount because they are, in Avon's view, more efficient. But last October, almost a year and a half after conclusion of the first phase of the court trial, federal judge Thelton Henderson ruled in favor of the small booksellers.

Mr. Petrocelli calculates that over the past decade the extra discount has added approximately $55 million to the buying power of the chains. Judge Henderson agreed that price discrimination has been a ``substantial factor in providing funds and other economic benefits which have contributed to the growth of these chains.'' According to court findings, during the time the three chains have been receiving the discounts, B.Dalton has expanded from 111 to 725 stores and Waldenbooks from 246 to 865, and Crown from four to 160.

The Hearst Corporation planned to appeal the initial ruling, but this has been put on hold in light of the subsequent antitrust complaint against the chains, asking that they be prohibited from accepting the larger discounts.

In the interim, Crown has countersued the NCBA and several of its members. The suit alleges they have ``conspired to engage in unlawful activities designed to prevent California consumers from having the opportunity to purchase books in a free, open, and competitive marketplace.''

The suit also claims the independents have interfered with Crown's attempt to get a business license in one Berkeley neighborhood and have run a negative publicity campaign against Crown.