As indicated by the typical company data, the demand for children’s books has been solid and grown quickly in direct selling sector with drivers different with those behind non-children books market.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. Unlike demand in general book sector, demand for children’s books seems to have been kept strong.

2. On the basis of solid demand, the revenue of children’s book companies seems also to be supported by efficient sales/marketing method-direct sale and online sales.

3. The booming online sales seem to have been driven by reduced shipping costs.

4. Stores-based demand for children’s books seems to be declining in the past several years as indicated by continuing decline in wholesale to retailers.

Causes behind the trend

1. Changes in lifestyle and habits of consumers may be able to explain the downward trend in demand for books and magazine. However, parents may still consider paper-based books as the better educational source for their kids to access to knowledge.

2. Just because demand still exists among parents, largely increased input in marketing and selling of companies, bypassed retail expenses, and the reduced shipping costs (reduced price/costs to consumers) helps drive direct selling and online books sales grow.

Industry Future

1. There are going to be increasing difficulties for books retailers to adapt changes in preference of consumers. Demand for children’s book should be able to be kept strong. Saved profits resulted from traditional retail will be distributed to consumer, online sales, and publishers. However, increasing competition in online sales is expected.

General Financial Performance of Companies In the Sector

It seems that demand for books and magazine of companies in this sector, according to the typical company data, has probably been weak and declining in the past several years as indicated by declining traffic/sales units of both their physical stores (down more than 5% annually in comparable store sales) and online stores ( down about 10% annually). Therefore, the traffic seems not to go somewhere else diminished. Increasing online stores due to lower pre-opening costs may dilute traffic but should not be the major reason for quick decline in traffic.

Shrinking revenue has been deleveraging expenses of store and online operation. In addition to promotion and markdowns, which seem to not bring more convention, companies in this sector have been seen shrinking gross margin in the past several years. The typical gross margin is about 27% but the typical SG&A percentage of sales is also at that level. Therefore, companies are facing a situation that their profit may go down below to zero in 2018.

The typical price/sales ratio is as low as 0.1.

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