Thank you.
Good morning. My name is Susan Dayus and I'm the executive director of the Canadian Booksellers Association, CBA. Thank you very much for inviting CBA to attend your committee meeting this morning.
CBA is the national trade association of booksellers. We represent independents, chains, specialty stores, campus booksellers, and used and antiquarian booksellers across the provinces and territories, in communities large and small, from Victoria and Yellowknife to St. John's and Montreal.
Today I hope to offer you a snapshot of the current status of the bookselling industry. Specifically I will be discussing the major issues that our industry now faces, especially in light of the rising Canadian dollar. I will also take the opportunity to outline suggestions for the government that CBA believes this fragile and important cultural industry could greatly benefit from.
It is important to understand that the bookselling industry is mostly comprised of small businesses. According to a profitability survey conducted by CBA and published this year, over 70% of the respondents reported annual sales that were less than a million dollars. Furthermore, close to a quarter of the total respondents reported annual sales of less than $200,000. Small business bookstores are advantageous for the communities in which they operate, as they are able to carry more local and regional titles and more Canadian titles as a percentage of total offerings. The availability of such unique inventory, CBA believes, is key to promoting culture, heritage, and innovation in our country. However, small businesses are usually hit hardest when economic circumstances change, such as when big industry players merge or when our currency rises rapidly.
According to our 2007 financial profitability survey, the median net income of bookstores with less than $200,000 annual sales showed a net profit of just over 1%. So this group, which contributes to our heritage in an important way, is especially vulnerable. Sadly, from 1998 to 2006, more than 365 independent bookstores in our country closed, and recently, because of the rapid rise in the Canadian dollar, many members have reported a substantial reduction in sales at a time, the Christmas shopping season, when sales should be at their highest. In fact, many stores report that 30% of their sales come from the Christmas selling season of November and December.
Of course, booksellers are just one of the many retail sectors that have faced ongoing criticism from consumers, as they continue to be asked why book prices fail to be adjusted to reflect the rising Canadian dollar. However, unlike other sectors, the book industry must also deal with the fact that the prices are printed right on the books, directly in front of the consumer, making the disparity in pricing even more apparent.
CBA has been working hard over the past few months to get publishers to lower their prices, since it is they, not the booksellers, who determine the book cover price. Consumers should also understand that prices are often set six months or more in advance and therefore rarely reflect the current exchange rate. Because of our efforts, prices have come down and will continue to gradually come down. However, with many of the factors unique to the Canadian marketplace, Canadian cover prices will most likely never be at par with the U.S. cover prices.
As a result of the strong dollar, we are seeing that more and more Canadians are opting not to shop in Canada for their books, but rather, are crossing the border or ordering online to stock up. Not only is this a serious loss for Canadian booksellers and the economy in general, but it is also a loss for the government in terms of tax revenue.
Although Canadian booksellers are not afraid of healthy competition, we feel that it is not in the Canadian economy's interest for the enforcement of cross-border spending limits to be lax. In an effort to keep our dollars in Canada, CBA recommends that rules pertaining to taxes on purchases that went over the allowable cross-border spending limit should be more strictly enforced.
It is important to note that CBA has been working with the government to find a way to solve the issues created by the parity of the Canadian dollar. Last month CBA met with a number of MPs from all four parties, including a productive meeting with Minister Flaherty, to discuss the current status of the industry.
It is paramount that CBA continue to work with key decision-makers such as members of your committee in an effort to find a healthy solution to this issue, a solution that will satisfy Canadian customers while not making it difficult for Canada's small businesses to survive. In the meantime, some booksellers are having a hard time staying afloat, and some have even chosen to sell at the U.S. cover price, even though the merchandise was often purchased when the dollar wasn't as strong, and even though it means their margins will be very slim.
Another challenge facing our industry is the existence of non-licensed booksellers in Canada, such as Amazon.com. Amazon.com is a great concern for booksellers across the country. As committee members, you need to be aware that U.S. Internet retailer Amazon.com has been operating in Canada since the summer of 2002. The entry of this American retail giant into the Canadian market flies in the face of the Investment Canada Act and Canadian book policy that prohibits a non-Canadian from acquiring control of a Canadian book distribution business. Amazon is allowed to circumvent the intention of these rules because the rules were designed before the introduction of the Internet.
The basic rules define a bookseller under the act as meeting two key criteria: one, physical store location; and two, employees. Since Amazon operates with contract services and no physical Canadian presence, they dance around these rules. Indeed, the Department of Canadian Heritage concluded—wrongly, in our opinion—that Amazon's Canadian site is exempt from provisions of the Investment Canada Act that would have required Amazon to seek permission before selling books in the country.
The agency said it determined that the law does not apply to Amazon because the e-tailer is neither establishing a new Canada-based business nor buying an existing one. The act seeks to monitor foreign impact on businesses thought to influence cultural heritage, including the publishing industry.
Last, CBA, along with 16 other like-minded organizations, strongly believes that the government should remove the GST on books. Books all became a little bit more affordable with the one-point GST reduction announced in the 2006 budget, and we look forward to the second one-point reduction in January. CBA asks that the GST be removed from books entirely. GST adds to the cost of books, making them less accessible to Canadians. The fewer books purchased, the fewer people are exposed to the benefits of reading. This is important to fix, especially when more than 40% of Canadian adults don't posses the literacy skills needed for everyday life.
Reading is integral to our economy and our culture. That is why books should not be treated as objects of consumption. Eliminating the GST will bring attention, focus, and support for the independent bookstores in our communities.
On behalf of the Canadian booksellers that we represent, I thank you for your time today.