The decision came after the company had toyed with a number of strategies in the Chinese market. To broaden its sales channels, in 2004 Bertelsmann bought a 40 percent share of the Beijing 21st Century Samite Books Chain Co., Ltd. and established the Bertelsmann-21st Century Books Chain, with 17 outlets in Beijing. However, book prices in China are much lower than those in European countries, while the rent on retail spaces in Beijing is almost the same. As a result, the economic performance of the Bertelsmann outlets was poor, and in 2006 eleven closed down.

    In 2005, Bertelsmann opened bookstores in Wal-Mart and Carrefour stores, in the hope that the high customer flows in these outlets would bring the book club new members. But the noise and food smells were not conducive to book buying. Today signs directing costumers to Bertelsmann bookshops can still be found at the entrance of many Wal-Mart and Carrefour stores, but the Bertelsmann outlets have disappeared.

    The fate of the China operation is indicative of a global downturn in Bertelsmann's fortunes. The profit of the Direct Group running the company's bookstores plummeted from €110 million (approximately RMB 1.1 billion) in 2006 to €10 million (approximately RMB 100 million) in 2007. Affected by Amazon's online book market, Bertelsmann's U.S. operation only reaped a profit of US $400 million (approximately RMB 2.8 billion) in 2007, a dramatic drop of 80 percent. The book clubs have suffered continuous losses for years due to shrinking membership, forcing Bertelsmann to sell its North American book club business to Najafi Companies.

An Unsuitable Model

    The arrival of the Internet has had a negative impact on book clubs globally, especially in China. "The Bertelsmann book business model is not suited to Chinese conditions, particularly since the Internet has become a part of young Chinese consumers' lives," says Yu Yu, president of popular online bookstore dangdang.com. By June 2008, a staggering 253 million Chinese people were netizens, the largest national group of net users in the world. Xu Shengguo, director of the Chinese Institute of Publishing Science, agrees that the onslaught of the Internet has been fatal to the conventional book club business. Though Bertelsmann established its online bookstore, BOL, a long time ago, it failed to develop its business effectively. "It was more a question of the strategic decisions taken by headquarters in Germany than a problem with Bertelsmann China," claims Cui Juan.

    When talking about why he quit the Bertelsmann Book Club, Ding Yi explains, "The book prices were higher than those offered by online bookstores, and some of the membership terms were quite arbitrary." According to club rules, each member had to make at least one quarterly purchase, otherwise his or her membership would be automatically discontinued. "But I may not like any of the books recommended on the Bertelsmann list," says Ding Yi. Many other members felt the same about such coercive terms.

    Club members paid an annual membership fee of RMB 30, receiving in return a 10-percent discount for book purchases. In comparison, online bookstores like Joyo and Dangdang offer 30 percent discounts, and sometimes have discounts of 50 percent, not to mention a broader variety of titles. The Bertelsmann book club and online bookstore only provided around 1,000 titles to chose from. "Though I was a club member, most of my books were not obtained from Bertelsmann. Dangdang and Joyo were more convenient channels," says Li Meng.

    Unlike European countries, where going to bookstores to read and buy books has become part of the lifestyle, Chinese book consumers are accustomed to first browsing in big bookstores or reading online book catalogues, before placing an order with an online bookstore, such as Dangdang or Joyo. An AC Nelson survey report shows that of China's 55 million online consumers, 56 percent regularly shop for books on the Internet.

    However, Bertelsmann's business failure in China cannot be attributed solely to online competitors. Figures show that the combined annual sales of Dangdang and Joyo account for only a tiny portion of the national book market. In 2006, their combined sales were more than RMB 500 million, while the year's retail book market value stood at RMB 64.09 billion, totaling 6.41 billion books and 230,000 titles.