Lessons Learned as a Student Turns Used Texts Into Bestsellers : Entrepreneur: Ken Appel just wanted to save on his schoolbooks. Instead, he started a thriving business.

Four years ago, college student Ken Appel decided to practice what most of his classmates were still learning about in business school: entrepreneurship.

Frustrated with high prices at university-run bookstores, Appel figured that universities were making huge profits on textbook sales and he could still make money by selling books for less. So, he borrowed $2,000 from his father, subleased space in a vitamin store close to UC San Diego and opened KB Books.

The store, which has since moved to its own College Avenue location at the San Diego State University campus, has grown dramatically. Appel, 26, expects sales to reach $1 million this year, up 25% from last year. KB Books has grown at least 20% per semester and now claims 10% to 15% of the SDSU textbook market, Appel said.

KB Books does sell new books, but used texts account for 70% of its sales, Appel said. KB’s prices usually are 7% to 10% less than those at SDSU’s Aztec Shops.

The store’s success can be linked to a nationwide surge in the used textbook market, industry experts say, as college students rebel against skyrocketing textbook costs.

The total U.S. market for used college textbooks rose to $521 million in the 1987-88 school year, the last year for which figures are available. That’s a 12% increase from 1986-87, when the number was $459 million, said Hans Strechow spokesman for the National Assn. of College Stores, a trade group based in Oberlin, Ohio.

“The used book market is growing and it will (continue to grow) for a while,” Strechow said. Combined new and used book sales, which in recent years have grown roughly at the rate of inflation, were $2.6 billion in 1988-89, Strechow said.

Appel is not the only bookseller in recent years to see an opportunity to break university monopolies on text sales. Of the 2,800 member stores in the National Assn. of College Stores, about 300 are private, off-campus operations similar to KB Books, Strechow said.

The private stores are typically “mom-and-pop” operations that set up shop near larger, university operations. Although some campuses have only one university-run textbook store, others have as many as five competing private textbook stores. The stores themselves range from department store-sized operations to specialty shops.

That private stores have been able to find a niche in the college market has not been surprising, Strechow said.

“It’s simply price,” he said. Students “want to save as much as they can so they’ll have money to go to movies and other things. They don’t mind a few notes in the margins. In fact, I think they might even like them. Twenty years ago students bought new textbooks and kept them. Now, a textbook will be obsolete in two years, so why keep it?” Strechow said.

Before Appel opened KB Books, Aztec Shops had been the only textbook store serving the SDSU campus for about 10 years. Appel said one reason for his store’s success is that students took to the “underdog” aspect of KB’s competition with the university store.

“People like dealing with people their own age rather than someone they might perceive as being unsympathetic,” Appel said. “I try to run my business on as personal a level as I can. I have a better idea of what it’s like to be at the other end of the counter.”

Appel, who graduated from UC San Diego in June with a bachelor’s degree in management, originally started his operation on a part-time basis in 1984, operating out of a friend’s apartment. His original goal was simply to buy his and his friends’ books at lower prices than those at UCSD.

Appel and a couple of friends took out a business license as a bookstore so as to buy books at publishers’ wholesale cost.

“I was like any other student having to shell out a lot of money for books,” he said. “We thought we could get our own books for less and then our friends’, and then our friends’ friends. It was a small-scale operation at first. People would order and we would deliver to their dorms.”

But the operation grew so fast that Appel soon realized he had the nugget of a good business idea. In early 1985, Appel subleased space in a vitamin store close to UCSD. The store went far beyond Appel’s expectations.

The company did well enough to expand to SDSU, again subleasing space in a succession of stores within a block of the campus. When trying to run the two ventures got to be too much, the UCSD site was closed in favor of the SDSU location because of its location and a larger campus population.

KB Books found a permanent location last year about a half-block from the campus. The 12,000-square-foot bookstore now sits in what used to be a campus pub and eatery. “We had to remove an overhead grill and a few other things just to get more room,” Appel said.

Because of the cramped quarters, Appel employs “runners” who retrieve books from store shelves for the customers. A student will hand a textbook list to a runner at the front desk, who finds the books and brings them back for check-out. The use of runners allows for narrower aisles and more stock space, Appel said.

“A runner who is more familiar with the store can grab a book quicker than someone trying to find it in a big store,” Appel said. “We can get the people in and out faster. It also cuts down on (customer) theft, which is no small cost at most bookstores.”

The company employs four full-time workers and 15 to 20 part-time workers during the beginning of each semester, the peak period of book sales. KB Books carries 15,000 titles.

Appel credits much of KB’s success to its selection, permanent location and aggressive marketing geared toward faculty. Despite the gains, Appel acknowledges worrying “about the Goliath trying to stamp out the smaller competition,” referring to the university-run store.

Other used textbook stores have also prospered. Sales at Isla Vista Bookstore, about a block away from UC Santa Barbara, rose to $1.5 million in 1988-89, up from $1.2 million in 1987-88 and $1 million in 1986-87.

The key, said Isla Vista owner Dennis Tokumaru, 45, is free access to the university store’s required text list. Many university stores provide the private stores with copies of the book orders for a fee. But a private store could be put out of business if there were a delay in releasing the book orders, or if there were late changes, Tokumaru said.

Ron Baroni, 41, owner of Book Depot, which serves California State University, Sacramento, said he expects sales to reach $458,000 this year, after two years of decreases because of losses in operating a second store at another campus. Sales had reached $465,000 in 1986-87 before falling to $399,000 in 1987-88 and $366,000 in 1988-89.

He cautioned against a wholesale slashing of prices in an effort to compete with the university-run stores. “You don’t want to get them upset,” Baroni said. “If they slash prices, they can hold out longer than you can.”

Campus stores, set up as nonprofit, university auxiliaries, or run through a university foundation, offer a greater variety of titles and usually are more service-oriented. In SDSU’s case, the nonprofit auxiliary provides satellite bookstores for SDSU’s Calexico and San Marcos campuses, a copy center and a computer store.

The profits generated from Aztec Shops are pumped back into the college as discretionary funds to be used by the presidents of the university and student government, said Phil Robbins, campus store director.

The SDSU store carries about 40,000 titles and is housed in a 33,000-square-foot building centrally located on campus. The university store is required to carry everything a professor requests, even if the store loses money in the process. Private bookstores can ignore the requirement and keep profits up by carrying only books in high demand.

The success of KB Books has not hurt Aztec Shops sales, Robbins said. In fact, over the last five years, sales have increased at an annual rate of 5% to 12% in spite of the university’s efforts to keep a lid on enrollment, according to Jan Mask, associate director in charge of Aztec Shops’ book department.

Book sales at Aztec Shops were up to $8.4 million last year from the $7.9 million in 1987-88 and $7.5 million in 1986-87.

University officials welcome the competition, Mask said.

“It’s kind of nice to have somebody else picking up some of the slack,” Mask said. “It gets like a madhouse here at the beginning of the semester,” she said, referring to long lines of students at the store.