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Returnable Books Are Good For The Publishing Industry

This week, Borders announced that they will purchase books from HarperStudio on a nonreturnable basis. HarperStudio is an experimental imprint of HarperCollins that is trying to change the traditional big trade model by cutting back on author advances and returns from booksellers. I'm in favor of giving authors the option of trading off lower advances for higher royalties and I tried talking McGraw-Hill into giving me a higher royalty in return for no advance when I was writing for them, without luck. But the idea of ending bookseller book returns by selling on a nonreturnable basis is wishful thinking on the part of all parties involved. Bookstores and publishers are businesses that need to make profits to survive. The main profit drivers for large publishers are bestsellers and evergreen titles. The main profit center for bookstore chains may actually be cooperative advertising dollars from large publishers, but their main retailing activity is pushing those same bestsellers and evergreen titles.

Large publishers fantasize that bookstores will continue to give a most of their titles a chance on the shelves if they increase the trade discount to bookstores from 48% or 50% on a returnable basis to 58% or 60% (or more) on a nonreturnable basis. While a large bookstore chain may be willing to experiment with a nonreturnable list from a small imprint, it would be suicidal for them to gamble on a large number of nonreturnable titles. The majority of books in the large superstores function primarily as wallpaper, to make a warehouse sized store look and feel like a bookstore. Most of the new titles coming into a superstore get a few months on the shelves, don't sell well, and are returned to the publisher for credit towards a new batch of titles. Currently, bookstore chains can sell the small number of nonreturnable books they stock at bargain prices when they fail to move, taking a small loss. If the majority of the books in a superstore were there on a nonreturnable basis, the store couldn't stand selling them at a loss. Those books would simply remain on the shelves year after year, filling their wallpaper role and eliminating the chance for all but the most heavily promoted new titles from the trades to ever get in the door. Eventually, the bookstore chains would all come to resemble airport booksellers, with a stock of fast moving bestsellers, crossword puzzle books and timeless classics they could afford to sit on.

Bookstore owners, the large chains in particular, fantasize that they can add 20% to their gross margins by purchasing nonreturnable books. Of course, these profits only materialize if they can sell most of the books they purchase for their usual price. The only way bookstores can hope to achieve this is to cut way back on titles that aren't proven sellers, or at least backed by huge promotional budgets. Instead of a superstore chain cycling through tens of thousands of new releases in the course of a year, they will only gamble on a few thousand new titles. I predict that Barnes&Noble, the chain that has proven itself the most business savvy, would continue to increase the number of books they publish in house under a nonreturnable paradigm, until half the books in every Barnes&Nobles store are out-of-copyright classics, how-to, self help and reference books, published by Barnes&Noble and kept on the shelves until they sell.

Small publishers are likewise deceiving themselves. The small publishers who count on distributors to handle their books are currently giving up a 60% to 70% (or more) discount on returnable basis, since the distributor takes a cut. If the distributor was forced to sell to bookstores at a nonreturnable discount of 58% to 65%, the publishers would be selling books to the distributor at a 70% to 80% discount off the cover, and I'll bet the publishers still couldn't expect to get paid promptly because the distributors are always cash poor. Imagine being a small publisher with frontlist titles priced around $20 and having to sell them for between $4 and $6. Most would go out of business, and that doesn't even get into the original problem that bookstores will be less willing to try new books from a distributor if they can't get credit at the distributor for returns.

Small bookstores may have it hardest of them all. The whole business model of returnable books was created back in the Great Depression because bookstores didn't have the capital to purchase new books and publishers had to choose between stopping the presses and basically providing the books on consignment. Times are harder for small bookstores today than at any other period since the returnable model was introduced. The only small bookstores that could afford to take a chance on new titles other than bestsellers and specialty titles are those that are run as hobby stores by retired professionals or trust fund babies.

So let's set the record straight. Returnable books are good for everybody. They allow bookstore chains to stock a real variety of books, and they allow trade publishers to offer a chance in the sun to far more authors than would be otherwise possible. Returnable books allow small publishers to make a living on books sold through distribution, and they allow small bookstore owners to follow their instincts and order the titles they think their customers will come to love, rather than stocking nothing but sure things. Returnable books are even good for self publishers like myself, whose books would never have been given a chance on bookstore shelves at a short discount if the bookstores didn't know they could return them. Returnable books are even good for printers, who would lose as much as 30% of their business it weren't for the print and pulp model. Returnable books are what differentiate the publishing business from the grocery business.

The only loser in the returnable book business model is the environment, with the extra trucking books back and forth that goes on, and the paper production process. But trees grown for pulp are a renewable resource, and as soon as the trucking companies are all driving George Jetson trucks, the last objection to book returns will be put to rest.

5 comments:

Thomas Huynh said...

Morris,

I believe the argument you make is 100 percent correct. Why else would ANY bookstore, much less small ones, want to take a chance on new authors unless these authors prove they can sell their books? But of course this is the classic chicken or egg debate. You can't prove yourself until your book is on the shelf, but because of the nonreturnable status of your book, the bookstore can't take the risk on you or any of the thousands of new authors every year.

You can make an argument that the book business's return policy now is how evolution or natural selection works. Nature seems to cast a wide net, throwing away a lot but come up with some very good organisms that eventually do quite well. However, if nature only bet on only a few "sure" things, we'd have some mediocre species in a rather bland, homongenous ecosystem.

Thomas

Morris Rosenthal said...

Thomas,

Nice comparison.

I mainly wrote about it due to my frustration, as a businessman, hearing other people in the book business talk about returns as if they weren't at the core of their business models. They all want to end returns, but they don't really have an alternative to suggest that will let them survive in anything like their present forms.

If they were saying, "Let's end book returns and elminate half of the bookstores and jobs in publishing", I wouldn't have bothered.

Morris

Thomas Huynh said...

Morris,

This is a common illness in business, where people can't see the forest for the trees. It reminds of my father-in-law who's a biologist but also an ecologist. He tells me there are many bright young scientists who can name you every bird (for example) but very few know where each bird belongs in what environment (including other organisms in that environment). They unconsciously believe everything exists by itself, not realizing how one can affect or is affected by others -- what really makes the bird the way it is.

Thomas

Patrick said...

Hi Morris,

Great piece, and as a small independent publisher, this issue is something we are really struggling with at the moment. Your points re wholesale discounts and then distribution agreements are spot on. The margin is getting squeezed. I agree that SOR is part of publishing and too many people take exception to this model, rather than try to get benefit from it.
However, what has brought this to crisis point for us is that the return levels are becoming unmanageable. SOR works when returns are kept within industry standards, but when they double industry standards then the model just doesn't work. It leaves publishers exposed to unreasonable risk in the buyer/seller relationship because, as you point out, the publishers support sellers with publicity and promotional efforts, but the wholesaler ends up sending books back just to get credit for the next lot. The wholesalers cashflow problems are being leveraged onto us, the publishers!

It is becoming unsustainable and we are in danger of having to reduce staff numbers and enter into 'safer' publishing which will again restrict variety.

I dont suppose you have heard of any innovative solutions to combat this issue?

Morris Rosenthal said...

Patrick,

I'm afraid I don't have any innovative solutions beyond due diligence on the part of bookstores, publishers and distributors. Bookstores should be more intelligent in their ordering because it costs them money to play with returns. Publishers should stop pretending that every book is a bestseller, and distributors should pay attention to what their computers tell them about sell-through.

The problem the book industry is facing today isn't all that different than the problem with the banking industry. Many of the participants lost sight of the long run and are simply trying to score quickly, and the result is it gets messed up for all of us.

The solution I adopted for myself, a one horse show, is to focus on my website. Currently, I push my customers to Amazon or to buying ebooks direct from us, and have my books in distribution at a short discount. While I accept returns, I don't get many, because few bookstores will order short discount books without a customer in hand. The B&N chain did stock one of my titles for a couple years, maybe they'll start ordering the new edition at some point, but I don't worry about it, and never marketed it to them to start with.

Morris