February, 2013

Is trade publishing’s situation more like the newspapers or more like the advertisers?


It has been an important tenet of my thinking about digital change in the book business to understand that books are different from other media — music, TV, movies, newspapers, magazines — as we try to anticipate the future.

I’ve long recognized two big structural distinctions: the “unit of appreciation, unit of sale” paradigm and the dependence of some of the other media on advertising. (Movies are the least different from books in these ways. The biggest difference between books and movies is the much larger number of people and dollars necessary to deliver most movies than to deliver most books.)

I have just seen a 3-part series (number one; number two; and number three) by a digital thinker named Steve Gray — the Director of Strategy and Innovation for Morris Communications Company — that, although it is newspaper-centric (as Gray’s background and employer are), contains insight that is useful across media, including books. But the more I think about the very smart things in Gray’s posts, the more it reinforces that the lessons of digital change are not necessarily the same for general trade books as they are for other media.

The history that Gray reviews is familiar to most of us. But while book publishing people tend to focus on the changes enabled by Gutenberg, Gray’s newspaper-centric view makes the high-speed rotary press, which enabled publications cheap enough to be daily purchases by masses of people, the seminal moment.

High-speed presses made all print cheap for the incremental copy. In the case of radio and televison, of course, the incremental copy is free. So all these media, as well as movies, which used scale in a slightly different way, were about amortizing the costs of content creation across “mass market” consumption.

If Karl Marx had been writing a bit later than he did, he might have seen that controlling the “means of distribution” had become as important as he saw controlling the “means of production” to be.

For newspapers, magazines, TV, and radio, the ability to deliver expensive-to-produce content to mass audiences that really craved it created huge advertising revenues. As Gray documents, this led to the aggregating, the bundling, the combining of material into packages that were efficient for the advertising medium to distribute. This was a “unit of sale” that was the most efficient that could be delivered for a period of about 150 years, from the 1850s until just a few years ago.

And that’s what the Internet has blown up. Because now the distribution mechanism for expensive-to-create content is precisely the same as the distribution mechanism for any content. In the book business, we’ve been tracking that as “purchased in stores” (which is, in itself, expensive and pretty much restricted to expensive-to-create content) as opposed to “purchased online” (which is a channel open to all of us).

Gray calls this a change from the “mass media era” to the “infinite media era”.

But as Gray continues his analysis, he comes up with what looks at first glance to me like a contradiction to the proposition that audiences are splintering, visible in the charts he presents of where web traffic goes. In fact, at the domain level, the tendency to concentration shows no signs of abating. In a pie chart Gray shows from one of the markets in which his company has a newspaper, he shows how the visits divide among the top 70% of the traffic, before you hit the “long tail”. Well more than half the site visits in the top 70% are to three domains: Facebook, Google, and YouTube. Add in Yahoo, Yahoo Search, and Bing and you’ve covered over 75% of that traffic.

Obviously, the local newspaper’s share is tiny.

Within the aggregated traffic of the big domains, of course, the apparent anomaly gives way and interests splinter (and, in fact, a newspaper might have some of the traffic that is called “Facebook”, although it wouldn’t have much power to monetize it). Many of, let’s say, ten thousand people on the web site of the NY Times will view the same content. Ten thousand people on Facebook might not overlap at all; ten thousand people searching Google or YouTube might not contain repeats either. These sites have figured out how to aggregate and display a vast amount of (user- or algorithm-generated) content. Curated aggregators like newspapers or radio stations simply can’t compete.

As Gray points out, the tendency of the curated aggregation sites is to compare themselves to each other. If the newspaper in a town is generating more traffic than the biggest radio station, they might declare victory. And if that really defined their competitors for audience or advertising dollars, that comparison would be sufficient and valid.

But Gray also makes it clear that the advertisers the newspaper or radio station might pursue are going to increasingly find locally-effective alternatives from the global domains. And the great hope that local news can be the killer content that keeps people loyal to their legacy providers doesn’t get much support from Gray. What he sees in the stats is that people find “news” of their social circle, which is what they get from Facebook, is far more compelling than “news” of their local area, which is what they get from their local paper. And the former can lead to the latter but rarely vice-versa.

It is interesting, though, that Gray’s punch line, which (if true) is a knockout blow to newspapers, actually contains some rays of hope for big book publishers that can operate at scale.

He sees five key points to consider:

1. The mass media’s digital advertising must compete with vast inventories of low-priced space on millions of websites.

2. Mass media content is now just a drop in an infinite ocean.

3. Digital audiences for local mass media websites are dwarfed by those of national digital players that meet more individualized needs and interests.

4. Social media are unlocking an incredibly vast desire and capacity among humans to get and give personally relevant information.

5. Digital targeting is providing the tools to reach people across thousands of websites and billions of small networks.

Gray warns radio and TV broadcast media not to be smug about what has happened to newspapers, because the digital tools keep getting better and they’ll be disrupted too.

(Personally, I just ordered my first “Internet TV”, which will put YouTube or Netflix on 52 diagonal inches of real estate just as easily as CBS or MTV. I can’t believe that will increase my time spent with broadcast or cable media. And it is just as obvious that TV that can get lots of programming from a Wifi connection is going to be attractive to consumers and threatening to Cable TV economics. This will become standard.)

But that micro-targeting might affect newspapers and magazines and radio and TV stations far differently than it affects book publishers. And that’s because, when it comes to advertising, book publishers are, in a way, on the opposite side of the fence from these other media.

Those media don’t build an audience uniquely for every issue the way book publishers do for every new book (and that’s somewhat true even for vertical publishers). They’re trying to sell captive audiences; we in book publishing are trying to corral disparate audiences. That makes us more like the newspapers’ advertisers than like the newspapers themselves.

When I had the chance to bring Obama’s digital director, Teddy Goff, to the stage at Digital Book World, I did it because I thought the micro-targeting techniques they practiced during the presidential campaign had something to teach us. He made a strong impression on me, and probably on many in the DBW audience, when he spelled out that the Obama team figured out very early that they could reach every voter they needed to target in America through the people on Facebook who were already in their camp.

Not only were the friends of their supporters including all the targets, many of them couldn’t be reached effectively through any other means.

As the digital revolution proceeds, we each build out our social graphs. We show up on different sites making our interests public. Whether we sign up for alerts from a publisher or not, aggregating data from Facebook and way beyond (certainly including GoodReads, which for many publishers might be as rich a lode of targeting information as the much bigger Facebook or LinkedIn are) will build databases of cataloged consumers (that’s us) that Steve Gray sees advertisers using as a much cheaper substitute to paying for real estate on a newspaper’s web site.

That’s an existential threat to ad-supported media of any kind.

But it might be the salvation of general trade publishing, if one or more of the players can master the skills and build the information repository and tools fast enough.

But there’s still that very pesky “infinite” competition from smaller players — authors and publishers — that will peel off some book readers whether they have effective techniques to build large audiences or not. Of course, that hazard could also become opportunity. If one or two (I doubt five or six) big publishers develop these scale capabilities, they might have a compelling case to make to the owners of the smaller- or self-published titles even when the current compelling case — we can put you into bookstores — loses its appeal.

Where general trade publishing will be in another five or ten years is anything but clear.

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Some ideas for publishers that will help bookstores; other suggestions that make us skeptical


This is the fourth of a series of posts on bookstores and their future. The previous posts have covered the challenges of buying (proposing VMI as a possible solution), explored what we should expect for the future of Barnes & Noble, and envisioned what the world of brick-and-mortar book retail might look like in the years to come. I promised previously to review the list of suggestions for publishers to help bookstores recently rounded up by Bookseller editor Philip Jones. He’s written more about this since, but the “original” list from Philip included:

1. Publishers offering books to retailers on consignment. That means the store pays when the book sells rather than on a date based on when it was shipped to them.

2. Publishers offering books to retailers with higher discounts. That means giving stores more margin between the price they pay and the price the publisher “suggests” as the retail price.

3. Bookstores taking advantage of Amazon’s “weaknesses” as an online bookseller. That would apparently be about localized curation as opposed to algorithmically-based suggestions.

4. Bookstores becoming something more (or less, but different) than bookstores. This suggestion may be inspired by B&N’s claim that they are creating new “prototype” stores.

5. Publishers creating special print editions for stores. This was done in Canada by the device of Random House creating Indigo-specific editions for Canada’s biggest bookstore chain.

And since then, in a radio interview, Harper UK MD Victoria Barnsley added a sixth suggestion:

6. That bookshops should charge “admission” to allow browsing (and perhaps credit the admission charge against a book purchase.)

We’re going to dismiss suggestions 3 through 6 pretty quickly. They either don’t scale or don’t help.

The notion that indie stores can beat Amazon at online selling is nothing short of preposterous. What indie stores can do, and should do, is offer an online sales capability to allow the customers they have who want to express their loyalty to do their online shopping with them. And they should do that in the simplest and easiest way possible. To the extent that the store has done curation work (store bestseller lists, recommendations from staff or customers), those should certainly be reflected online. But the notion that a single player can beat an online behemoth at the behemoth’s own game is a delusion and no great effort should be wasted on it.

The idea that bookstores become something other than bookstores, which is how I’d interpret suggestion number 4, is also not really much help. If not a “bookstore”, what, exactly? And if you can’t tell somebody “what, exactly”, then how is this advice anything more than a suggestion to keep throwing stuff at a wall until something sticks? That’s a strategy? Bookstores have already and always been “community gathering centers”. Playing up that piece of it is never a bad idea, but it hardly seems like an original one.

Similarly, the idea that publishers can save stores by offering them “unique” product is not really a solution at all. Yes, Random House (the biggest trade publisher) can do it for Indigo (a dominant retailer that owns the Canadian market). Even if it is adding value for Indigo, and we really don’t know if it is, there are precious few situations in the world where it could be applied.

And the suggestion that stores can save themselves by charging admission is one that can be very rapidly be disproven by any store that cares to try. It actually strikes me as a very good Candid Camera sequence. Put a toll booth at the front door of a retail store (any retail store, but a bookstore will do) and record the reaction of customers when they encounter something that makes absolutely no sense to them. I suspect wild enthusiasm for the idea will be rare.

However, the first two suggestions — to provide the stores inventory with more time to pay (consignment or extended payment terms) or more margin to work with — are worthy of more analysis and thought.

For publishers to consider easing the financial burden for bookstores based on their importance as a marketing component of the supply chain is a reasonable idea. But neither expanding retail discounts nor applying consignment is without complications.

Expanding margin needs to be done carefully, so that the margin expansion accomplishes the purpose that publishers seek: to increase the display of books in retail stores. Simply increasing discount is a difficult way to do that. What needs to be applied is an expansion of an existing principle.

In the book business, “coop” is the heading under which publishers purchase display for their books in prime locations. Coop was originally used for publishers to purchase space for their titles within a local bookstore’s newspaper ads. (Sometimes that “local bookstore” was a branch or group of branches of a chain.) But recently it has been applied to getting prime display locations, often near the cash register, as part of a promtion. The convention is for the payment for the space to be calculated as a percentage of a “supporting order”. This process imitates what happens in other classes of trade and is referred to outside the book business as RDA (retail display allowance) or MDF (marketing development funds). Another application of the same idea is for publishers to pay for “pockets” (sometimes called “slotting fees”). Under an arrangement like that a non-book retailer (like Michael’s, the craft store chain) can get an additional subsidy over and above what the discount schedule calls for on every title they carry.

But what we may be learning is that every book in a bookstore, or perhaps any retail location, has its discovery enhanced, not just the ones on promotional tables. So perhaps a publisher (followed by others, in time) might consider extending the idea to pay a “shelving fee” for every book in a “qualifying” bookstore. Consider a little math.

Let’s imagine a store that does $2 million in annual sales. If their average discount is 40% (which is a reasonable number; discount schedules would say it is higher than that, but it is reduced by freight costs, including for returns), the value of the inventory to make those sales is $1.2 million at cost. If they turn their stock three times a year, the average cost value of the inventory in the store is one-third of the total, or $400,000.

The two million in annual sales means shifting about 133,000 books (if the average retail price of the books is $15), and the average inventory is about 45,000 books. If publishers paid ten cents per book per month to be shelved, that would deliver an additional $4500 a month — $54,000 a year — to the store. If publishers paid 25 cents per book per month to be shelved, the store would get an additonal $135,000. Since a bookstore would be doing quite well to earn 10% on its sales, our notional $2 million store would be happy to earn $200,000 in profits now so, in either case, the “shelving fee” would be adding a meaningful increment. Certainly, for some stores it could make the difference between staying open or closing down. For others, it would encourage a bigger book inventory. In either case, that’s what publishers want to accomplish.

Publishers could, if they chose, make the “shelving fee” applicable whether the store bought the book directly from them or from a wholesaler. It actually makes it less tricky to apply if the wholesaler-supplied books are included. Invoicing now is done when publishers ship books, not when they arrive at the store so the time lag in between works in the publishers’ favor. For a “shelving fee”, publishers wouldn’t want to pay for time the book is not on the shelf: while it is in transit, or in a box waiting to be unpacked, or in a stockroom unavailable to a browsing customer.

In order to collect “shelving fees”, a store would have to deliver much more robust data than they now have to publishers about stocking and selling. But modern technology can make doing that not terribly difficult (systems don’t routinely do it now, but they surely could) and, in fact, stores should want to know about the efficiency of their shelving practices for their own reasons. And doing things this way would put publishers and stores on the same side around returns, because both would have good reason to get books that can’t sell off the shelves (and replace them with ones that have better odds).

Increasing the margin as a reward for a brick-and-mortar store being open and stocking books is doable and it is doable without cutting the wholesalers out of the picture. Consignment is definitely more complicated. And perhaps less helpful.

Sometimes the sale-and-return convention that has prevailed for nearly a century in the US book business is thought of as equivalent to consignment, but it isn’t. Although bookstores sometimes use returns as a tool to diminish the payments they have to make to publishers, they also “own” (and, in many cases, have paid for) a lot of books on their shelves at any particular time. And a non-trivial side effect of sale-and-return is that “shrinkage”, books that don’t sell but for whatever other reason may disappear from a store, are very much the store’s problem, not the publisher’s.

Under consignment, the payment from stores to publishers would be based on what passed through the cash register, not what was shipped from the publisher’s (or wholesaler’s) warehouse. “Shrinkage” would only be detected if a publisher called for a return of a book it had previously shipped and the store was unable to send it. Since even with the best of intentions, a store wouldn’t necessarily know a book was missing and certainly couldn’t pull a missing book for a return, the payments for those books would, at the very least, have to wait until some inventory check or returns protocol was invoked and discovered it.

The big question in consignment is when and how often a store pays. I recall having a discussion about consignment with a very large book retailer ten years ago. The top person there was thinking in terms of paying publishers every six months or so. It is safe to assume that no publisher would be excited about offering consignment on that basis. Allowing a store to “pay on sale” is one thing; allowing them to pay six months after sale is much more costly to the publisher.

For consignment to be workable, payments would have to be no less frequent than monthly, and would have to cover sales pretty much up to the moment of payment. What might make sense, for example, would be payments on the 5th of the month for sales made through the end of the preceeding month. That would be 35 days after sale for some books, 5 days after sale for others, and an average of about 15-20 days after sale. It wouldn’t be unreasonable for a publisher offering consignment to want payment more often than that, perhaps even as often as weekly.

The challenges of turning consignment into a workable commercial practice in our business include establishing a payment timing that makes sense and some method to catch shrinkage.

But the next problem is that the process of ordering would probably have to change. It is sometimes said that stores are now too easily tempted to over-order because, after all, they can return whatever they don’t sell. Imagine how much less restraint there would be on over-ordering if the store could hold books cost-free for as long as it took for them to sell! (There could still be the cost of freight in and out to discourage over-ordering, but that exists now.) Unlike the “shelving fee” concept, consignment puts the publisher and store in conflict around slow-moving inventory.

Let’s also take note of the fact that consignment is not all about paying later; sometimes consignment would require paying earlier. Bookstores get a boost when a bestseller comes in and flies off the shelves for the first week or two it is out. The revenue on those books is kept by the stores for 45 or 60 or 75 or 90 days (depending on how publishers enforce their collections) before they have to pay the publisher. Under a consignment arrangement, they’d have to turn over the publishers’ share much faster. (Of course, at the same time, they wouldn’t have to pay for some slower-moving books that might have come in the same shipment but hadn’t sold yet.)

There are other complications to consignment. The way things work now, publishers carry books in their warehouse on their balance sheet at inventory “cost” (something like manufacturing cost). When they sell them, they book the amount they sell to the store for, and keep some “reserve” for potential returns. On the store’s balance sheet, the books sit at the price the store paid, or will pay, the publisher for them.

But if the books are shipped to the stores on consignment, there has been no sale. So the publisher would have to continue to carry those consigned books on their balance sheet at the manufacturing cost and not credit themselves with the sale until the store reported it and paid them. What this would do to public reporting and bank covenants is a company-by-company proposition, and perhaps a knotty problem in some cases.

And sometimes there are state or local taxes based on “inventory”. IANAL (“I am not a lawyer”) but the taxing authority probably expects payment from the entity that ownsthe inventory. Under sale-and-returns, stores “own” it (whether or not they’ve paid the bill). Under consignment, the publisher certainly owns it. That would create complications, at the very least. Complications could also arise over insurance. (If a store had a flood or fire, would consigned inventory be covered by a store’s insurance?)

The bottom line is that publishers can help stores most by helping them carry their inventory less expensively and there are a great variety of ways to do that. The simplest way of all, of course, is just to extend the payment time from the current (as it often enforced) 60 days to something more. Thirty-five years ago, my father had me administer a program called “credit for overstock” where we gave stores 180-days extended billing for books left unsold after Christmas if they’d delay returning them. (Simple to do: issue a credit for what’s there dated today and an invoice for the same stock dated six months from now).

We’ve heard through the grapevine that at least one of the Big Six is experimenting with 180-day terms and that another might be a fast follower. That strategy is apparently offering competitive advantage (stores stock more of that publisher’s books, so they sell more of them too). That’s a way for a publisher to give benefits that are “like consignment” without the complications. From my perspective, it’s a shotgun, not a rifle, because it extends terms for everything equally. Credit-for-overstock targeted books that would very likely have been returned. The old “dated billing” plans targeted particular titles at particular times of year. Consignment requires that books that sell fast be paid for fast. A big across-the-board increase in time to pay is a far less targeted tool, but it still constitutes a big step in the right direction.

That’s because books on bookstore shelves are more valuable to publishers than books in their warehouse. Increasing recognition of that fact is occurring; more actions will certainly follow.

Worth mentioning — and inadvertently neglected by me in the VMI post — is that VMI does not need to be, and should not be, at odds with bookseller-management of curation. A publisher can certainly manage lists of titles that are designated “do not stock” or “always have on hand” that are designated by the store. The point to VMI is not to take tastemaking power away from the store. Of course a store should be able to exclude books they find offensive or that they think their customers will find offensive. And their decisions about categories or authors to stock out of proportion to how well they sell — higher or lower — can also be accommodated. And so can their inputs about local promotions that a publishers’ central office would have no way to know about. VMI offers two enormous benefits in any case. One is that the publisher knows things about individual book promotions, and recent performance, that might not be factored into each store’s calculations. And the other is that most stocking decisions are routine and  best made — particularly in the age when we’re discovering Big Data — by a system massaging the maximum amount of information.

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Ideas about the future of bookselling


There is a vision of online bookselling, which I share, which is that it will become increasingly atomized. Books (and, ultimately, other content too) will be merchandised in unique ways across countless web sites curating and presenting content choices for their own communities and audiences. One early prototype of how this might work is the Random House initiative powering “bookstores” for Politico and Publishers Lunch’s Bookateria.

This is not a new idea. I remember a meeting more than five years ago hosted by O’Reilly Media in New York City to plan the first Tools of Change conference at which Brian Murray of HarperCollins, not yet their CEO, talked about how a way should be found to merchandise books on current affairs topics around and adjacent to today’s news stories that were relevant. The Random House capability, among many other things it can do, readily enables just that.

This is not necessarily bad news for the biggest online retailers like Amazon, B&N, Apple, and Kobo. The Random House execution delivers “their” customers to one of the others to consummate the sale and they’re rewarded for having pushed the “discovery” by collecting referral fees from the etailer  which processes the sale. (How the revenue is split between Random House and the web site providing the screen real estate is not known to me, and presumably only one of a number of moving parts in the negotiations between them.) Doing things this way allows both Random House and their clients to avoid the two biggest (and closely-related) headaches of online bookselling: managing DRM and customer service. In addition, the costs for what is called “card and cart”  – handling credit cards and providing shopping cart technology — are also avoided by handing off the actual transactions.

Bookish, the new discovery engine and bookseller which was financed by three of the Big Six, also offers referrals in addition to their own fulfillment (which is provided by Baker & Taylor).

Peter Hildick-Smith of Codex, our go-to guy for understanding the concept of “discovery”, says that bookstores offer discovery combined with availability, a “twofer”. In effect, web sites offering ebooks (and possibly print too) alongside their information and conversation are doing the same thing.

In fact, the same approach makes sense in the brick-and-mortar world, but it is a lot harder to do.

Merchandising is the bottleneck for any retailer, online or in stores, trying to sell books. Which books do you offer? Which books do you feature? What do you discount? This is a challenge online, which is why Random House believes it can build a business helping web sites do it. But it is even more challenging in a physical environment, which requires actual printed books to be displayed, sometimes to be sold and sometimes to be returned.

But smaller and more targeted displays of print books in stores — whether a general selection or one targeted to store’s other customers — also make more sense than big book superstores in the digital era. Physical bookselling locations can offer consumers convenience and speed. If you’re shopping, you can see more titles faster than you can online and you can walk away with your purchase rather than waiting for delivery.

Publishers gain access to their audience through retailers. Non-book retailers, just like web sites, are specialized in some way and they both attract and serve customers if they offer appropriate books.

The challenge for non-book retailers who would like to carry books is stocking them. Almost no matter what a store sells, from clothes to hardware to specialty food, there would be a selection of books that would please their customers and perhaps increase their sales of core items. This is obvious in, say, a crafts store or hardware store where just about everything that’s sold is part of a project (selections of which and instructions for which are often found in books) and could require instruction about how to use it most effectively (also content well suited to books).

Picking the right books is hard work. If the retailer buys them from publishers (whose sales representatives would know their content and could actually guide one to the best title choices for one’s audience), it is a hopelessly fragmented challenge. In many areas, you might find 25 good books that could require you to buy from 10 or more different publishers. The publishers’ sales terms will be one problem (minimum order sizes) and the administrative costs would be far too big to justify considering the small sales the store would get from ancillary merchandise like this. Wholesalers have the books of many publishers, but their teams don’t have the kind of title-level knowledge the store needs to make the selections.

Meanwhile, bookstores labor under a similar constraint. We pointed out in our recent B&N analysis that the cost of their supply chain gets harder to bear as sales of books diminish. Independent bookstores have also always been constrained by the cost of buying, although they don’t really see it that way because it is part of the landscape.

The core point is this: the responsibility for getting the right books onto retail shelves is one that has always belonged to the retailer. That reality encouraged, even required, large book retailing operations: big independent stores and large chains could amortize that cost across far more sales than a small bookstore or a little book department in another retailer.

There is one established way to reduce those costs: vendor-managed inventory. With VMI, the cost of negotiation — of conversation between a “buyer” and a “sales rep” — plummets. In addition, it is actually easier to stock the right books at the right time. A key component of making better decisions is making more decisions that cover shorter prediction times. Ordering more frequently makes it much easier to avoid over-ordering as a protection against going out of stock. That increases stock turn (the key to bookstore profitability) and reduces the need for returns (leaving more margin for both the retailer and the publisher).

As I’ve written previously, a long-standing client of mine called West Broadway Book Distribution has been operating a VMI system in a small number of non-book retailers for a decade. They have a system which interprets the sales reporting and makes restocking decisions based on them automatically. They also have a system to test new titles in a sample of a chain’s outlets to decide whether or not to roll them out. Their automation has enabled them to manage a lot of granularity — thousands of potential titles in more than a thousand stores with the books coming from more than a hundred publishers — profitably and with workable margins for both the retailers and the book-providing publishers.

West Broadway started because its owner had a few books of their own that they wanted to sell to a couple of “women’s hobby” accounts where they already had relationships. We encouraged them to be more ambitious and they were willing to try. So they aggregated the books from many of their competitors, larger and smaller, to add to their own and invested in the VMI system (which they might not have needed to make sales of their own books alone).

That’s a path we should expect to see other specialty publishers taking in the future. Subject-specific knowledge is helpful in doing that (although it can be done successfully without it).

Stocking a general interest store with VMI is much more complicated and will take more time to evolve. But bookstores can take steps in the right direction by consolidating their buying to a smaller number of suppliers and pushing all their really small vendor ordering to a wholesaler (or two) to gain efficiencies from managing fewer vendors.

Remember that one of the keys to efficient stocking is frequent ordering. Bookstores mostly understand that and order from wholesalers every day. But they probably also order directly from dozens of publishers. They do that to gain a little bit of additional margin and, perhaps, to reward the sales rep that calls on them to present the list.

I’m going to say flatly that the margin differential is almost certainly not worth pursuing for what it costs in stock turn (capital tied up) and risk (returns because people buy more copies when they’re tempted by the higher margin order). My father made that clear in numerous examples in his monograph, The Mathematics of Bookselling.

The rep reward is a little more complicated but most publishers these days figure out how to pay their reps for sales that go through the wholesalers.

Any store routinely dealing directly with more than 20 publishers and distributors will almost certainly improve their financial performance by cutting that back and consolidating. They might  lose a little margin; they might miss a couple of smaller-potential titles (but not big ones), but their lives will be simplified and that will save a lot of money.

And with daily ordering from wholesalers, which just about all stores do, it becomes unnecessary to carry more than a copy or two of most books, except for the purpose of display prominence.

Once a bookstore has taken those steps, it is in a position to start demanding some VMI help, even if just from the sales reps. This was an idea that was pioneered in around 1980-81 by an indie in Shaker Heights, OH, called Under Cover Books in a project on which I consulted.

We were too far ahead of our time (the computers were too klunky), but the idea was that we gave the reps reports of how their titles were performing: on-hand, shipments in, and sales. Then they had an inventory ceiling stipulated and were free to order more books, of their choosing, up to the inventory ceiling. We then calculated the inventory’s performance (beyond the scope of this piece to get into that particular detail, but essentially combined the impacts of discount and turn) and raised the inventory level for the most profitable publishers and reduced it for the less profitable.

What defeated us was the complexity of administration. Part of that was because there were so many more smaller publishers then. Part of it was that the only way to communicate the inventory data was by shipping spreadsheets by snail mail (slow and not cheap).

This would be infinitely easier to do today, and the ease would be multiplied if you were only trying to do it with a handful of big suppliers.

I am only aware of one publisher today that has worked corporately on a VMI system for books, and that’s Random House. I believe they initially developed the capability and implemented it for chains: first for Barnes & Noble and more recently for Books-a-Million. But they also seem already to be prepared to offer the service to independents. Since, when the Penguin merger is complete in a few months, stores will be able to get damn near half the most commercial books from Penguin Random House, having “just” them operating VMI would constitute a sharp reduction of the store’s operational demands.

Whether or not this is what they’re thinking at the moment, the new Penguin Random House is bound to find it sensible to employ its VMI capabilities in self-defense to open retail print book outlets in places that are bereft of bookstores in the years to come. Those outlets will have space for shelves, customers and cash registers, but no ability to discern what books they ought to stock or what the timing should be of ordering. They’ll be sought out as necessary because bookstores, which are carrying the requirement of making these stocking decisions, will have increasingly become uneconomic (and therefore defunct).

This vision of the future is of books being sold mostly in stores that aren’t bookstores, enabled by VMI systems that largely don’t exist yet. It would be even better if the VMI vision took hold in time to save some of the bookstores that exist today to survive to that future time when the demands on them to manage inventory will have been ameliorated by necessity.

In my last post, I cited a bunch of suggestions pulled together by Philip Jones for how publishers could help bookstores survive and promised to review them. This post was intended to get to that, but I couldn’t get there within a reasonable number of words. Next time.

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