The necessity for publishers to reduce their hard-copy operating costs, the reality that smaller as well as fewer bookstores are inevitable, and the overall question of shrinking shelf space are topics we have explored before. But it is intrinsically difficult for those of us who have been in the book business for decades to envision life without a robust bookstore channel. The current unfortunate news about Borders suggests that it won’t require a great imagination for very much longer.
One thing that has changed considerably in the last 20 years is the huge increase in information available to publishers about what is going on in the supply chain: that is, they can track the books between their own warehouse and the end consumer purchase. The Big Kahuna of information, of course, is provided by BookScan, based on cash register capture of data as books are sold at outlets all over the country. BookScan not only lets its subscribers see the activity on their own books; it gives everybody a view of every book in the industry.
But as valuable as the BookScan data can be to discern trends and the performance of competiton and potential competion in the marketplace, it has real limitations as well. Knowing the sales without knowing the inventory is like knowing the number of hits a batter had without knowing how many times the batter came to the plate or knowing how many games a team won but not knowing how many games they played. Some books that are scoring low in BookScan’s data never had a chance: there weren’t enough copies in stores to enable a robust sale. And some books that are scoring high in Bookscan’s data are not going to be profitable because the number of distributed copies that won’t sell (and which will end up back in the publisher’s possession) is higher than the number that do.
Over a decade ago, pioneered by Barnes & Noble and Ingram, the biggest retailers and wholesalers started to provide publishers with data about how their inventory was performing for that trading partner. This data had the advantage of being far more complete and analyzable, but a publisher could only look at their own books’ performance. Because BookScan presented summary global sales numbers and everybody’s books, the BookScan reporting was what tended to be of interest across a company: to editors and marketers and top executives. But the more granular view of a company’s own inventory provided by the individual account reports was pure gold for the sales department and for the then-emerging supply chain management function.
When we first started helping publishers mine these reports in the early part of the decade, the practice at most publishing houses was for somebody in the sales department to look at the weekly spreadsheets, extract whatever insight they could, and then throw them out when the next week’s reports arrived. We were handed an assignment by our friend Charlie Nurnberg, then VP and Director of Sales at then-independent publisher Sterling. (It is a pure coincidence that Charlie’s name never appeared in the blog until my last post and now he’s in two consecutive ones!)
Charlie said, “for years we had 1000 titles on our backlist. I got the B&N green bar report (there was a time when all computer reports were green bar reports) each week and went over it with a fine-tooth comb and I knew everything that was going on. Now we have 5000 titles on the backlist, I have delegated the coverage of B&N to two people, and I know things are falling between cracks. Can you help me get a handle on it?”
To respond to this request, we did two simple things. First we databased the reports, so we could look at data across a longer period than one week at a time. (For fast-moving titles, a week in a chain can tell you a lot, although it certainly can’t give you trending insight that multiple weeks give. For slower-moving titles, a week’s sales might tell you almost nothing at all.)
The second thing we did was to contruct some simple metrics, so we could sort the reports by something other than the total inventory and total sales for stores and distribution centers that B&N provided. There were two key things we looked at right off the bat: the percentage of the week’s store-on-sale inventory that had sold and the percentage of the book’s stock that was kept in the distribution center. The first trick was to look for books that had a high percentage sellthrough but a relatively low number of copies on sale in stores. Presumably putting more copies out in stores would increase sales to everybody’s advantage. The second trick was to find the books which had a high percentage of inventory in the distribution center. Those books, we felt, were in greater danger of being returned. In general, publishers prefer to keep excess inventory in their warehouse.
These weekly Flash Reports quickly proved to be very valuable. The first day I showed them to Charlie and his team, we sorted the warehouse percentage in descending order. The two books at the top had 5000 copies each in stock, all of them in the warehouse! It turns out those books had been there for three months. There was a flaw in the B&N system — repaired almost immediately as a result of this discovery — that allowed a bulk purchase to be made by a buyer but didn’t require a distribution plan for the books. Sales management at the publishers, focused on looking at books in descending order of sales (which is what Sterling and just about everybody else did with those reports), might never notice that books sitting in the warehouse and not distributed to stores were also reported in the same spreadsheet.
This tool for discovery was well-received by Sterling, but it was also well-received by B&N. Their very enlightened inventory management team understood that having publishers doing sound analysis of the data they provided could be helpful to them. After all, the books sitting in the warehouse were painful to B&N as well to Sterling; that inventory investment was on their balance sheet (and, as it turned out, these particular books had been purchased on a “no returns” basis!)
In time, the business of doing sales data analysis grew for us. In addition to the weekly Flash Reports, we designed Stock Turn Reports to enable meaningful analysis of slower-moving backlist. We started computing the overall stock turn for a publishers’ books by store section, which was necessary to really decide whether a title’s stock turn was good or bad. Turning 1.3 might be nowhere good enough in fiction, but it might be heroic in philosophy or poetry. All of this analysis began to demonstrate the realities of bookstore economics to the sales reps and it got them thinking the way the store buyers do, where stock turn is a critical metric.
It wasn’t long before other publishers were using what we called the Supply Chain Tracker service and asking us to provide the same insight from the data provided by other accounts. Soon we were doing similar analysis for data from Borders, Books-A-Million, Ingram, Baker & Taylor, and Amazon. For publishers using us across accounts, we were also able to provide a much wider view of how their inventory was performing. We built spreadsheets showing what the percentage sellthrough was across retailers and across wholesalers and distribution centers. This information helped our clients match the growth and shrinkage of inventory across all accounts to respond to rising, and then usually declining, sales of a title.
We discovered a great opportunity in cross-account exception reporting. We’d look for the books that sold well in Borders but were under-represented at B&N and, of course, the larger number of titles that were the opposite: selling well in B&N but not well represented at Borders. That, and the stark differences in stock turn and percentage sellthrough between the two chains, would have told a perceptive sales director many years ago to expect the problems the Borders chain faces today.
At its peak, about four or five years ago, we were delivering Supply Chain Tracker reports to quite a few publishers, including Hachette, Harcourt, Chronicle, and Motorbooks. We did tutorials on our techniques for several major publishers, among them S&S, HarperCollins, Penguin, Perseus, and Scholastic. And B&N supported our efforts to teach the analytical techniques to university presses, including Harvard, Yale, California, and Chicago.
David Young learned what we were doing when he was running Little Brown UK and soon we found ourselves applying our techniques to data provided to them by Waterstone’s. When TimeWarner was sold to Hachette, our efforts were spread further around the Hachette UK companies and, at one time, we were doing Waterstone’s reports for four different Hachette divisions in London.
But, over time, big companies saw the importance of this kind of supply chain analysis and they brought it inhouse and, in many cases, extended it. That wasn’t good for Supply Chain Tracker, but it was the right thing for those companies to do for themselves. We stopped doing this work for US clients two years ago; we’ve just had our last two British clients take the function in-house. So for the first time in eight years, sales data analysis is no longer part of what we do.
The level of sophistication of inventory management in the supply chain by big publishers has taken a huge leap in the time since we started doing this work. I think we provided some impetus for that leap. This analysis will, paradoxically, be of increasing commercial value as brick-and-mortar sales decline in the years to come. Getting inventory levels right in years of relatively stable print sales was a key to profitability. Getting inventories and printings right in the period of print sales decline we face for the forseeable future will be a key to survival.
I wear with pride the fact that nobody else programming a conference on “digital change in publishing” has chosen to feature agents — both their challenges and their opinions — the way we do on the program at Digital Book World. But we’re also covering the topic of this post. We’ve put together a panel of very experienced sales executives (Jaci Updike from Random House, Michael Selleck from Simon & Schuster, Alison Lazarus from Macmillan, and Rich Freese from National Book Network and moderated by David Wilk, who has years of trade sales experience) to talk about the evolution of the sales department. Find that on somebody else’s digital change program! And good luck to the trade publisher who rides into the future without agents and managing down the print and physical supply chain top of mind.