October, 2004

Book publishing lives in a new world of data. In most English-speaking territories, BookScan delivers a market-wide summary, title-by-title, of what passes through the cash registers, but their reporting is of point-of-sale data, not of the inventory that enabled it. In the US, BookScan is the distributor for sales-and-inventory feeds offered by the two largest chains: Barnes & Noble and Borders. What we see is that more publishers take the store-specific feeds than subscribe to the overall BookScan service.

BookScan and these digital data feeds have accelerated the spread of a new function called “supply chain management” at many of the largest publishers, including Random House, HarperCollins, Simon & Schuster, and Scholastic in the US. This activity, which is sometimes housed in its own department, gathers information on inventory and sell-through from various retailers and wholesalers. Supply chain management exists primarily to inform reprint decisions by the publisher and to assist in allocating existing inventory to where it is most likely to sell.

But making the best use of the available data requires going beyond the objective of right-sizing reprintings and allocating scarce stock. It can also be used to identify under-distributed books that are “flying under the radar”. Teasing out that information has been a new challenge for publishers large and small. Publishers’ customers are almost universally able to provide regular data feeds and are, with few exceptions, willing to do it. And publishers are increasingly finding that proper management of the data they are receiving can surface opportunities to increase sales of books that were languishing because they weren’t available in quantities sufficient to meet discernible demand.

Our company manages the PoS-and-inventory data for a dozen publishers – a variety that includes the very largest, some university presses, multi-publisher trade distributors, and some niche publishers – for Barnes & Noble and Borders in the US, and for Waterstone’s in the UK. We maintain a data warehouse of these feeds and produce regular reports. Optimizing the information from this data requires a three-part process:

• We archive the weekly feeds our publishers get, so that we are not restricted to looking at one week of information at a time. In fact, we use a minimum of two weeks of data for all of our reports and 52 weeks of data for many of them.
• We calculate meaningful metrics from the data, so that we are measuring “sell-through” as a function of inventory, not simply seeing a raw number. Very rarely is the top-selling book the one most in need of additional inventory.
• We edit the results, so that our clients view the data in a way that is meaningful and actionable.

What our publisher and distributor clients are seeing, week-after-week, and in all three of these large retail accounts, is that the books losing sales to out-of-stocks are almost never the books stocked in the largest quantities. This is not to discredit any of the buying operations at these accounts, but it is stark evidence of how complex the book inventory problem is for a retailer managing hundreds of thousands of titles in hundreds of stores.

Overstocks go back to publishers as returns; those are the mistakes everybody is aware of and tries to avoid. But understocks are just as costly to the industry. Buyers at big chains are so deluged with new titles to consider, and major books and promotions to manage, that it is simply impossible for them to review the performance of titles they bought for 10 or 20 stores, or for a quarter of the chain to find those that are performing at a level that suggests they should get more distribution. Almost by definition, individual store managers can’t help here – many of them would never have seen those titles in the first place.

Proper analysis of an account’s sales-and-inventory data, using the metric that drives store profit – stock turn – as the key index, enables publishers to find the books flying under the radar. Buyers are persuaded by evidence rooted in this kind of analysis. Reps who use stock turn or sell-through percentage as a trigger to alert a buyer – rather than a publicity break or review, or simply a push from somebody higher up in the publishing house who wishes the book were doing better than it is – quickly find they get better results and enhance their own credibility.

Of course, publishers casting a discerning eye on their inventory’s performance don’t only find opportunity; they also find the titles on which their hopes and expectations have not been matched by consumer acceptance. But, using the right tools, they find the failing books before the returns come in. Seeing potential returns before they happen can certainly save an unneeded reprint; it can also provoke a price reduction, or some other pro-active step to avoid or mitigate the return. We encourage our clients to look at sell-through percentages every week for the Top 25 titles in inventory at an account, to take timely note of successes and failures. Very few titles are overbought by an account without the encouragement of a publisher to do so.

This technique – archive, calculate, edit – provides leverage that increases in value with the size of a publisher’s list, and with the number of outlets a retailer is managing. It is pretty much assured that a publisher with a list in excess of 1,000 titles in any retailer with more than 100 stores will quickly find a database such as we’re suggesting an essential tool to manage the account. The good news is that the techniques are being increasingly refined and can be used by any publisher in the world who can get a data feed from a cooperating retailer. No universal data service needs to be in place to get substantial benefits from PoS data.

Today I want to talk about important opportunities that are available to increase sales and reduce obsolete or unneeded inventory by methodically archiving and using account-specific sales and inventory data. This data could be delivered by an industry-wide service — and, indeed, what we work with for Barnes & Noble and Borders in the United States is delivered to us by Bookscan. Or, because it is account-specific, it could be delivered directly by an account to a publisher. We are now working with one large UK publisher that gets such a feed directly from one of the most important UK retail accounts, Waterstone’s, and one of our American clients is about to start giving us data from another large account that transmits to them directly.

The techniques we have developed will work for any publisher with any account, but the benefits increase dramatically as:

1. the number of stores being managed by the retailer go up, and

2. the number of titles being managed by the publisher go up.

It is fair to say that what we do works best for the biggest publishers with their biggest retailer accounts. We are quite confident these techniques are totally market- and language-independent and can be employed by any publisher in the world working with accounts that have multiple outlets.

All that is required for a publisher to use these techniques is a weekly feed of data about that publisher’s books at the retail account, with an aggregated, “chain-level”, view.

The minimum data required from the feed is the week’s unit sales and the week-ending on-hand inventory by title. The inventory number we need is what is available in the stores available to customers to buy. If the account has one or more distribution centers warehousing additional stock, that inventory should be shown separately. As we’ll see, it is helpful if you can get additional data as well, and obviously it is great if you can “drill down” to see what is happening in particular stores or regions. But the aggregate picture, properly analyzed presents enormous untapped opportunity.

Many publishers around the world get such feeds right now. In the US, I believe many more publishers get Barnes & Noble and Borders feeds from Bookscan than subscribe to the full Bookscan service. When we were in Canada discussing this topic last June, we learned that Indigo, the country’s dominant retail account, had been providing sales and inventory feeds to many publishers even though a national POS service has not yet been established. Our UK client found it possible to get the necessary data from Waterstone’s, and presumeably any significant supplier to the chain would be able to get it too. In the data-rich world we live in, it is hard to imagine that these bilateral arrangements don’t already exist between multi-store retailers and large publishers all over the world.

Although many publishers get feeds such as these, we have found that very few publishers that do what you must do to unlock the actionable value in all the numbers.

You must, first archive the weekly feeds you get so that you are not restricted to examining a week’s information at a time.

You must perform calculations — the most fundamental being “stock turn” — that relate sales to inventory investment in a meaningful way.

And you must edit your reporting so that information can literally pop out at you.

Now let’s use some reports from real Barnes & Noble and Waterstone’s data to illustrate what I mean.

This first data slide, which shows real data from a major publisher at Barnes & Noble, also shows how we make the data anonymous in a way we hope will add additional meaning to what you’ll see. If you look at the third column, you’ll see that we named the books Title 1, Title 2, etc. These numbers correspond with the descending order of “superstore sales this week”. Those two columns have their data circled.

We numbered the titles this way because we believe that most reps use weekly sales as a key indicator of what needs watching, working from the top down. That is, the higher the weekly sales, in most cases, the more closely the title will be watched. As we will see, that may not be the best barometer of what needs to be watched.

As a quick indication of how misleading looking at sales alone can be, we circled the superstore on-hand figure for the last book on the list, Title 13. Look at how many fewer copies it has than any other book on the list. Isn’t it obvious that it would have a higher number here if it had as much inventory as the other titles on this page?

The second data slide works from exactly the same information, but it is sorted differently. Note the two circled columns out to the right. These are what we call our “Flash metrics”: the percentage of the superstore onhand that was sold in a week. The first of the two columns shows the score for the current week, the one to the right of it shows the score for last week. We use two consecutive weeks here in order to eliminate anomalies; all the books we look closely at here have sold well for two weeks in a row.

A quick and useful rule of thumb for using the Flash is that 1 percent of sales in a week equals about one-half a turn in a year. So, on that first title we’re seeing here — title number 854 in sales — it has turned its stock at a rate of 12-1/2 turns annually this week and 17-1/2 turns annually last week. It also has an on-hand of 109 copies in a chain that has 650 stores. We’d say that title is very likely to be underdistributed in relation to its sales appeal.

We have also noted title number 115. Barnes & Noble uses a “model stock” system to automatically reorder certain titles. This book is “modeled” at 970 copies, or somewhat more than 1 per store. But the metric we’ve circled to the far right says that the superstore on-hand is only at 70% of the model. The distribution center has books, which we see in the DC on-hand and on-order columns just to the left of the Flash columns. Experience has taught us that if B&N is not maintaining about 85-90% of the model, the book is selling fast enough that the model should perhaps be raised.

Also please note the next title down, title number 1218! It is selling at a blistering rate for the stock that is there — 18% and 24%, respectively, in the last two weeks — but the vast majority of the chain does not have the book.

Our next slide shows a different report, what we call a Stock Turn Report. The Flash is designed to catch sudden spikes in sales; the Stock Turn report takes a longer view. We have circled the 25-week stock turn column and we have sorted for that column, descending. We would like to have 52-weeks of data there, but we only have 25 weeks of data so far for this publisher. As you see, we also show the stock turn for the most recent 13 weeks and the most recent 4 weeks. The value of that is shown on title 28, about midway down, where you can see clearly that the sales rate has declined steadily, so even though the longest period turn is high, enthusisasm should be tempered by the decline.

However, it is worth noting that the top title in turn is title number 865, which has fabulous stock turn but very few copies in the chain. A rep would use this report to scan for titles that have high turns and aren’t fully distributed. At B&N, that requires at least 650 copies to have one in every store. As you can see, the rest of the titles with very high turns all have high inventory numbers. That would please both the publisher and B&N.

But if you flip the numbers around, and sort for the stock turn ascending, you find the titles which are not doing well. Here we have circled the titles with very low turns and reasonably high on-hands. These titles are candidates to be returned, to clear space for the ones that need more representation.

Another way to look for underperformers is to sort the Stock Turn Report by total superstore model and look for lower stock turns. We’ve sorted the report that way in this slide and circled the model and stock turn columns. Titles 122, 215, and 290 are all not performing nearly as well as the other titles modeled at a high level, although Title 215 is doing better in the most recent 4-week period.

This next slide shows what we call a Category Summary,rolling up the Stock Turn report by store category. What this shows very quickly is that this publisher’s performance in Juvenile Picture Books and Sports is not nearly as good as it is in other categories. B&N and the publisher would benefit if some of the dollars of investment in those categories were shifted to others that are performing better.

The last data slide we will show here is from a UK publisher’s performance at Waterstone’s. We used the same numbering system, ranking titles by sales in the week. This report is sorted by “This week’s Flash Metric”, descending.

What I wanted to point out here is that Waterstone’s provides the “number of stores stocking” and “number of stores selling”, which we don’t get from B&N. We have converted that number into a percentage index and that column is circled at the far right. If you look at the top book (title number 28), we can see that its overall sellthru, as measured by the Flash, is very high; just about every store that has it is selling it; but it is in 160 stores of a chain that has 191 locations, In fact, note that none of the books here are in all the locations and Title 323 is barely in a fourth of them, even with a very healthy sellthru percentage. This constitutes opportunity for the publisher and for Waterstone’s.

Thank you for your time and attention. I hope we’ve shown that there is valuable information in the simplest account feeds, if it is properly analyzed.