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More on returns, thanks to Michael Cader

April 8, 2009 by Mike Shatzkin 2 Comments

Michael Cader responded to my post on returns yesterday (Tuesday, 4/7) with some ruminations of his own. All of them were thoughtful and useful and triggered some additional thoughts from me. Here is Michael’s commentary with thoughts of my own interspersed. I will remain in italics throughout this post. I have posted Michael’s entire response here, even though I won’t say much about some of it (except to say that I agree.)

Thanks for putting this on the table. I agree that most discussions of returns–and most fantasies of eliminating them–are unrealistically simplistic on many levels. In the spirit of your offering, some questions and other associated ruminations:

* On the biggest books, hasn’t wider implementation of remaindering in place addressed a good portion of the “problem”? And isn’t some form of expansion of remaindering in place/shared markdowns or similar initiatives the logical, efficient solution without harming orders/placements?

Remaindering in place is certainly a solution that has reduced a lot of the waste and cost associated with returns. It works particularly well with trade chains. It is much more cumbersome to manage with independents and that much more difficult with outlets reached through wholesalers. Scale matters here. A big publisher and a big account can employ this technique pretty efficiently and it gets less effective as you go down the line in size. And, despite the “effectiveness” of the technique, almost all publishers still see rising returns.

There’s also remaindering, which diminishes a significant portion of the physical cost of the excess inventory.

Remaindering requires a lot of additional handling so even if the “physical cost of the excess inventory” is recovered, other costs are created. And both remaindering and remaindering-in-place have a negative impact on full-price book sales which is not good for publishers and authors (although I take the point you raise later that it may be essential for stores!)

* By implication most your piece talks about conventional trade accounts, but they now (indies plus chains) comprise a minority percentage of the business at large. For other accounts, publishers are stuck following the practices and needs of those vendors–in more specialized markets, they’re actually fine with nonreturnable (say, an Urban Outfitters buy).

Some non-trade accounts find returns a real chore because they are not a routine part of their business the way they are a routine part of ours. In fact, some non-trade accounts can be sold with returns privileges and will still not return books because they don’t return anything else. I am speaking here of specialty (niche) retail; not of mass merchants who buy and return large quantities per title, as you say here:

But in the big boxes, where most publishers probably now experience their biggest (and fastest) returns when the books don’t work to plan, nonreturnable is likely a nonstarter. And if you can’t change things there, you’re still going to experience significant returns.

Bingo.

Of course to file under Unintended Consequences 1, it’s probably a good thing. Can you imagine the retail selling prices if Costco et al did buy at significantly deeper nonreturnable discounts? (And the even steeper price drops on merchandise they would later dump because it wouldn’t move?) This would accelerate the destruction of full-line bookstores (and the book publishers that need them) even faster.

This provokes two thoughts from me.

1. I wrote in a speech some years ago that the most dangerous and destructive thing that could possibly happen to publishers would be if Wal-mart decided to expand their selection to 50,000 or 75,000 titles per store. The orders would feel great to publishers as they come in and the printers would be in hog heaven with all the reprints of old titles which would result. And publishers would go out of business when the experiment failed and Wal-mart returned everything six or nine months later.

2. There is a huge hidden cost to the book business that the majority of units of our bestselling product is purchased in non-book accounts. What that means is that the add-on purchase to a Rowling or Meyer or Patterson title is a sweater or a cocktail shaker instead of another book! The bestselling authors definitely benefit hugely from the mass merchants carrying their books. As your point suggests, the publishers not as much because they bear the costs of huge returns (which the authors don’t.) But the publishers and all the authors below the top tier lose because the full-line bookstore is being undercut by a non-bookstore. The bookstore loses the Rowling-Meyer-Patterson sale and we ALL lose the add-on book sales.

* As you imply, if not state outright, physical shelf space is in decline. But new product continues to grow–exponentially. This is a hostile mix. Think of how many “skips” you get already on a fully returnable list. Given these factors, it will in any event remain tempting, if not an outright requirement, for many publishers to continue to offer returnability in the hopes of getting in to stores at all.

Bingo. And worth mentioning that the title explosion is not mostly caused by big publishers. They are mostly cutting title counts. But they are still suffering from the explosion of titles available from smaller publishers.

* Online sales, both physical and now electronic, are by nature low-return or non-return. As this segment grows, it naturally mutes some of the returns issue.

True. The downside of online sales is less opportunity to grab additional sales through impulse. We lose less when a sale moves from a brick-and-mortar bookstore to an online bookstore than we do when the sale moves to a mass merchant or specialty store, but I do believe we still lose.

* As you suggest, real analysis of returns needs to occur on a title-by-title basis. One significant problem is that there are a lot of book for which there is little or no discernible commercial market, so even a “low” first printing can wind up producing a whopping return percentage.

Book buyers are not supposed to buy books with “little or no discernible market.” Of course, they rely partly on the publisher’s assessment. But, over time, they will (or should) stop buying from a publisher who pushes too many of these books on them. They all keep track of returns percentages by publisher. There’s no other way to sort it out, and no publisher or bookseller can get this right every time.

Problemmatically, this occurs across the list: small books (first novels, etc.) but also projects that are supposed to be big (see The Kindly Ones, or The Mighty Queens of Freeville.)

* To file under Unintended Consequences 2, a world without returns is a world without most remainders/bargain books. That, too, is potentially devastating for retailers.

I am so used to seeing remaindering as a Tragedy of the Commons problem for publishers that I don’t take enough cognizance of this point, which is, under present circumstances, a true one. But I often wonder how many sales a big author loses because his/her prior book is on the remainder table at a quarter of its original price competing with it. And how many readers have learned that if you wait a few months, you can get that $25 book for $4.98? 

I see this as analogous to how many people see returns. They may not be a good idea, but the publisher who tries to do something about it all alone will only hurt themselves. I got a note this morning from a publisher who has moved toward “no returns” saying that they see that trying to go to a total no-returns policy on their own would be suicidal.

As Borders has struggled, bargain books have consistently been identified as one of the prime growth areas in their stores. We know it’s big for BN by just looking at where they put the section in the stores, and for many indies smart remainder/bargain buys help drive the stores’ profitability.

Again, take away the remainder market and you could well be putting another nail in the coffin of physical retail. As much as there are complaints about publishers’ margins, retailers make but a fraction of what publishers do.

But retailers make a LOT MORE on remainders than publishers do, and they also make a lot more than authors do. If remainders keep more retailers in business (and I won’t quarrel with the contention that they do), that is the main benefit 0f them to publishers and authors.

Filed Under: Authors, General Trade Publishing, New Models, Publishing, Supply-Chain Tagged With: Barnes & Noble, Borders, Michael Cader, remainders, returns

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Mike Shatzkin

Mike Shatzkin is the Founder & CEO of The Idea Logical Company and a widely-acknowledged thought leader about digital change in the book publishing industry. Read more.

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