Tight Times Ahead

Publishers Weekly website in its 18 December post adds another log onto the fire that appears to be the publishing industry.

Random House chairman Markus Dohle, in his first annual letter to his employees, noted that the biggest challenge of 2009 for the company will be controlling rising costs. Not exactly breaking news, granted, but it does reinforce the general belt-tightening that is an ongoing process in the industry.

Dohle encourages his company to reformulate the way it does business, and to react in a quicker and more streamlined way to the changes in the marketplace. “Let us share a commitment to become more resourceful, more accountable, more responsive, and more collaborative as we continue to acquire and publish the best books in the world," he exhorts in his memo.

He also speaks to the recent phenomenon of retailers ordering lower initial quantities of new titles while expecting faster re-order shipments on books that prove to be quicker movers than expected. He states that Random House sales and operations teams “are working to build capabilities that will significantly reduce the time it takes us to re-supply our customers and to respond to consumer demand for our titles.”

HarperStudio is taking this idea a step further, tackling one of the thorniest marketing issues in the industry: retailer returns. They've pioneered a working agreement with Borders Group, Inc., according to the Wall Street Journal, to sell their imprint's books to Borders on a non-returnable basis in exchange for a sharp discount, reported to be between 58 to 63%.

This is huge. For the better part of a decade, industry observers have pointed out that the publishers' policy of allowing retailers to return unsold copies of titles for full credit could very well sound the death knell for publishers. The policy originated in the years after World War II, when the industry was comparatively flush, as an incentive to booksellers to take a chance on undiscovered authors, allowing them to buy books for little more cost than than return parcel post expense.

Anyone with a calculator and the business sense of an eight year old running a sidewalk lemonade stand can see the glaring weaknesses of the full credit return policy. Bookstores can order what will probably be wildly excessive quantities of titles, limited only by their warehouse space, in the hope that they've got a larger supply of an undiscovered gem than their competitors and score a killer profit. If the sales fizzle far short of hopes, they simply slap a new shipping label on the unsold cases and call UPS or FedEx for a pickup.

The publisher, on the other hand, goes through the expense of printing (paper, ink, covers, binding, etc.) of far more copies than they'll reasonably expect to sell. A few months (or weeks) later, they've got 50% or more of their shipment back in their warehouse, ready to be sold to remainder jobbers for a penny or two on the dollar. Meanwhile, their operating costs balloon, and the bottom line hemorrhages. This in a business where the average return on investment is around two or three percent: grocery store profit margins, folks.

It will be interesting to see the outcome of the HarperStudios-Borders experiment. Will it work? Will it proliferate to other imprints and other retailers? What effect will it have on the breakout chances of new and undiscovered authors? And my favorite category of question on new proposals, in what way will the Law of Unintended Consequences rear its ugly head?


Tight Times Ahead
(c) 2008, Kenneth M. Rhodes
18 December 2008