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2000 Mallory Lane, Suite 130-229, Franklin, Tennessee 37067
Publisher’s Weekly just reported:
The total unit sales of print books sold through the outlets whose sales are captured by Nielsen BookScan dropped 10.2% in the six month period ended July 3, falling to 307.1 million. Among categories, the biggest decline came in adult fiction with units off 25.7%, while mass market paperback had the steepest decline among formats with units down 26.6% in the period. BookScan totals cover about 75% of the outlets where print books are sold.
Is this yet another signal that the book is dead or should at least be placed on the endangered species list?
As someone who makes a living in the book publishing industry I continue to maintain an optimistic position on the future of the book, in part, because I don’t define the book as a physical object.
I see no reason for hand wringing. Publishers need to keep their focus on what they can control and what matters most: great content. The distribution medium matters but is not paramount. The music industry fought Napster (rightfully) and electronic distribution (wrongly) for most of a decade – and lost control of its own packaging and pricing. I think the book publishing industry has maintained a much healthier point of view toward electronic formats from day one.
I like physical books – actually, love is the better word for it – but I’m not going to lose sleep if we sell more books as electronic editions and kill fewer trees in the process. One of the biggest benefits of selling e-books for publishers is fewer dollars tied up in paper and ink with all the inventory management issues surrounding that. The amount of time it takes to recoup a dollar of the investment that goes into publishing a book is long enough without making the irreversible commitment to a print quantity that may not dovetail with real demand.
Of course many publishers have long built financial models around a certain percentage of their unit sales coming from higher priced hard cover releases. As e-books continue to eat into the number of hardcovers sold, particularly with adult fiction, it changes the proforma dramatically, so I’m not saying this change makes things easier in all ways. Change is hard.
I’m strictly describing what I think is – not proscribing what should be. And no matter how strong Amazon is as a bookseller, I still hope the market will support a robust brick and mortar retail environment. (Borders might not agree that is possible – but we should know if their reorganization is Chapter 11 or Chapter 7 within days – or even hours.)
My personal prediction – more gut than numbers at this point – is that five years from now 35-40% of all books sold will be e-books (digitally distributed), which would mean the majority of books consumed would still be on the ink and paper medium. I also think that projection would leave space for a strong brick and mortar presence for at least Barnes and Noble and some exceptional independents that incorporate an e-book strategy into their overall sales mix.
“The reports of my death are greatly exaggerated,” said Mark Twain after hearing his obituary had been printed in the New York Journal.
The same can be said by and of the book.
A: Publishers and retailers work together well in some areas – but there is a huge disconnect based on competing self-interests that make it difficult to help each other succeed.
What makes for a successful retailer? More revenue than expenses, of course, but not just a simple profit and loss reckoning, but profitability within a biz model that includes a positive monthly cash flow. Healthy cash flow is achieved through healthy inventory turns. What are turns? For a bookstore that mean ordering copies of a title on payment terms (often 60- and more often 90-days to pay) and then hopefully selling those copies and getting money for them at the cash register before writing a check to the publisher.
How likely is that to happen if you are stocking 200 thousand inventory items in a big box national chain? Not likely. But hot selling titles will hopefully push overall performance numbers up. But what happens if there’s no new Harry Potter or vampire title to average in with the laggers (and even help them move more briskly because of increased consumer traffic) on the aggregate? What if you are a retailer and your inventory piles up to the point that you don’t have the funds to buy new books (referred to as ‘open to buy dollars’)? Simple. You return slow-moving titles, of course.
Store buyers place their orders with publishers (and/or distributors) based on projections of how many copies of a book his or her stores will sell in the first four to six weeks. How does the buyer come up with those projections? He listens to the publisher’s sales rep give the key selling points, comparable titles, and publicity plans. He then combines the sales rep’s projections with what his reports on the comps and his own gut tells him, and then places his order a couple weeks or months later. With the large chains the buyer will get a personal report card based on how well his titles met those projections. He has the further accountability of a finite dollar number in his corporate check book. Once that number nears zero without being replenished, his ‘open to buy dollars’ are done. So not only will he return books if they are not coming close to meeting forecasts, but he may be forced to return some borderline performing titles in order to have more dollars available to purchase a hot-selling title. To the publisher this feels like the retailer is paying his bills with returns.
The preceding paragraph sums up what is in a book retailer’s best interests – and what their challenges are. What about the publisher?
A publisher feels like she will do well on a single title when she adds up pre-press expenses (cover and interior design and editing), manufacturing expenses, direct marketing expense, overhead, a return reserve (usually an aggregate percentage applied to each title that assumes not every copy printed will actually sell and will have to be disposed of as an overstock or remainer), and royalty expenses (including advance against royalties), and then subtracts that number from sales projections – usually three-month, six-month, and 12-month projections. How does she come up with those projections? She reviews the performance of comparable titles and considers the author’s ability to help promote sales of the title to come up with her own number. She then shares her thinking with sales and marketing teams who will listen and agree or disagree in some measure and come up with their own projections. Different companies settle those differences in different ways. The publisher will do well on a single title in reality when the retail buyer brings in the number of titles projected (sell-in) and consumers buy enough copies of that title off the shelf (sell-through) to generate reorders. The publisher will get her report card on the basis of meeting or exceeding the original projections. She will do particularly well when overall sales pay off any advance against royalties and re-orders are frequent enough to keep inventory levels down (books sitting in a warehouse are like bananas – they can go bad overnite!).
The common success denominator for retailers and publishers is managing inventory levels. The retailer tries not to over order in the first place and is quick to return laggers. Both dynamics hurt the publisher who saves money on higher press runs and gets killed by returns. When publisher and retailer both get too conservative in order to combat this, another negative occurs. Stock outs. What happens when a customer comes to the store and the book he is looking for isn’t there? He forgets about it – or if he is persistent, he orders it online and waits for it. That kills brick and mortar retailers. Another less obvious impact of conservative buying patterns is the lack of merchandising. There was a day when you would walk into a bookstore and there would be numerous titles stacked high to capture attention and send the message that this was a book that just had to be purchased. With a few notable exceptions, like the afore-mentioned Harry Potter example, title emphasis is more subtle – and much easier to miss (or ignore).
Two relatively recent technological developments that are helping publishers more than brick and mortar retailers are print-on-demand and the e-book. Print-on-demand vendors provide a pretty high quality book (and the print quality is getting better all the time) – though without bells and whistles like foil and embossing – overnight and at a reasonable price. Not as good a price as printing 100 thousand books on an offset press, but a good enough price that beats the heck out of an excess inventory fall bonfire! An e-book is never out of print. Add those two dynamics together and any book is technically available within 24-hours to a retailer or individual consumer without the risk of large print runs.
But back to the publisher-retailer relationship. Even print-on-demand can’t totally mitigate the damage to performance numbers that occurs because the two parties have conflicting interests when it comes to inventory management.
Is there a solution? If you follow the financial reports of major publishers and retailers, neither side of the equation is doing well enough to give much in the give and take of business.
The solution for the author who wonders why his or her book isn’t selling like it should is to look in the mirror and ask him or herself what he or she can do to build demand. The book publishing and selling environment isn’t currently emulating the Fields of Dreams. Just because you wrote it doesn’t mean it will sell.