Search Results for: label/open to buy dollars

Q: How Well Do Publishers and Booksellers Work Together?

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.

The $700 Billion Bailout: Overheard Conversations

Who created a situation that required a $700 billion bailout? Hint: The same group that promised to fix it.

Prelude

Government: Everyone in America should have the right to pursue the American dream, which everyone knows is owning a house. But not everyone can afford it. The dream or the house. Therefore we will legislate that lenders must give loans to anyone who meets certain minimal criteria – and lower the criteria.

Part 1 At the Broker

Customer: I’d like to borrow money for a house but I’ve not saved any money.

Broker: No problem. Since the price of houses will always go up, we don’t require a down payment any more.

Customer: Cool. Oh, and one other thing. My employer is a jerk sometimes and might not fill out the earnings verification form.

Broker: No problem. We have a new financial instrument called the “Liar’s Loan” – we let you verify your own wealth, employment, and income.

Customer: Really? Cool! You’re not worried even a little I won’t pay you back?

Broker: Nah. It’s not my money. A bank will provide the actual funds. I get my commission whether you pay it back or not.

Customer: Cool!

Part 2 At the Bank

Banker 1: We’ve got to get rid of some of these loans. They smell bad. And they’re attracting flies.

Banker 2: But how do we get rid of them?

Banker 1: We’ll sell them.

Banker 2: Who would be dumb enough to buy these stinky things? Especially with all the flies on them.

Banker 1: Nobody will buy them one at a time, but there are people who will buy a whole bunch of them.

Part 3 At the Wall Street Investment Bank

Real Estate Fund Manager: Man, we’ve got to get some fresh money into these mortgage funds. They stink! And they’re attracting flies.

Assistant Real Estate Fund Manger: Have you seen default levels? Who would be dumb enough to buy these stinky things?

Part 4 At the Institutional Investment Firm

School Board Pension Guy: You sure this is a good investment opportunity? I hear there are problems in the mortgage industry.

Advisor: No problemo.  These things are as safe as anything in America. The Investment Banks wouldn’t buy a bunch of stinky individual mortgages and put them in one basket and say they are good would they? Besides, they’ve divided the security into three traunches: good, okay, and bad. Since we’re dealing with your pension funds, we’ll only buy the good ones. They are AAA rated securities. I’d like to get a higher rate of return but that is available only on the bad securities – and you know how the Investment Banks are; they save the good bad stuff for themselves. If you’re still worried just be aware that the Investment Banker even bought bond insurance on your good ones.

School Board Pension Guy: Cool.

Part 5 Back at the Wall Street Investment Bank

Assistant Real Estate Fund Manager: Boss, I know those new securities you came up with are strong sellers but I have one question. Don’t we have to show the mortgages on our books?

Real Estate Fund Manager: (Rolls eyes and gives a little laugh.) Nope. The Government allows us to set up something called an SPV – a special purpose vehicle. We did ours in the Cayman Islands. The SPV carries the stinky loans on their books, not ours. We are AAA rated for those wanting a safe investment. Heck, even our so so securities in the second traunch are rated BBB for those with a little more risk tolerance. The question is irrelevant anyway.  Housing prices always go up.

Assistant Real Estate Fund Manger: Boss, you’re a genius.

Real Estate Fund Manager: I know.

Interlude

Government: We are going to hold companies accountable through Sarbanes Oxley and make them declare Market Value on their books every day. Plus we’ll punish rogue CEOs who inflate values. Now everyone knows we mean business. We demand transparency from our investment companies, too. That’s why we have the SEC. The only problem is, too much transparency gets a little confusing. And Americans don’t like confusing.

Part 6 A Meeting of the Minds

School Board Pension Guy: Hey, where are our payments?!

All Others: Sorry, the jerks who borrowed money on the houses can’t make payments.

School Board Pension Guy: But you said that housing prices always go up and they could refinance their mortgages with low interest ARMs if they got in trouble.

All Others: Sorry. We’re as upset as you are. But there’s nothing we could have done to see this coming. Housing prices always go up you know.

School Board Pension Guy: But I only bought the good securities. The AAA ones. That means I get paid back first. That’s what you said.

All Others: Sorry. There are more problems with the loans than we thought. Sarbanes Oxley isn’t helping either. No one is getting paid back squat right now.

School Board Pension Guy: But you bought bond insurance in case this happened!All Others: (Laughter.) Do you really think an insurance carrier has set aside that much money? Sorry.

School Board Pension Guy: Is all you can say, “Sorry.” You’ll pay for this you know.

All Others: Listen, no time to finish the conversation right now. We have a high-powered meeting to attend at a resort in the Cayman Islands.

School Board Pension Guy: You haven’t heard the end of this. Like I said, you’ll pay for this!

All Others: You really think so?

Postlude

Government: People are so gullible and get themselves in such messes. I guess it’s up to me to save them from themselves again. My work is never done. But I’m up to it. I’m about giving them the American dream after all!

Should I Buy a Handgun or Not?

Should I buy a handgun? Philosophically, I believe in our Second Amendment right to bear arms. Personally, however, I am not sure I am comfortable with a handgun in the house. I don’t think the two perspectives are mutually exclusive though! For me, as the author of murder mysteries, it is both a serious and tongue-in-cheek question.

I don’t have any great confidence that a handgun will save the lives of my family and me. But I suspect that I will make a purchase, take a class, go to the range once or twice a year, and lock whatever handgun I purchase up!

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Why I Bought the Kindle Instead of the iPad

Why I bought a black and white Kindle instead of an iPad.

Why I bought a black and white Kindle instead of an iPad.

I have been in the publishing industry for almost 30 years now. Everyone knows that electronic production and delivery will shape the future of the book publishing industry – and most suspect that the future is now. So that’s the main reason I finally bought an ebook reader – to be less technologically behind in the work that provides room and board for the family. If you’re going to consider yourself an active member of the “long form” publishing world, better at least be aware of the mechanics – or electronics – of the digital book experience, I figured.

The final nudge I needed to order the Kindle was an impending trip to China last month. Anticipating 18 hours in the air each way, I wanted to make sure I had plenty to read without packing a stowage trunk. Sure enough, the Kindle worked like a charm on that trip. I downloaded four or five books at New York’s JFK Airport, boarded the plane, ate dinner, watched a movie, and then fired up a book I’ve been wanting to read. I was sleeping like a baby in fifteen minutes. It felt like home! (And yes, I did finish the book and two others while flying back and forth over the Pacific Ocean.)

After I told an author friend why I bought the Kindle, she let me know she was more interested in why it took me so long.  Good question. Frankly, I’ve not been sold on buying an ebook reader in general, and the Kindle in particular, until recently. I do like the feel of paper and ink bound inside a paper or board cover – but that’s not what really held me back.

We all know that technological improvements take place so fast that version 2.0 of the newest gadget follows 1.0 by weeks, not months or years. I’m not a late adopter of new technology, but on the other hand, I don’t want to be the one purchasing 1.0 at twice the price of 2.0, which will undoubtedly have more features and less problems.

So I waited for multiple powerhouse companies to launch new readers and for three million of my good friends to buy the first two iterations of the Kindle before I jumped in on the third wave.

But then came the next question from my author friend: why the Kindle over the iPad? It is hard to beat Apple for sleek and cool and seamless usability. And the iPad was all over the news and just about to sell its one millionth unit within months of its release when I bought the Kindle.

So here are my reasons for buying the Kindle over the iPad. (Perhaps I’ll take up the question of why I chose it over the Sony Reader and Barnes & Noble Nook at a later time.)

1. I read books and there are approximately seven times more books available through Amazon’s Kindle Store than are available for the iPad. The gap will close but is still significant.

2.  The iPad costs three to four times more than the Kindle. I’m not saying the iPad isn’t worth it. It looks to me like the iPad is the future of laptop computing and style. Apple and others will come up with a next generation device that is a cross between the laptop and the iPad, which will replace what I use now. But I don’t need all the extra computing and bells and whistles that come with it. I’ve already got a MacBookPro. I just need a book reader. It isn’t lost on me that most people I see with the iPad on airplanes aren’t reading books, though to be fair, it looks like the magazine reading experience is much better than it would be with the Kindle. But the iPad users I see are more often watching a movie or playing a game, not reading a book. And as a confession, I get distracted easily enough in life. When I want to read a book, less is absolutely more.

3. The electronic type on the Kindle has now reached the same level of readability (and lack of eyestrain) as the paper and ink book. When I took the Kindle out of the box I assumed there was a protective plastic film with a picture of a tree covering my screen. The saturation level of electronic ink was so rich and brilliant that I was surprised to discover it was the actual screen. (I’m glad I didn’t give in to my impulse to grab a sharp object to lift an end of the “film” so I could remove it from the screen.)

4. The size of the Kindle is just about perfect for carrying in a briefcase or purse – though I wouldn’t know firsthand on the purse – and the iPad is just a little too large as an “extra” device. As mentioned above, I don’t think the Kindle can compete with the iPad on reading larger visual publications (and certainly not playing games or watching movies). And it’s not just due to the smaller size. The Kindle is strictly black on white. So if I was in a different area of publishing – like fashion media or nature photography – I would undoubtedly purchase the iPad.

5.  I also picked the Kindle because I can now use it to carry and read my own documents. This is not really a reason I picked it over the iPad because that is not and never has been a limitation for the Apple device. Let’s just say that Amazon fixed something that they got wrong in earlier editions of the Kindle. Because it is a proprietary device tied to the Amazon Store, it used to be if you wanted to read a non-commercial-book document on the Kindle, you had to figure out how to upload it to the store and buy it from yourself there. I know one of the Big Five publishers bought all their employees the Sony Reader for this very reason – there were no limits on putting your own material on your reading device. The publisher wanted associates to experience an ebook reader and distribute company material on it. That was too tough – and expensive – on the Kindle. Maybe a better of way of making this point is to say that Amazon removed a reason I had previously been resistant to buying their Kindle. I’m going to fly to Orlando later today. I want to review a manuscript I prepared for the meeting. Now all I do is convert it to a pdf and email it to my Kindle email address that they assigned to me when I bought the device. The document will be waiting for me on my Kindle in about a minute.

Those were my reasons for buying a Kindle. They may not work for you.

So who should buy the Kindle? Simple. Book readers. I don’t think it’s going to a good purchase for people who want to read books instead of playing games. If you want to play games or watch movies, the iPad is the much better choice. (Though rumor has it that Amazon will introduce full color Kindle in the not so distant future.)

The early book publishing industry statistics say that book readers buy and read more books once they have an e-reader. Why? There are no space-time limitations of having to drive to a brick and mortar establishment during open hours to pick up something that is on your mind right now. Just read a good review on your flight magazine? You can purchase the book in about 30 seconds once you land at O’Hare or Hartsfield, even if your connection is tight. (It should be noted that buying a book on a Kindle is not as pleasant as sipping a cup of coffee while strolling through rows of bookshelves at a bookstore – and will never replace that.)

As a final comment, Amazon offers a lot of public domain books for free at the Kindle Store. I was about to board a plane last week when suddenly a story from my childhood popped into my mind: Treasure Island by Robert Louis Stevenson. I looked it up and found a free edition, which I immediately “bought.” It was waiting for me when I took my seat. I read the opening chapters and was flooded with a sense of nostalgia – right after I woke up from my nap.

Just like being at home!

NOTE: I revisited the topic of why I bought a simple Kindle e-reader in light of new research on eyestrain in a 2014 blog.