Returns could end “in a year or two” predicts head of Barnes & Noble

Jim Milliot, reporting in Publishers Weekly, quotes Barnes & Noble’s CEO Steve Riggio as predicting it could be possible to find a solution “in a year or two” for ending the long-standing returns practice whereby publishers send books to retailers on consignment.

This returnable policy originated at the start of the Great Depression when cautious booksellers stopped ordering new product. Until that point all sales had been on a “firm sale” basis — as was and still is used by almost every other retail sector. In a panic, publishers offered to “guarantee sales” if bookseller would stock their books. Pay us after 3 or 6 months, or return the books was the special offer. Unfortunately that one-time special became the de-facto standard in the US industry and spread to other countries — the book business has been suffering ever since.

Returns add about 15% to the cost of producing and selling books. Thought of another way, that’s billions of dollars not going into the pockets of retailers, publishers and authors.

Who benefits from returns? Printers and paper companies profit from the massive overprinting of books — about 40% of all books printed are wasted. Shipping companies merrily transport books from the printing plant to the publisher’s warehouse, on to a distributor’s warehouse, to a bookstore chain’s central distribution center, then on to stores, back to the DC, back to the distributor, and so on until they end up in a waste paper recycling shipment headed to China. Distributors and wholesalers charge a healthy margin for handling all the bookkeeping, logistics and storage involved in this circular madness. That 15% in savings will come mostly out of their pockets when returns are ended and the pie is re-divided.

What will booksellers do in the new scheme? They won’t capriciously order pyramids of bestsellers “on spec” — instead they will order more responsibly. Books that aren’t soon sold will be marked down — giving customers an incentive to come into all the independent bookshops, seeking bargains. Right now a bookseller pays between 50% and 60% of the retail price. Marking a book down to 75% of list price (“25% off”) means the bookseller still makes 15% to 25% — on excess inventory — while drawing in appreciative customers. Where is the problem with that scenario?

In the Publishers Weekly article, Riggio speculated that “given the current environment, publishers might be more receptive to seriously looking to change the returns model”, which he called “insane” and “expensive”. Riggio’s reference to the current environment includes his own company’s weak first quarter sales, the firesale of competitor Borders, and layoffs at many of the major publishing houses. Add in rising fuel costs and the erosion of customers to eBooks and audio books, and the current environment for printed book sales is downright terrifying. That 15% in savings could be the lifeline to keep many companies afloat during these transitional times.

As the largest US bookstore chain — and the only financially-healthy one — Barnes & Noble has the clout to dictate terms. Riggio doesn’t need to wait for publishers to see the obvious.

Looking at Barnes & Noble’s own financial situation: first quarter sales were $1.16 billion with a net loss of $2.2 million. My message to Steve Riggio: “Wouldn’t that bottom line look happy if you added $150 MILLION every quarter to it? You go, Steve! Make this happen, my friend. Do the right thing. Declare how the new pie will be divided up, set a date [end of 2008] and force the issue.

The result will be a better situation for publishers, authors and retailers (large and small) — and the planet. Don’t expect the printing companies, shippers and distributors to lead this charge.

That’s how I see ch – ch – changes evolving in the publishing industry. Thanks for helping improve our world.
– Bruce Batchelor, Agio Publishing House

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