McNally Robinson in receivership is more proof of broken business model

Bookseller McNally Robinson is in the news today for entering bankruptcy protection, with plans to close two of its stores (Toronto and Winnipeg-Polo Park) while maintaining its Winnipeg-Grant Park and Saskatoon stores. Book publishers will likely lose millions in the receivership settlement. Newspaper columnists are citing ebook and internet sales as major factors in MR’s problems.

Overlooked by most analysts is the systemic problem haunting the bookselling sector: retailers pay too much for the product. Retailers in other sectors generally buy at 50% of retail. Yet most booksellers buy at 60% of retail. Hard to be profitable when you leave that much margin on the table. It is a broken business model that was bound to catch up when times got tougher. (Some of the big box stores, Indigo-Chapters and Amazon do pay less than the independent retailers — that explains in part why they can sell at discounts.)

Why do booksellers pay so much? The rationale within the publishing world is because the books are bought by the retailer on a “returnable basis” (i.e. unsold copies can be shipped back to a distributor for an exchange credit or refund). In essence, books are sold to retailers on consignment, even though most titles have a clear ‘shelf-life’ when they can be sold at full-price.

Overall, this practice of selling on consignment and at poor margins is costing the Canadian book industry (publishers and retailers) over $300 MILLION every year in inefficiency. [This is also an environmental nightmare with about half of all the books printed ending up unsold.] By comparison, eBook sales likely haven’t amounted to $3 million this year in Canada. Inefficiency within the industry is 100 times more important than ebooks.

It is so sad that McNally Robinson is closing stores instead of demanding a better and more sane arrangement with publishers. And very sad that Canadian publishers will be stuck with unpaid invoices, when they could have improved their own profitability by ending consignment sales. And sad too for the Canadian taxpayers who will likely be coughing up millions to prop up Canadian publishers (again) when those publishers and retailers really need a slap up the side of the head to fix their basic business practices.

- Bruce Batchelor, publisher
Agio Publishing House, Victoria, BC, Canada

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