Booksellers usually divide the year into three seasons: spring, fall and Holiday. But you may not know about a fourth one, and maybe it’s just as well, because you’re going to get good and depressed when we tell you about Returns Season.

Returns Season “comes near the tail-end of the fiscal year, when we can delay the inevitable no longer and have to send back books which we’d been holding on to as long as possible for sentimental reasons; books which ‘should’ sell,” blogs Charlotte Ashley, who we gather is a bookseller.

The shipping of books back to publishers for credit towards  new purchases represents the triumph of market reality over hope. “After all,” writes Ashley, “our job isn’t to snobbishly insist readers should be reading one thing or another, it’s to provide them with a good choice of things they might be interested in. So why, after years of failing to sell some of these books, do we keep ordering them? Optimism, I suppose.”

So? What kinds of books will be consigned to ignominy?

Young Adult Literature Not Featuring the Occult (“good, insightful plain fiction aimed at young adults? Forget it. Not that that stops us from filling the shelves with Glen Huser, Polly Horvath, Alan Cumyn, Tim Wynn-Jones and Paul Yee. We just have to send them all away again at the end of every year.”)

Chinese Literature (“Oh man, China. Its day in the literary limelight has not yet arrived. Gao Xingjian won the Nobel prize in 2000, the first Chinese writer to do so, but I defy you to name offhand a single book of his.”)

Post-Soviet Russian Novels (“I think I’d be safe in saying that post-soviet Russian novels are being completely ignored by Western media, critics and readers.”)

NYRB [New York Review of Books] Classics (“We do tend to order absolutely everything they publish because their books are so damn good, so when it comes time to return and we’re sending back most of them, it looks particularly bad.”)

If it’s any consolation to retailers, they should remember that those books are going back to publishers, who will now have to refund money they had hoped they would be able to keep. Who can forget publisher Alfred A. Knopf’s rueful comment about returns: “Gone today, here tomorrow.”

Misery loves company. So, to honor the fallen during Returns Season, let your local booksellers know your heart goes out to them.

The Sadness of Books We Can’t Sell

Richard Curtis

E-book sales jumped 266% in 2010, from $165.8 million in 2009 to $441.3 million. December hit $49.5 million compared to $19.1 million the year before, according to the Association of American Publishers. If you add professional and other non-trade e-book sales, we are probably on the cusp of a billion dollar industry. Remember, only fourteen trade publishers report e-sales information to AAP.

Meanwhile, hardcover sales took a 5.1% hit, trade paper fell by 2% and mass market by 6.3%. Even children’s books, a traditional fortress, declined a scary 9.5% in hardcover 5.7% in paper.

And that’s before Borders.

Gratified as we are about record-breaking e-book sales, it’s hard to rejoice when the prospects for print are so grim. In this rich and complex ecosystem called publishing, a tree that grows tall kills the saplings that struggle under its canopy. So – a moment of silence for Borders, the employees turned out of their jobs, the books that will die and the authors who will suffer.

Richard Curtis

Are you a patron of a Borders bookstore? Then the list of closings will bring home to you what a blow to our culture the bankruptcy of the chain is.

Look upon this list of hundreds of shuttered shops and millions of square feet of store space and despair.

Richard Curtis

A trade publishing industry staggered by the paradigm shift from tangible to virtual suffered a major body blow today as America’s second largest bookstore chain sought protection under Federal bankruptcy laws.

According to Publishers Weekly, on the strength of a $505 million pledge by a corporate refinancer the chain elected reorganization (Chapter 11) rather than liquidation (Chapter 7), hoping to shed highly devalued real estate holdings and other liabilities including underperforming stores among the 674 currently on its roster. But Chapter 11 isn’t a slam dunk: As Publishers Weekly explained, “It is believed an agreement by publishers to resume shipping books to Borders will be necessary to obtain debtor-in possession financing that will allow it to reorganize under Chapter 11.”  Hopefully Borders achieved this goal.

But the $230 million it owes publishers for the stock of books it recently acquired, and the fate of the books themselves, will not be sorted out at a pace that will do publishers or authors any good. Federal bankruptcy laws favor secured creditors like bank lenders, while unsecured publishers have little leverage even though books are what bookstores are all about. Authors of course are at the end of the line. After all, all they did was write the books.

Despite job cuts, store closings and budget slashes the chain has been sliding to oblivion for years and has been the subject of bankruptcy speculation. Even during the 2010 Christmas holiday, it suffered a 15% drop in sales over the prior year’s revenues. The gathering storm clouds of bankruptcy only added to Borders’ woes as publishers withheld vitally needed shipments of new releases. Unlike its principal rival Barnes & Noble, which has the Nook to help B&N’s transition to an e-book business model, Borders’ alliance with Kobo was too little too late to bootstrap itself out of woe.

The handful of major publishers that have survived the upheavals of the last decade probably have adequate resources to get through this latest one too, but marginal presses that have barely hung on may be sucked under for good. Big or small, no one will escape unharmed. Publishers Lunch‘s Michael Cader lists the publisher creditors in a veritable bloodbath of debt:

Penguin $41.1 million
Hachette Book Group $36.9 million
Simon & Schuster $33.75 million
Random House $33.5 million
HarperCollins $25.8 million
Macmillan $11.4 million
Wiley $11.2 million
Perseus $7.8 million
F+W Media $4.6 million
Houghton Mifflin Harcourt $4.4 million
Workman $4 million
McGraw-Hill $3.1 million
Pearson Education $2.8 million
NBN $2 million
Norton $2 million
Zondervan $1.9 million
Hay House $1.7 million
Elsevier Science $1.6 million
Publications Intl. $1.1 million

It’s going to be bad.

Richard Curtis

“I read a book once.”

That was what my father said to me many years ago when I told him I had taken a job in the publishing business.  His wit was so dry he was affectionately known among his friends as “The Great Stone Face,” and to this day I don’t know whether or not he was pulling my leg.  On the other hand, I don’t remember ever seeing him with a book in his hands.

But that’s all right. In his line of business he didn’t really need books. You would think, though, that if he ran a bookshop it would have been something of a disadvantage. It isn’t one for Sam Husain, who runs one in London. In fact he’s the chief executive of the city’s most famous one, Foyles. “I do not think I have ever really read a book from cover to cover,” he admitted to Deirdre Hipwell of The Independent. “But Husain, who has headed the store for more than three and a half years, argues that the measure of success of his job does not depend on a love of literature,” writes Hipwell.

Apparently so. He more than quintupled Foyles’ profits in the one year from June ’09 to June of this year, £80,625 to £434,588 in the year to 30 June.

What’s his secret? The former accountant analyzed sales per square foot of store space and got rid of stock that didn’t cover the cost of £150 to £200 per sq ft. It may come as a surprise that that’s how booksellers measure success, but when you can make a big multiple of your cost per square feet by populating your shelves with flat screen televisions, alligator handbags or pantyhose, you will appreciate why bookstores are an endangered species.

Obviously Sam Husain is an avid reader, but it’s not books that he reads but store traffic patterns, and that’s good news for Foyle’s. Read The bookseller who doesn’t read novels

Richard Curtis

Emerging from Grand Central Station on my way to a business appointment I realized I was a little early, so I decided to get my shoes shined.  A burly, jovial man gestured for me to climb into his thronelike chair, and as I placed my feet on the foot rests he reached into a cardboard carton and handed me a paperback book.  I examined it.  It was a Mira sampler carrying the opening chapters of the first three novels in a series called The Reincarnationist by M. J. Rose.”Where did you get this?”

“Some people were handing them out here on 42nd Street,” he explained.  “So I said to them, ‘Why don’t you give me a bunch and I’ll give them to my customers.  That will be good for your business and mine at the same time.’”

Like bars and airplanes, shoe shine stands are places where you can exchange life stories with strangers in the space of minutes. My man’s name was Kevin Tucker but his street name is -  well – “Street.” He’s been shining shoes for fifteen years. A lot of his Grand Central colleagues are gone – business down because too many people are wearing sneakers.

After browsing the first few pages of the sampler I looked up and said “I know M. J. Rose.” I explained that she was a writer I had met on a number of occasions and one of the first authors to publish an original novel in e-book format.  As he rubbed cordovan wax polish into my oxfords we talked about books.  A lot of his customers read Kindles while he works on their shoes.

I asked him what the reaction has been to the samplers he handed out. He said some customers took extra copies to hand out at their offices. Some of them came back for more.

He buffed my shoes to a high gloss. It had been a while since I’d had my shoes shined and the price was higher than I remembered but I gave Kevin a generous tip because he was doing something to promote books.  He thanked me and recited his motto: “Let me put a glow on your toe before you go.”  I said “I’ll go you one better: ‘Put a twinkle in your toes with Kevin Tucker and M. J. Rose.’” I took a picture of him with the tool of his trade in one hand and the tool of M. J’s in the other.

But there’s a kicker.  Out of curiosity I googled “Kevin Tucker Shoe Shine” when I returned to my office. And this is what I found:

Monday, April 27, 2009
The best shoe shine ever
By TigerHawk at 4/27/2009 12:42:00 PM

“I admire a person who can do even a mundane job with skill, humor, and aplomb. Well, I just got the best shoe shine I have ever had from Kevin Tucker, who works a stand just outside Grand Central Station on 42nd Street. Now, Kevin claims he gives the best shine in New York and will devote the entire shine to an amusing monologue about the secrets of a great shine, the importance of a great shine to attracting women and success in business, and the influence of the Navy on his shoe-shining skills. He says that he views every shine for a new customer as “an audition” for all their business. Sadly, I do not pass by Grand Central too often, but Mr. Tucker did get a free TigerHawk endorsement out of it. If you go that way, take the time — ‘perfection cannot be rushed’ — and get yourself a great shine.”

So this one’s for you, Street. And by the way, thank you. My business meeting was a success.  With that dazzling glow on my toe, how could it not be?

Richard Curtis

This is speculation but in a survey conducted by The Street.com more than 37% agreed that Amazon represents the most logical choice” to take over the sinking Barnes & Noble book chain.

“Amazon has been a thorn in Barnes & Noble’s proverbial side since its inception in 1995, when it was solely a purveyor of books,” writes Jeanine Poggi. “B&N has consistently lost market share to its non-bricks-and-mortar rival, which has bested it on lower prices for hardcovers.

“Now the battle has gone purely digital. While Amazon took the lead, launching its Kindle e-reader back in 2007, Barnes & Noble is playing catch up, rolling out an e-bookstore last summer and introducing its Nook e-reader in October 2009.”

We weren’t among the polled but for whatever it’s worth we think it’s an intriguing idea. With all due respect to its recently acquired e-tailer Fictionwise, Barnes & Noble desperately needs a digital component, and Amazon would love to have a brick and mortar presence. What would happen to the Nook?  Well, what happened to the Auk?

For background read Barnes & Noble Succumbs to Digital Disintermediation.

RC

The announcement that Barnes & Noble has been put up for sale confirms something we have been saying for years: that on-demand bookselling is destined to replace the traditional brick and mortar model.To put the B&N news in perspective we thought it might be timely to reprint a two-part article we posted last spring dealing with the disintermediation of the old system and its replacement by one based on an on-demand, direct-to-consumer approach. This is part 2.

RC

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In our previous posting we pointed out that today’s “speculative” publishing model, based on the returnability of unsold books, is no longer viable. It has served us well for the better part of a century. But the digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

The publishing industry has had decades to deal with its addiction to returns. I have been beating this drum in vain for decades including an editorial in Publishers Weekly in 1992 (see Behind Publishing’s Wednesday of the Long Knives). Now it is too late. The old way can no longer be sustained. The good news, however, is that it no longer has to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one.

Publishing oracle Mike Shatzkin would seem to support this vision of things to come. In a recent article he projected “about half of new book sales will be made through online purchases if we count the print book sales made through online retailers (mostly Amazon). Online print sales can be served through inventory generated on demand. So, if these estimates are right, we are less than three years away from a publisher (or author) being able to reach half the market for a book without inventory risk!”

“Every publisher,” he adds, “should be preparing for the disruptive effects” of this paradigm shift. Among his recommendations are:

• Publishers are going to really have to rethink the development process for their ebooks.
• It will be eminently sensible to launch books with a no-inventory strategy and move to press runs with returns allowable when reviews or sales have proven that it makes sense…The idea of printing and distributing speculatively will make less and less sense as the potential market to be reached by that tactic diminishes as a share of the whole.
• By the end of 2012, we’re saying half of all the sales potential can also be reached with the product without a local nexus: no requirement of local inventory or any shipping or revenue collection facility beyond your digital distribution and print-on-demand partner.
• Because books or ebooks will be purchased by half of their customers electronically, the potential exists to know exactly who those are and to establish interaction with them…This opportunity presents a new battleground for competitive advantage that publishers will have to pursue both for marketing and for author relations.
• Publishers will have to start devoting the bandwidth and resources to direct sales that they devote to intermediary sales today. (See Direct Sales: Publishing’s Last Stand.)
• There’s an inevitable concurrent downward spiral of brick-and-mortar retail inherent in this forecast that sales are moving online. The nearly-limitless online selection has been an increasingly powerful magnet since the day Amazon opened and in the new paradigm there will be a growing body of talked-about content not visible on store shelves.

“On-demand printing is very much in demand in 2009,” says David Taylor, president of Lightning Source, the biggest POD supplier in the business. “The business model, quality and cost structure have matured considerably in recent years. With POD, publishers can better match supply to demand, thus eliminating the risks and costs associated with the book market….A globally distributed print model, where publishers use the same file to print at multiple locations that are closest to the origins of the orders, has given the book industry a platform to publish smarter. POD is no longer an optional novelty; it is an integral and essential part of the future of publishing.”

Richard Curtis

The announcement that Barnes & Noble has been put up for sale confirms something we have been saying for years: that on-demand bookselling is destined to replace the traditional brick and mortar model.To put the B&N news in perspective we thought it might be timely to reprint a two-part article we posted last spring dealing with the disintermediation of the old system and its replacement by one based on an on-demand, direct-to-consumer approach.

This is Part 1.

RC

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By now it must be clear to all but a handful of diehards that the business model based on returnability of books for credit, a practice instituted by the trade book industry some 75 years ago, is no longer viable. In fact it has proven to be a bargain with the Devil.

The original principle on which it was instituted – to encourage bookshops to invest in otherwise risky literary forms like first novels and poetry – was an admirable one, and publishers can look back with pride that their good will made possible the launch of countless great works and authors. But soaring returns have rendered this practice utterly dysfunctional. Return rates approaching or even exceeding 50% have slashed profit margins of trade book publishers to single digits, no digits or negative digits.

Though the industry managed to keep a lid on returns until the latter part of the 20th century, in the post-World War II era the system deteriorated as return rates escalated, triggering cash shortages. The consequences were catastrophic: countless underfinanced houses were driven into the arms of larger ones. These big fish in turn succumbed to even bigger fish until we ended up where we are today – with a handful of bloated leviathans. But even they have discovered that immense scale offers no immunity from the same toxic business model that forced smaller houses to give up the ghost. Huge publishers may have more blood to hemorrhage than small ones but eventually they succumb too.

Yet, despite decades of proof that returnability is a sucker’s game, the publishing industry is incapable of curing its addiction to the practice.

The time has come for publishers to accept the fact, now glaringly apparent to all but those in total denial, that no business enterprise can afford to sell just half or even two-thirds of what it manufactures – and to foot the bill for the return and disposal of the unsold other half.

Some pundits ascribe the woes of our business to printed books themselves, saying that the medium is no longer appropriate for our times. In truth nothing is wrong with printed books. Everything is wrong with the way they are distributed.

And the way they are distributed is appallingly profligate, taking a dreadful toll on the environment in terms of paper waste and carbon footprints. The tortuous methods by which bookstores account to publishers and publishers to authors are imbecilic and arguably fraudulent. An alien visitor tracking the journey of a printed book today from editorial office to printer to warehouse to bookstore, back to warehouse and then to remainder jobbers or pulpers would have genuine reason to wonder whether there is intelligent life on this planet.

For over a decade we have had before us a technique for publishing books called print on demand. Those who witnessed its introduction at a book expo in 1998 declared the process revolutionary. Though it’s taken a decade or so to refine the technology, they were absolutely correct. The delivery system has matured and begun to make serious inroads on the traditional one. Though representing only 2.5% of all book production in 2009, it is expected to grow at 16% per annum according to David Taylor, president of Lightning Source, the nation’s biggest POD firm. The first generation of Espresso POD machines, now being installed in libraries and bookstores, promises to expand the technology’s popularity even further. As anyone who has seen a demonstration of the Espresso can testify, the process itself is a technological miracle and will most certainly be miniaturized. It is easy to imagine a day when POD kiosks – in bookstore or non-bookstore venues – will issue books from an infinite inventory of digitally stored titles.

But it is not just the technology that is so exciting to contemplate. It’s the business principle underlying the process that promises the invigoration and perhaps even the salvation of printed books.

The Speculative Model

In today’s traditional model, which might be termed “speculative,” publishers relying on information gathered from booksellers make educated guesses about how many copies to print and distribute. The sale of a book occurs only after it has been published, placing the burden of financing its publication squarely on the shoulders of the publisher. To the degree that the publisher’s forecasts are incorrect, unsold copies will be returned. Settlement of retailer accounts are delayed or adjusted while returns are processed, delaying desperately needed cash flow to publishers. Publishers in turn must delay settlement of royalties to authors for months and even years until returns calculations are finalized.

In short, the entire system is founded on a negative principle: it’s not how many copies of a book are sold, but rather how many are not returned. Everybody in the chain suffers, from bookseller to publisher to author. Even readers suffer because the cost of all this inefficiency is passed along to them in the form of higher book prices.

The Prepaid Model

Now consider the business model created by print on demand, which we’ll call “Prepaid”. When a book is ready for sale it is displayed on the website of a publisher, author, retailer, or all three. Customers may browse or sample it online. When they decide to buy it they purchase it on the website, charging it to their credit card. Until that moment the physical book does not exist: it is simply a digital file on the server of a printing press. Unless the book shipped to the customer is defective, it is seldom returned. By adopting the print on demand model, the returns problem disappears. Settlement of bills is prompt. Whereas traditional publisher issue royalty statements semi-annually, print on demand makes quarterly or even monthly settlements possible – without reserves against returns!

Do the math: 30, 40 or 50% returns for the speculative model vs. 0% for the prepaid. Case closed. Or so you would think. Yet traditional publishers cling to the topsy-turvy model of paying a lot of money upfront for books they believe will be hits, then making educated guesses on the size of the audience, then overprinting, then recovering unsold stock and remaindering it or sending it to a pulp mill.

These practices can no longer be sustained, and the good news is that they don’t have to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one like a creature that has outgrown its carapace.

In the second installment of this posting we’ll hear what a well known publishing industry oracle thinks the industry must do to prepare for paradigm shift.

Richard Curtis

As we recently wrote, today’s publishing model based on the returnability of unsold books is no longer viable. (See A World Without Inventory Part 1 and Part 2). The digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

You would therefore think that we ardently advocate doing completely away with the old system. In fact there are many compelling reasons why we would hate to see that happen.

Publishing pundit Mike Shatzkin has put his finger on them. In his blog Shatzkin offers several cogent arguments, and we urge you to read them. In essence, 1) overprinting can actually be profitable for publishers and authors even with high returns; and 2) without return privileges, publishers might simply decline to publish many books that they now accept.

Shatzkin gets no argument from us.  But it’s worth reminding readers that in the waning years of the 20th century the returnability privilege was manipulated by chain store operators who discovered that they could overorder without penalty, use returns as a form of currency to order more books, and delay settlements to publishers.  The havoc created by this abuse has been incalculable, driving cash-starved publishers into mergers with or acquisition by bigger publishers. The roll call of wonderful houses that succumbed is sad, and it is arguable that the only thing that put the brakes on this predatory behavior was the advent of a powerful rival – Amazon.com.

So yes, we’d love to see a reasonable, fair and reliable retailing model based on return privileges.  But e-books and print on demand now have an increasing grip on book retailing and, in Thomas Wolfe’s immortal phrase, you can’t go home again.

Richard Curtis